Collective amnesia over the Thatcherite revolution

The ugly and callous ‘celebrations’ held by the members of the radical loony left that followed the news of the passing of Baroness Thatcher have again polarized the public opinion over her legacy.  The most vocal critics have included some “has-been” politicians with well-known limited intellectual abilities, as well as a “motley crue” of artists, writers, rock stars, and other luvvies, some of whom were not even a twinkle in their father’s eye, or hardly out of their nappies during the Thatcher years.

Although these groups represent an insignificant minority, they make up for their limited numbers by the noise they generate, and they do have a knack in attracting media attention.  Noise tends to have an inverse relationship with intelligence and facts. This din of venom,  factual inaccuracies, and suggestions that Thatcherite policies were somehow responsible for today’s economic troubles, unfortunately drown out the voice of reason, sanity, and historical truths.

Allister Heath, Editor of CityAM, wrote an excellent op-ed in today’s Telegraph to set the record straight.  Allister argues that we are in danger of developing a collective amnesia over the Thatcherite achievements, and contrary to what the loony left is propagating, the Thatcherite revolution saved the country from absolute ruin and set a course for economic recovery and prosperity.

The following is Allister’s article in full:

While many of her reforms fortunately live on, she can be held responsible neither for the state of today’s manufacturing sector, nor for the financial crisis. To claim otherwise is to misunderstand history, her own philosophy and the nature of our present problems.

She inherited a basket case of an economy, crippled by obsolete state-owned firms, a legacy of decades of poor policies. Management was insular and demoralised, the workforce used as pawns by militant union leaders who would call strikes at every opportunity, customers treated like dirt and production techniques stuck in the past.

Productivity was appalling, overmanning the norm and the quality of UK-made goods notoriously poor. Britain was sclerotic, anti-entrepreneurial and anti-innovation, often specialising in industries with no long-term future.

Yet it is a little-known fact that manufacturing output actually went up during her time in office, despite the necessary liquidation of so many unviable plants. Even the uncomfortably high pound, which shot up as a result of North Sea oil, wasn’t enough to throttle the recovery.

British factories boosted their output by 7.5pc between the second quarter of 1979 and the third quarter of 1990, when she left Downing Street, according to the Office for National Statistics.

Output had grown another 4.9pc by the start of 1997, when the Tories were booted out. Given the bitterness of the 1980s’ recession, caused by the desperate need to wring out extreme levels of inflation from the system by using high interest rates, it shows just how effective her supply-side reforms turned out to be.

The real decline happened under Labour: in the second quarter of 2010, when Gordon Brown left office, the output of UK factories was fractionally lower than it was when Thatcher took her last, tearful ride in that ministerial Jaguar. It was significantly lower than when John Major left. Total industrial production – including coal – rose even more substantially under Thatcher than just manufacturing, thanks to North Sea oil. Far more miners lost their jobs, and far more mines were shut, in the 1960s and 1970s than during Thatcher’s time in office. Britain is suffering from a bout of collective amnesia.

Today’s ultra-efficient car industry, and its record exports, is a direct product of the Thatcherite revolution. Any government would eventually have had to tackle unproductive or loss-making industries, and manufacturing as a share of GDP has collapsed in all wealthy economies. Thatcher simply got the blame; it would have been more damaging to keep zombie firms alive, and in the absence of the Thatcherite medicine, we would have ended up with a far smaller economy and even less of a factory base. It is preposterous to claim that she actually enjoyed shutting factories or mines, or that she hated industry. Of course she didn’t; but there was never any genuine choice between preserving unviable mines or low-skilled manufacturing jobs, or growing the financial and professional services sector of the economy. The former would have vanished anyway; the latter would have ended up being provided abroad.

It is equally wrong to claim that her reforms were the root cause of the present financial crisis. Most of her changes still make sense today, and are incorrectly blamed for problems that have nothing to do with her, but were caused by a pre-Thatcherite philosophy that took hold many years after she left office. She was right to slash income tax, to repeal capital controls and to shake up the City of London with Big Bang. Most of her reforms to retail banking, including allowing banks and building societies to compete with one another, were spot-on.

There were some bad changes, however, though not the ones usually cited: still-high inflation made the ultra-safe saving banks unviable, especially after the EU forced the UK to introduce retail deposit insurance in 1979; there was a counter-productive move away from individual responsibility in retail financial services; and the UK signed up to the Basel Accords in 1990, a flawed international system to regulate banks that triggered all sorts of dangerous unintended behaviour and ensured financial institutions retained far too little reserves. In all cases, however, these were changes that didn’t really follow her basic philosophy.

There is no way that Thatcher should have preserved in aspic the antiquated financial services industry that prevailed until the mid-1980s. The City’s old partnerships didn’t stand a chance; they would have been wiped away within a few years by meritocratic, hard-working global competitors with vast balance sheets. Thanks to Big Bang, the new players ended up being based in London, rather than elsewhere, contributing greatly to the Exchequer.

The UK’s private sector actually suffered from too little debt in the 1970s and 1980s: it was too hard to obtain a mortgage. A revolution was desperately needed and Thatcher duly delivered, with Big Bang, combined with mass, popular privatisations helping to fuel an extraordinary performance by the stock markets. Of course, the pendulum eventually swung too far the other way, and we ended up with a demented credit bubble, but that was caused primarily by the application to financial services, many years after she left office, of the very same pernicious philosophy that she had rejected for the rest of the economy.

Thatcherism was about choice, individual responsibility and independence from the state, not the politicised, artificially pump-primed markets we ended up with by the mid-2000s. She hated bail-outs, government subsidies and nationalisations; and would have looked on in horror at the gradual socialisation of losses and privatisation of profit in the financial services industry in the 15 years running up to the crisis.

Starting with the rescue of the LTCM fund in 1998 in New York, regulators decided that no large financial institution could ever fail. Alan Greenspan saw himself as an economist-king, manipulating interest rates to bolster financial markets and ensure perpetual growth, and triggering a giant bubble that burst twice. This was corporatism, not genuine capitalism.

Under the new order, including Gordon Brown’s late, unlamented Financial Services Authority, banks were disciplined neither by the free market – the authorities were there as a backstop, so there was no chance of going bust – nor by regulators, who allowed risk to build up unchecked. Greed was no longer balanced out by fear; moral hazard had replaced prudence. Thatcher, the grocer’s daughter and keen student of F.A Hayek, would have despaired.

A genuinely Thatcherite government in the 2000s is unlikely to have tolerated the explosion in the money supply – and house price madness – that Brown allowed, not least because Lord Lawson made a similar mistake in the late 1980s when he was Chancellor, triggering an earlier, disastrous house price bubble and bust. The parallels between the two episodes are striking but bizarrely uncommented upon.

So it is silly to blame Thatcher for today’s problems. If only one of her disciples had been in power in the 2000s, we wouldn’t be in anything like the mess we are in today.

 Source: The Daily Telegraph, April 10, 2013

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One thought on “Collective amnesia over the Thatcherite revolution

  1. minglingmike

    Thatcher did her utmost to reduce debt, but she didn’t understand how the creation of debt and money are linked (balance sheet extension). That’s a shame. She could have achieved a lot more, more sustainably, and we’d not be in this fix today. Positive Money!

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