I'm always amazed how fast news organisations are able to get a complete programme out. One minute I hear Maggie Thatcher had died, the next minute I'm watching an hour long biography on her. She brings back childhood memories of the Thatcher/Reagan era of supply-side economics and fervent anti-communism. I don't think one can speak her name without invoking strong opinions for or against her. But what of her legacy? Politically, she would have been a one-termer if Argentina hadn't invaded the Falklands in 1982...she was headed for defeat at the general elections, and the Argentines gave her a time-honored way to boost her poll ratings...start a war. It didn't matter that the war showed that the British military was pretty bad at projecting power...they found out their ships couldn't defend themselves against enemy aircraft, and their bombers couldn't accurately hit their targets. After suffering a thousand casualties (the Royal Marines were about the only service which really did their job right), the UK now have had the privilege of subsidising the 3000 residents of the Falklands every year for the past three decades in order to maintain its sovereignty. The UK may have won the war, but one wonders whether it was a smart strategic decision for the long run.
In any case, Thatcher romped to a landslide in the elections and then decided to challenge the coal miners' power. Frankly, Arthur Scargill and the coal miners had it coming. Coal mining is a terrible working environment so you have to feel sympathy for them, but the miners had been holding the country hostage and caused the downfall of two prime ministers. In this game, Thatcher was very much in her element. The government forced the strike AFTER winter had passed, so most of the strike would occur when people wouldn't care as much...one would have to say that Scargill was an idiot to fall for this trap. Many of the mines were unprofitable and the government forced their closure. This economic premise I'm actually rather doubtful of. According to classical economics, it is more efficient to close the mines, source coal from other countries, and get the existing workers into other employment. But economists don't understand how these things work in practice. Tied to one trade for all their lives, those workers were never going to be able to find other employment without help. The government effectively destroyed the livelihoods of a generation of workers and a hosts of towns in blue collar England without providing some way for the workers to get back on their feet.
Instead, the UK had to fund their welfare costs and now also bear the cost of importing coal from other countries, not to mention the coal industry's decline significantly cut a competitive advantage of many industries in that region, causing a massive wipeout of much of British industry (though it wasn't that efficient or good in any case). Industries need a nexus of skilled labour, resources, entrepreneurs, and capital. Thatcher destroyed that, and the UK never recovered. However, from a political point of view, it was definitely the right thing to do. Government and business cannot always cater to the demands of labour; the 1970s lost the sense of balance between labour, business and government, and a cataclysmic shock was needed. While GDP growth was still reasonable, high inflation was eroding the UK's competitiveness.
So while many people have substantially benefitted from Thatcher's changes, one has to wonder if the UK is better off on the whole. Maggie Thatcher once stated that her greatest legacy was Tony Blair. In the context, she meant that she was able to change economic and political thinking dramatically to the right, so that Labour under Blair had to move its policies (both economically and militarily) substantially to the right in order to be electable. But I think the Blair comment is also appropriate in that the legacy is flawed in many ways (e.g. Iraq War, the global financial crisis).
In any case, Thatcher romped to a landslide in the elections and then decided to challenge the coal miners' power. Frankly, Arthur Scargill and the coal miners had it coming. Coal mining is a terrible working environment so you have to feel sympathy for them, but the miners had been holding the country hostage and caused the downfall of two prime ministers. In this game, Thatcher was very much in her element. The government forced the strike AFTER winter had passed, so most of the strike would occur when people wouldn't care as much...one would have to say that Scargill was an idiot to fall for this trap. Many of the mines were unprofitable and the government forced their closure. This economic premise I'm actually rather doubtful of. According to classical economics, it is more efficient to close the mines, source coal from other countries, and get the existing workers into other employment. But economists don't understand how these things work in practice. Tied to one trade for all their lives, those workers were never going to be able to find other employment without help. The government effectively destroyed the livelihoods of a generation of workers and a hosts of towns in blue collar England without providing some way for the workers to get back on their feet.
Instead, the UK had to fund their welfare costs and now also bear the cost of importing coal from other countries, not to mention the coal industry's decline significantly cut a competitive advantage of many industries in that region, causing a massive wipeout of much of British industry (though it wasn't that efficient or good in any case). Industries need a nexus of skilled labour, resources, entrepreneurs, and capital. Thatcher destroyed that, and the UK never recovered. However, from a political point of view, it was definitely the right thing to do. Government and business cannot always cater to the demands of labour; the 1970s lost the sense of balance between labour, business and government, and a cataclysmic shock was needed. While GDP growth was still reasonable, high inflation was eroding the UK's competitiveness.
This drove unemployment to new highs during the 1980 and 1982 double recessions.
As you can see, both the inflation rate and the unemployment rate came down significantly during Thatcher's government. But one has to wonder how much Thatcher had to do with this economic improvement. The biggest change in the macroeconomic environment was the dramatic fall in commodity prices in the early 1980s and the use of high interest rates to squeeze out inflation. This would likely have occurred regardless of the changes that Thatcher made (one could make a reasonable argument that Paul Volcker at the US Federal Reserve did more to help the economy than Thatcher).
Thatcher did cut UK government spending by privatising or deregulating several industries. This cut government debt levels to post-war lows, and the UK enjoyed a prolonged growth period between 1982 and 2007 (other than the early 1990s recession).
But again, one has to wonder whether Thatcher's changes were for the better for the UK. While the UK became a freer economy better tailored to the needs of consumers, without the income generated by strong industries, the economy resorted to private debt spending to generate economic growth (a liberalised financial sector also made it easier for people to borrow). As you can see, private debt more than tripled as a percentage of GDP from the latter part of Thatcher's government.
Also, without a diversified economy of several industries, income inequality dramatically increased.
So while many people have substantially benefitted from Thatcher's changes, one has to wonder if the UK is better off on the whole. Maggie Thatcher once stated that her greatest legacy was Tony Blair. In the context, she meant that she was able to change economic and political thinking dramatically to the right, so that Labour under Blair had to move its policies (both economically and militarily) substantially to the right in order to be electable. But I think the Blair comment is also appropriate in that the legacy is flawed in many ways (e.g. Iraq War, the global financial crisis).
No comments:
Post a Comment