Thatcher's legacy
Thatcher did not save Britain from economic decline. In many respects her economic performance was poor, even with the irresponsible fire-sale of British assets. It is time her legacy reflected this.
Beneath the ‘sycophancy/street party’ binary of reaction to Thatcher’s death are questions of alternatives and efficacy. When the MP of Finchley took power in ’79, with Britain in a dire economic situation, was there really “no alternative”? The question presupposes that Thatcher’s slash ‘n burn monetarism at leastworked.
As the badge pictured above states, “If Maggie is the answer it must be a very silly question!” – which it was. Francis Wheen’s Strange Days Indeed portrays the sheer ridiculousness of the late 70s with considerable wit and atmospheric detail. But Thatcher’s ‘success’ often hides just how silly an answer it really was.
Despite sending unemployment ballooning to 3m and decimating whole communities Thatcher did, from a certain perspective, eventually pull the economy back around even if never matching the achievements of the post-war model in terms of growth. Overseeing two recessions, average growth under Thatcher was around 2%. Yet the means by which she managed those apparently successful economic achievements require some examination. As Anthony Barnett argues, North Sea oil was critical:
“[It] came on stream bringing in an estimated £70 billion in revenues, it turned the UK into an OPEC country, an oil-exporter, and it overturned a chronic balance of payments problem rooted in the post-war period of clinging to imperial over-stretch.”
What happened to the proceeds from this unexpected and unearned windfall? Easy come, easy go – it was spent. Contrast this to both the Gulf states and the Nordic countries, who invested the proceeds of their natural resources to provide ongoing national income, and one of the defining features of Thatcherism is revealed. On top of the oil revenue binge, many vast state-owned industries were also sold off at knock-down prices. Highlighting her economic extremism, these included natural monopolies like gas, water and electricity; the toll booth economy - which would reach its zenith with Major's privatisation of the trains - was core Thatcherism. As Tom Mills notes, “These privatisations proved to be hugely profitable for the City of London and represented a massive transfer of wealth from public to private hands”. This wasn’t so much flogging the family silver as flogging the family home and renting it back – a process continued under Blair. Under the sweeping liberalisation she instigated, Britain now owns very little and we instead pay firms – often based overseas – for the privilege of using our own airports and water supplies, to name but two examples.
Another of Thatcher’s magic potions was 'home equity withdrawal' or remortgaging - drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering104% of GDP growth. To a significant extent, Thatcher grew the economy by unleashing easy credit, asset inflation (including house prices) and equity draw downs – ‘wealth creation’ indeed.
As an economic programme this is evidently unsustainable – oil runs out, assets run out (add the NHS to the list) and relying on rising house prices is, as the world has so painfully learnt, not exactly a model of financial prudence. The critical point is that without these asset sales and home equity it is questionable whether the economy would have been growing at all.
The story of Blair's New Labour is eerily familiar. .. read more
