Myths versus facts about Thatcher

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The mythology is that Thatcher came, saw, and conquered. Her enemies credit her with destroying the public sector by privatizations. Her friends credit her with the same, but also say she championed frugal spending and was fierce when it came to British independence. She supposedly single-handed turned England around from the brink of disaster and the Winter of Discontent. The reality? Well, the reality is somewhat different….

In the year Margaret Thatcher became PM, government revenue was around 34% of GDP. When the conservatives finally left office at the end of the 1990s it was a bit higher at 36% and today it is… again, about 36%. Government spending at the peak of the recession of the early 80s was 47% of GDP and  …. so it was again in 2009 at the peak of the current recession.

Real GDP growth per person from the first quarter in 1970 to the first in 1980 was around 25%. From the first quarter in 1980 to 1990 it was around 32% (and the next decade 26%). Not so different from Germany.

In terms of major events that politicians can truly influence that came up in her time, the first one that comes to mind is the housing bubble that the UK government allowed to build up and that burst at the end of the 1980s, leaving households in negative equity and devastating the country as much as any Winter ever did. The second one that comes to mind is the Single European Act of 1986, proposed by Lord Cockfield (British) and helped through parliament by Thatcher’s massive conservative majority, giving European laws reached by qualified majority precedence over those of the UK. This greatly expanded the powers of the EU and diminished those of Britain. It was one of the biggest reductions in UK’s parliamentary powers in its history. No wonder Thatcher tried to disown it later when ex-post rationalizing her reign to fit her image, essentially by pretending to have been too stupid to see what she was pushing through parliament. A weird defense from an ‘Iron Lady’!

And if you believe her favourite minister’s autobiography (John Major, who went on himself to be PM for 7 years), then Thatcher was pushed by her cabinet to declare war on the Argentineans, changed her mind frequently on important issues, and had gone control-freak to the point of paranoia by the time of her demise.

So the overall legacy of Margaret Thatcher has been to make no basic difference to the spending or revenue of the state, to have bankrupted many small house owners by having too low interest rates for too long, and to have signed over a lot of powers to Europe. So she neither destroyed the public sector, nor was she truly frugal, nor was she immovable, nor did she protect British powers.

Summing up her time, she resided over an average economic period, made serious mistakes, and essentially went with the flow of her party and the times. A normal reign. What was truly unusual about her was her style: people were and are passionately for her or against her.

So the reality simply does not measure up to either the picture that her enemies paint nor that of her supporters. The consumers of Thatcherism are the consumers of exaggerations.

But what about her facing down of the unions, I hear you ask? The halving of union membership, the demise of Arthur Scargill and the return to mass private share ownership? Was that not a real change in the destiny of the UK?

I am glad you ask about that one. Yes, the unions lost a lot of influence during Thatcher’s time. But what filled the void of these public sector and manufacturing-based unions? The small entrepreneurs she so admired and that were part of her own family history? Fat chance! In effect, what replaced the manufacturing unions were the financial unions: with the demise of the role and power of industry came the rise of London as a financial capital, fueled by foreign money and foreign workers, making manufacturing uncompetitive and greatly increasing the power and influence of the financial executives.

So yes, sandwiches at number 10 by hairy smelly men with strong regional accents were no more after Thatcher. They have been replaced by well-coifed corporate men smelling of roses, with impeccable French and German English accents, coming for caviar on toast. To paraphrase the Italians: everything had to change so that nothing would change!

6 Responses to "Myths versus facts about Thatcher"
  1. Public debt came down quite a bit under Thatcher. I’m also not sure about your implied counterfactual. For example, my (unresearched) impression is that the Thatcher period was one of substantial change to the structure of the UK economy and that she helped make the UK economy better able to adapt to economic shocks, both at the time and since then.

      • Paul – I hope you’re not losing the plot!
        You think if I put a thatcher dummy in a regression for the 11 and a half years she was in power, and I don’t get a significant positive coefficient, that would prove anything?
        We don’t have a credible identification strategy available, which is why we have to conjecture about the counterfactual (hopefully based on sound reasoning).

  2. It is interesting how different “economist” commentators draw very different conclusions when examining the same scenario. Perhaps it illustrates just how unscientific the discipline really is. Henry Ergas for example has a different view.

    http://www.theaustralian.com.au/opinion/maggie-showed-keating-the-way/story-e6frg6zo-1225818205617

    So do many others.

    I sometimes wonder whether economists are capable of looking at the big picture and considering all the data. Or are they so constrained by their individual biases that they cannot do so. In science we recognise a number of sources of bias, among which personal bias is the most pervasive. It is one reason that I among others are very sceptical of scientific claims based on computer models.

    • Er..that last line is almost meaningless, because there are so many different kinds of “computer models”. Even nuclear weapons and aeroplanes are designed using some computer models.

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