Admirers and detractors of Margaret Thatcher can agree that she will be remembered as one of the key political architects of our times. Along with her soulmate, U.S. President Ronald Reagan, she broke decisively with the post-war Keynesian welfare state and ushered in the still-enduring age of neo-liberalism.
Perhaps most notably, Lady Thatcher abandoned the goal of full employment in favour of price stability; explicitly worked to undermine the bargaining power of once-strong trade unions; and privatized or eliminated dozens of crown corporations and regulatory agencies. Lady Thatcher and her key advisers, such as Keith Joseph, were intellectually grounded in the work of the most prominent foe of John Maynard Keynes, Friedrich Hayek, and his American disciple, Milton Friedman. Her government explicitly set out to reverse the post-war growth in the economic and social role of democratic government, and to thereby restore business profitability and “confidence.”
Political caution dictated a more circumspect attack on social programs such as the National Health Service, but public spending was held in check and priority was given to tax cuts, especially for businesses and those with high incomes.
The opening to Lady Thatcher was provided by the stagflation crisis of the mid-1970s, when most advanced industrial economies, especially Britain, experienced a lethal combination of slow growth and high inflation.
This was principally the result of the oil price shock spilling over into a sustained wage-price spiral which undermined investment. Mainstream Keynesian economics had little to say about how to deal with this dilemma through conventional macroeconomic policy.
Lady Thatcher and Mr. Reagan wrestled inflation to the ground, but at the price of a very deep recession and very high unemployment in the early 1980s. Henceforth, inflation would be held in check by fostering “flexible” labour markets, meaning neutered trade unions and a steady rise in low-paid and insecure work. Lady Thatcher’s constant claim was that “there is no alternative,” since the Keynesian welfare state had manifestly failed to secure stable growth from the early 1970s.
In fact, there were alternatives. In the 1980s, some smaller European social democratic countries dealt with the stagflation dilemma by negotiating wage moderation with the unions, in return for full employment and the maintenance of social programs and public services.
Strong labour movements were often open to such bargains, provided increases in business profits were effectively directed to job-creating investment. That was the essence of the Meidner Plan in Sweden, put forward by the unions and temporarily embraced, though ultimately abandoned, by the Social Democratic Party.
What is clear today is that Thatcherism did not provide an enduring solution to the problem of how to attain stable growth. Business profitability was indeed restored, but this did not flow though into much higher levels of productive investment. In both Britain and the United States (especially the former), finance expanded as a share of the economy at the expense of industry, which has collapsed.
London has become the most important global financial centre and home base to much of the global oligarchy, leading to great wealth for a few and many low-paid jobs catering to their needs. Meanwhile, much of the rest of the country, the cradle of the Industrial Revolution, has never fully recovered from massive de-industrialization.
In Britain, as in the United States, “flexible” labour markets and the erosion of unionization led to the decoupling of wages from productivity growth, making growth dangerously dependent upon an unsustainable inflation of house prices and the growth of household debt.
A hands-off approach to regulation of business also set the stage for the growth of a speculative and destructive financial system, which would have collapsed in 2008 if the government had not come to the rescue.
Thatcherism did nothing to raise the living standards of the great majority. In the Britain, as in the U.S. and Canada, the incomes of the great majority have stagnated in real terms since the early 1980s, as most of the fruits of economic growth have gone to the top 1 per cent. Economic security was undermined by deep cuts to unemployment insurance and public pensions, and by the erosion of public services.
Margaret Thatcher was indeed a pivotal historical figure. But her legacy is one of heightened inequality, economic stagnation and instability.