14th February 1990. The Economics of ‘Thatcherism’.
‘Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly and applying the wrong remedy’: Ernest Benn, laissez-faire uncle of labour politician, Tony Benn.
It was Today in 1990, after twelve years of Margaret Thatcher’s control of the money supply (Monetarism), that mortgage rates were raised to 15.4%, an all time high.
Consumer confidence was low, unemployment was rising, interest rates were high and inflation reached 10.6%-higher than what she inherited- whilst manufacturing output had fallen.
This was ironic as after the disastrous 1979 ‘Winter of Discontent’ of the Labour Government, Thatcher had come to power on the strength of the slogan ‘Labour isn’t Working’, a punning reference to the Labour Party’s high unemployment record.
Thatcher was lucky as with the revenues from North Sea Oil, her policy in essence was to close down the mines and traditional industries and let social welfare take the strain.
The pump-priming of Keynesianism, the result of pre-war depression and consensus politics was out, with ideology replacing pragmatism and individualism replacing notions of ‘society’.(1)
Determined not to be swamped by bureaucracy, Privatisation replaced Nationalization and government control came via regulatory bodies, another form of government.
In 1980, Thatcher’s second year, inflation reached 25%, and Bank Rates wandered from 8.1% to 16%: the autumn of the previous year they reached 17%.(2)
The 1981 Budget raised taxes thus deflating further an economy in the depths of the worst recession since the inter-war years.
In March 1982 only 23% of voters thought Thatcher would win the next election; by August 66% said they expected her return, saved by the Falkland’s War victory.
In January 1983 the pound fell to $1.52, unemployment reached 3.2 million, the highest since 1936. Chancellor Geoffrey Howe demanded another £5,000 million spending cuts to dampen demand resulting in ‘one of the bitterest arguments in Cabinet’, Thatcher had known.
In the event she had a landslide victory in June 1983, the largest since 1945: Tory 397; Labour 209 and Lib- Dem 25.
The period afterwards was disastrous, for whilst inflation had also fallen to a reasonable 4.6%, it was at a cost of a 141% rise in of unemployment, the highest level since the war.By 1985 the pound fell to lowest value ever worth $1.0765; devalued by 27% in a year.
The period was known by bitter fights against striking miners under Arthur Scargill.
Capitalism had a shot in the arm with widespread Privatisation ranging from telephones and Rolls Royce to water and electricity.(3)
In 1989 interest rates of 15% were needed to combat inflationary pressure and the trade deficit was a record £20.32 billion.
In November 1990 Thatcher resigned before she was pushed, not over the economy, but owing to her negative stance on Europe, and the Exchange Rate Mechanism (ERM), which proved the undoing of her successor John Major. She thus stands vindicated.
(1a) Named after economist John Maynard Keynes.
(1b) Her philosophy was underpinned by Von Hayek’s ‘Road to Serfdom’ published in 1944.
(2) Compared with the early 1960s when it had risen from 4% to 5%
(3) British Telecom (1984), British Aerospace (1985), Shipbuilding (Cammel Laird, and Vickers), (1986), The National Bus Company (1986), British Gas, (advert: ‘If you see Sid tell him’ (1986), British Airways (1986).
Then came Rolls Royce which had been Nationalized in 1971, (1987), British Airports (1987), Leyland Bus and Truck (1987), and BP (1987).
A Bill was passed for privatising the water industry in July 1989 and the sale of shares in the water companies was 5.7 oversubscribed later in the year. Electricity was also privatised.
Ref: Chronicle of the 20thc P1331 re Info re Mortgage Rates 1990.
Ref: bbc.co.uk/news/Hugh Pym. 8.4.2013. Thatcher: How the economy changed.
Ref : redpepper.org.uk/Thatcher didn’t save the economy.
Ref: Conflict of Loyalty. G. Howe, 1994.