A story in The Independent (Monday 19 November 2007 pg 5) about a controversy at the Oxford Union revolving around a upcoming debate entitled'A Night of Discussion on the Limits of Free Speech' caught my attention and to some degree disturbed me. A number of high profile guests, including The Defense Secretary Des Browne, Labour MP's Chris Bryant and Austen Mitchell as well TV presenter June Sarprong, have cancelled there appearances in protest to inclusion of Nick Griffin (leader of the BNP) and the well known Holocaust denying historian David Irvin on the speakers list.
Now I can see why sharing a building let alone a podium with Nick Griffin would not be a pleasant experience. (My knowledge of of David Irvin is limited to his Holocaust denial and histories of rather dubious merit. However the from the little research I have done he seems to be very much of the same nasty ilk of Nick Griffin, with an academic veneer). However what I do not understand that attitude of these labour MPs. They are not being asked to speak at a BNP rally but instead are being asked to discuss freedom of speech. Surely one of the central tenets of the principle of freedom of speech is that we allow both the speech with which we agree and the views which we find morally reprehensible. Events like the above offer the perfect opportunity to argue against these racist and anti-Semitic views. Simply banning or ignoring views we disagree with or find evil will not result in their disappearing or becoming less prevalent, the only way for this to happen is to debate the issues openly and show the stupidity of both the views and those the hold them.
This banning of views and opinions that are clearly intolerant is a worrying trend for the Labour government, which has made a habit of criminalising speech likely to incite hatreds of various types, while at the same time banning certain rights of protests. Maybe this is simply a continuation long held paternalistic attitudes of the Labour party, the current government certainly gives the impression of not trusting the judgement of the people.
To me one of the the things that makes Britain, Britain and one of the things that makes me proud to be British is our long history of freedom of speech and accepting dissension. Despite or maybe because of this tolerance and all views and peoples Britain did not fall pray to any of the forms of extremism of the last century. One can only hope that this new found enthusiasm for banning and refusing to intelligently refute the intolerant views of others does not open our society to the very forms of extremism we are hoping to defend against.
Monday, 19 November 2007
Thursday, 25 October 2007
LSE Public Lecture Podcasts
One of the many things I have missed since leaving London has been the ability to go along to the LSE to participate in their public lectures. The first series I went to a couple of years ago was a series of lectures by ex-chancellors. Which were excellent and surprisingly Norman Lamont was probably the most impressive of the speakers.
So I was very happy a few months ago to discover that the LSE now has its public lectures available on podcast. This week I have listened to two very interesting ones.
Firstly:
Utopian Hope and Apocalyptic Religion given by Professor John Gray in which he discusses how he believes our world view of civil society is still entirely influenced by the Judeo-Christian belief systems of an earlier time. He refutes a linear narrative to history preferring to see it as cyclical. Seeing the present 'civilised' world not necessary as a step towards a better more peaceful and more just world but just as likely a historically local high water mark before the world recedes into barbarism. While I agree we must be aware of the possibility of the world becoming a more barbarous place, one only has to look at the example of torture and it's recent apparent re-acceptance by both Britain and the States in the name of The War on Terror to see the beginings of this. What I have a harder time agreeing with was Professor Grays belief that we are at a stage where our leaders primary concern should be the preservation of our current state of civilisation rather than following the big ideas to make the world a better place. Without wanting to sound too naive, without this willingness to believe the world can be a better place it certainly will never be so.
The Second Lecture was:
The Divergence of the Bottom Billion given by Professor Paul Collier based on his successful new book (I feel like a marketing whore) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It . Professor Collier describes how The UN's millennium goals of reducing poverty by simply counting the number of people who live under an arbitrary poverty level misses the key point of poverty and globalisation in the last 40 or 50 years. Explaining how while overall number of people in poverty may be reducing this has more to do with the economic developments in the Far East and India than on the west's poverty aid. He believes the major poverty problem now is the divergence of the bottom billion people in the world from the rest of the planet. The bottom billion, being described as "Africa plus", becoming more and more poor compared to the rest of the planet. He goes on to describe the traps that keep countries and regions poor, including bad governance, conflict, being land locked as well as others. He also describes what he believes to be some of the solutions, using the Marshall plan as an example of how development aid can work when the planet is serious about it. All in all a highly informative and positive lecture suggesting trade policy and the encouragement of good governance is the best way to aid in the development of Africa. He also believes that the only way to get the international community to really help Africa is from citizens of the developed world to force our leaders in to a radical aid policy rethink. I highly recommend this podcast it has certainly got me thinking and rethinking.
So I was very happy a few months ago to discover that the LSE now has its public lectures available on podcast. This week I have listened to two very interesting ones.
Firstly:
Utopian Hope and Apocalyptic Religion given by Professor John Gray in which he discusses how he believes our world view of civil society is still entirely influenced by the Judeo-Christian belief systems of an earlier time. He refutes a linear narrative to history preferring to see it as cyclical. Seeing the present 'civilised' world not necessary as a step towards a better more peaceful and more just world but just as likely a historically local high water mark before the world recedes into barbarism. While I agree we must be aware of the possibility of the world becoming a more barbarous place, one only has to look at the example of torture and it's recent apparent re-acceptance by both Britain and the States in the name of The War on Terror to see the beginings of this. What I have a harder time agreeing with was Professor Grays belief that we are at a stage where our leaders primary concern should be the preservation of our current state of civilisation rather than following the big ideas to make the world a better place. Without wanting to sound too naive, without this willingness to believe the world can be a better place it certainly will never be so.
The Second Lecture was:
The Divergence of the Bottom Billion given by Professor Paul Collier based on his successful new book (I feel like a marketing whore) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It . Professor Collier describes how The UN's millennium goals of reducing poverty by simply counting the number of people who live under an arbitrary poverty level misses the key point of poverty and globalisation in the last 40 or 50 years. Explaining how while overall number of people in poverty may be reducing this has more to do with the economic developments in the Far East and India than on the west's poverty aid. He believes the major poverty problem now is the divergence of the bottom billion people in the world from the rest of the planet. The bottom billion, being described as "Africa plus", becoming more and more poor compared to the rest of the planet. He goes on to describe the traps that keep countries and regions poor, including bad governance, conflict, being land locked as well as others. He also describes what he believes to be some of the solutions, using the Marshall plan as an example of how development aid can work when the planet is serious about it. All in all a highly informative and positive lecture suggesting trade policy and the encouragement of good governance is the best way to aid in the development of Africa. He also believes that the only way to get the international community to really help Africa is from citizens of the developed world to force our leaders in to a radical aid policy rethink. I highly recommend this podcast it has certainly got me thinking and rethinking.
Wednesday, 12 September 2007
Foreign Affairs
I have been buying a journal intermittently for a year so called Foreign Affairs. It is Bimonthly , in the once every two months sense of the word and consists of essays discussing foreign and international policy, primarily from an American viewpoint and with content supplied by American academics. Obviously this American slant can lead to some very Yankicentric attitudes,however it is often fascinating and always thought provoking.
My major problem with it is it is, like all academic journals, rather expensive at £8.50 a pop. So I was rather glad to discover that it is available for free online at http://www.foreignaffairs.org/. At the moment they are in the middle of a series of essays by the prospective Presidential candidates, which are well worth a read. As indeed is the entire journal, even if simply to marvel at a totally alien world view.
My major problem with it is it is, like all academic journals, rather expensive at £8.50 a pop. So I was rather glad to discover that it is available for free online at http://www.foreignaffairs.org/. At the moment they are in the middle of a series of essays by the prospective Presidential candidates, which are well worth a read. As indeed is the entire journal, even if simply to marvel at a totally alien world view.
Sunday, 9 September 2007
The Rise of Thatcherism
Any discussion of the rise of Thatcherism must first start with a look at the historical situation Britain found herself in, through the 1970’s.
Before the Thatcher revolution Britain had been largely governed under the so called Keynesian consensus, meaning managing the economy at the Macro level while having a primary aim of achieving high to full employment even if this meant high inflation. Throughout this period it could be seen that the budget was used as a ‘counter cycle adjuster’, in other words using government money to stimulate the economy out of recession. Indeed the Keynesian consensus can be seen to have many parallels to the New Deal of President Roosevelt in the USA and both can be seen as a reaction to the great depression of the 1930’s.
The Consequences of this Keynesian consensus were clearly many, both bad and good, however I believe that the consequences that Thatcherism was primarily looking to undo and change were:
i) Britain’s relative decline as an economic power, shown clearly by her slide from having the 9th largest GDP per capita in the late 1950’s to the 18th largest in 1976. Indeed during the 1970’s there were serious concerns that Britain’s relative decline could easily translate into absolute decline.
ii) The lack of efficiency in British industry, best illustrated by the 3 day weeks of late 1973 and early 1974 where British industry was forced to work only 3 days a week due to the threat of a miners strike. Despite this loss of nearly half the working week production figures for the first quarter of 1974 were 95% of the normal figures.
Two consequences of the Keynesian consensus which had a large impact on this lack of efficiency were iii) an increasingly powerful and militant union movement, shown by an average wage increase in 1975 of 25% and in 1979 number of days lost to strike action (29.74 million) which was the fifth worse year since the turn of the 19th century
and iv) the increasing nationalization of British industry.
The final consequence of the Keynesian consensus that I believe was a priority for Thatcherism to tackle was v) the rampant inflation that typified much of the 1970’s e.g. The Retail Price Index running in double figures in all but one year after 1973 peaking in 1975 a 25%.
That Britain was in relative decline and that things needed to change was acknowledged in the 1970’s with both the government of Heath (70-74) and Callaghan (76-79) trying to address some of these problems. The Heath government came to power espousing market reforms and as part of this wound up the prices and incomes board of the Wilson government, hoping to allow the market to regulate these. Early Budgets were deflationary in an attempt to bring about a recession and thus improve industrial efficiency by driving ‘lame duck’ concerns out of business. Government policy began unraveling with the nationalization in quick succession of Rolls Royce and The Upper Clyde Shipbuilders to save both concerns from going bankrupt. These early set backs showed the governments lack of strength and were followed by two national miners’ strikes and the infamous 3 day weeks. In both miners strikes the government were utterly defeated. Thus the Heath government appeared set on a course of reform which would come to form a central plank of Thatcherism but had neither the will power nor general support to push them through.
The Callaghan government in many ways signaled the ‘death knell’ of Keynesian. With Callaghan himself stating at the 1976 Labour party conference, “You cannot now, if you ever could, spend your way out of a recession.” These sentiments were backed up by Dennis Healy’s (Callaghan’s Chancellor) attempt to control yet another run on Sterling by a combination of stringent reductions in expenditure, wage restraint and a move back to balanced budgets. All of which were to become a theme of Thatcherism, even if they were not always successful. Further expenditure cuts were also imposed with the IMF loan ($13.9billion) of 1976. So as can be seen some of the themes that were to come to epitomize Thatcherism were already on the political agenda before she won the 1979 election.
We have seen the historical position Britain was in and some of the political and economic positions that Thatcherism was a reaction against, but what was Thatcherism and what was its theoretical basis.
Nigel Lawson, the second Thatcher Chancellor, described Thatcherism as a mixture of free market reform, monetary control, privatisation, cuts in taxation and spending, Victorian values and nationalism. To these can be added a fight against both unions and other market distorting special interest groups and a reprioritising of private rights and responsibilities.
While being associated, and indeed named after, Margaret Thatcher, Thatcherism wasn’t a set of ideas formulated by her, but in fact was a strain of thought originating within the Conservative party with Enoch Powell, who was the first heavyweight politician to seriously and intelligently attack the post war Keynesian consensus. Powell’s influence has been largely ignored due to the manner of his dismissal from position of Shadow Health Secretary brought about by his infamous ‘Rivers of Blood’ speech. While many of Powell’s ideas were to become Thatcherism it was Sir Keith Joseph who was to become Mrs. Thatcher’s political and ideological mentor. Joseph consistently and coherently attacked the Keynesian consensus and espoused all of the economic policies that were to become known as Thatcherism, for example in his 1974 speech given in Preston where he attacked the central tenet of Keynesianism, stating that governments could not guarantee jobs, it could only pay for them on borrowed money and in the long run such a policy would in fact destroy the very same jobs it was trying to create.
Joseph and therefore Mrs. Thatcher were primarily influenced by the Chicago School and particularly the two Nobel laureates of this school; F.A.Hayek and Milton Friedman.
Hayek attacked socialism via two main points. Firstly he argued that central planning couldn’t work efficiently because the information needed could not be collected and used by the relatively few people who would need it to run the economy. He further argued that the information required to fully and efficiently run the economy can only ever exist as an aggregate within all the members of the economy. Therefore the free market, which gives individuals the maximum freedom to use their unique information, is the most efficient way to run an economy.
His second argument against socialism was laid out in his book, “The Road to Serfdom”, which was written as a warning to the British people against what he saw as the evils of socialism. Hayek observed that many of the policies of the British Socialists were the same as the policies carried out in Germany in the 1930’s. His basic argument was that government economic control amounts to totalitarianism. Hayek said “Economic control is not merely control of a single sector of human life which can be separated from the rest; it is control of the means to all our ends.”
Milton Friedman is seen as the modern father of monetarism, which is based on the quantity theory of money. This states that price levels, and therefore inflation, are dependent upon the supply of money within the economy. He argued against the Keynesian consensus of using government expenditure to guarantee full employment. He believed that in the short run an increased money supply would increase production and employment, however with time production would fall back to its original levels and the only effect would be a growth in prices. He believed this was due to the fact that consumption rates are relatively stable; people’s rate of consumption was less affected by current income than their expected future income.
Friedman further attacked Keynesianism by arguing that the conventional Philip’s curve was incorrectly specified. He argued that people care more about the real wage rate than the money wage rate, meaning that as inflation raises so would wage demand increase by a similar amount. This would have the affect of shifting the Phillip’s Curve upwards implying that there could be no stable trade-off between inflation and unemployment. He further argued that each economy has a ‘natural’ rate of unemployment and that if a government were to try to peg unemployment at a lower level, inflation would continually rise until unemployment was allowed to return to it’s ‘natural’ level. Again showing there could be no stable trade off of low unemployment for a higher rate of inflation, instead there would be an ever increasing level of inflation. The experiences of the 1970’s appeared to back many of Friedman’s arguments. Therefore if governments couldn’t control demand and employment they should use monetary policy to control the rate of inflation, which was very much how the early Thatcher government planned to manage the economy.
We have seen what Thatcherism became to mean and what its theoretical underpinnings were, but did it achieve its goals and what affects did it have on the country. By considering the affect Thatcherism had on the negative consequences of the post war Keynesian consensus we will see its effect on the nation of Thatcherism.
Firstly Britain’s relative decline, undoubtedly after the end of Conservative rule in 1997 nobody could seriously talk about the danger of Britain economically declining in absolute terms. Indeed growth rate for the period 1979-1988 (2.2% per year) was more than double that of the pre-Thatcher period 1973-1979 (0.9%) when the effect of oil and gas are removed. Also real income rose by 37% during Thatcher’s time in charge. The improvement in Britain’s relative decline while less startling was also undoubtedly present. Britain’s per capita GDP rose from being 10% below that of the average of the OECD 25 in 1979 to being only 5.7% lower in 1997. So while it can be seen that Britain’s gains compared to other OECD countries were small Britain’s relative decline had undoubtedly been halted.
Secondly before British Industry could become efficient the powers of the unions had to be broken. This was achieved by a number of acts of parliament curtailing the powers and rights of the Trade Unions, including removing the legality of closed shops and removing from the unions their exemption from liability of damages caused during a strike. As importantly the second Thatcher government successfully faced down a national miners strike, something the Heath government singularly failed to do. These two factors as well as the general shrinking of the traditional heavy industries resulted in the number of union members falling from over 13.5 million in1979 to under 9.6 million in 1987. The loss of union power and membership resulted in the drastic reduction in the number of days lost to strike action from a yearly average of 11.02 million days throughout the 1970’s down to 2.86 million days lost per year after the miners strike was defeated until 1992.
Another stated aim of Thatcherism was to reduce the states interference in the commercial life of the country, the most obvious way in which this was achieved was with the selling of many of the nationalised state industries. Starting in 1981 with the sale of British Petroleum and British Aerospace and by 1989 2/3 of state industries had been sold off earning over £50 Billion while also increasing the number of shareholders in Britain from 3 million to over 9 million people. Further broadening the base of property owning democracy was the selling off of over a million council houses to occupiers at reduced rates.
With the breaking of unions powers and the privatisation of industry the productivity and therefore efficiency of British industry was greatly improved both in absolute and relative terms. In absolute terms British industry labour productivity grew by an average of 4.5% per year from 1979 to 1988 compared to an average growth in productivity of 0.8% from 1973 to 1979. In relative terms British productivity improved by approximately 14% when compared to15 leading OECD nations from 1973 to 1987.
Another area in which Mrs. Thatcher attempted to ‘roll back the state’ was to pledge to reduce both taxation and government spending. While the conservatives failed to reduce the individual tax burden, in fact the tax burden increased from 31.1% of a workers annual income in 1979 to 37.2% in 1996. It is certainly true that the impression was that taxes fell over the same period; this can be explained by the fact that the direct taxation burden fell from 19.9% to 17.7% of a workers annual income. This can be explained as an intelligent political ploy to appear to be cutting taxes while in actual fact doing the opposite, alternatively it has been stated that taxes on income (direct taxes) have an adverse effect on growth whereas indirect taxes on consumption have no effect on growth, showing that while the alteration of the tax structure was certainly politically expedient it was also likely to have had a positive effect on economic growth.
While the governments of Thatcher and Major certainly succeeded in stopping the increase in government spending and even managed some reductions from 44.4% of GDP spent in 1979 to a low of 39.7% in 1997 these pale into insignificance when one considers that government spending stood at only 30.2% of GDP in 1960. So while the spread of the state and increase in government spending was certainly stopped under the Conservatives, to say that they succeeded in rolling back the state was clearly not the case.
Clearly the primary focus of, particularly the first, Thatcher government was to reduce inflation. This was achieved after an initial increase in inflation to 18% in 1980 which was to some extent caused by the governments pledge to abide by the Clegg report which had the aim of redressing pay differentials which had arisen in the 1970’s between those sectors with strong unions and those without. The Clegg report thus awarded a number of substantial pay awards. However after this initial blip, a measure of the success of the fight against inflation can be seen in the fall in the rate of inflation after 1980. The rate of increase in the RPI from 1974, the first year RPI annual increase stood at over 10%, to 1979 was 15.7% per year. While from 1979-1992 the average RPI increase was 7.2%. Even with the high inflation of the late 1980’s caused by the Lawson boom RPI never increased by more 9.5% per year. Post 1992 when low inflation became a stated target for the government, inflation fell even further averaging 2.6% per year to 1997.
As we have seen in the last section Mrs. Thatcher’s and more generally Thatcherism’s time in office has inarguably changed Britain in many, seemingly permanent ways. I believe the two most significant accomplishments were the, likely permanent breaking of union power and the equally permanent seeming, defeat of inflation. Indeed, now a central feature of economic policy is the setting of inflation targets, which are partially managed by the now independent Bank of England, to ensure continued moderate price rises.
Clearly there were many other achievements of Thatcherism not least returning to Britain its sense of pride and standing in the world. Britain is no longer, as was the case for much of the 1970’s, the sick man of Europe.
While the economic success of Thatcherism, in my opinion, cannot be argued with, its social impact has been far more ambiguous. The most obvious negative consequence has been the increasing divide between the haves and have-nots, clearly shown by the reappearance of the homeless on the streets of Britain’s major cities and further evidenced by the fact that while overall average income increased by 37% the poorest 10% of the population were actually 18% worse off by 1992. To a degree this widening of the social divide was by design to encourage a wealth creation mentality and to increase the incentives for that wealth creation.
In conclusion Thatcherism has had a profound and lasting impact on Britain and to some degree the world. This impact has been both positive and negative but I believe on balance the positive effects have far out weighed the negatives.
Bibliography
Alan Sked and Chris Cook, Post-War Britain. A Political History. New Edition 1945-1992. Penguin 1993
Roger E. Backhouse, The Penguin History of Economics, Penguin 2002
Eric J. Evans, Thatcher and Thatcherism Second Edition, Routledge 2004
Jeremy Black, Britain Since The Seventies. Politics and Society in the Consumer Age, Reaktion Books 2004
Subroto Roy and John Clarke, Mageret Thatcher’s Revolution. How it Happened and What it Meant, Continuum 2005
Todd G. Buchholz, new ideas from dead economists, Penguin 1999
Peter Hennessy, The Prime Minister. The Office and its Holders Since 1945, Penguin 2001
Edward J. Nell, Free Market Conservatism. A Critique of Theory & Practice, George Allen & Unwin, 1984
John Charmley, A History of Conservative Politics 1900-1996, MacMillan Press, 1998
Alan Booth, British economic development since 1945, Manchester University Press, 1995
Peter Clarke, Hope and Glory.Britain 1900-1990, Penguin, 1997
Nicholas Crafts, Supply-Side Policy and British Relative Economic Decline, in HM Treasury, Economic Growth and Government Policy (London, 2001), 23-30.
Robert Twigger, GDP per capita in OECD countries: UK’s relative position, House of Commons Research Paper 98/64, 1998
Peter Clarke, The Rise and Fall of Thatcherism, Historical Research, vol.72, no.192, 1999
Friedrich A. Hayek, Can We Avoid Inflation? lecture before the Trustees and guests of the Foundation for Economic Education at Tarrytown, New York on May 18, 1970.
Arthur Kemp, The Political Economy of Milton Friedman, Modern Age Quartetly Review, 1978, 8-17
Peter G. Klein, Biography F.A.Hayek (1899-1992), http://www.mises.org/ content/hayekbio.asp
Before the Thatcher revolution Britain had been largely governed under the so called Keynesian consensus, meaning managing the economy at the Macro level while having a primary aim of achieving high to full employment even if this meant high inflation. Throughout this period it could be seen that the budget was used as a ‘counter cycle adjuster’, in other words using government money to stimulate the economy out of recession. Indeed the Keynesian consensus can be seen to have many parallels to the New Deal of President Roosevelt in the USA and both can be seen as a reaction to the great depression of the 1930’s.
The Consequences of this Keynesian consensus were clearly many, both bad and good, however I believe that the consequences that Thatcherism was primarily looking to undo and change were:
i) Britain’s relative decline as an economic power, shown clearly by her slide from having the 9th largest GDP per capita in the late 1950’s to the 18th largest in 1976. Indeed during the 1970’s there were serious concerns that Britain’s relative decline could easily translate into absolute decline.
ii) The lack of efficiency in British industry, best illustrated by the 3 day weeks of late 1973 and early 1974 where British industry was forced to work only 3 days a week due to the threat of a miners strike. Despite this loss of nearly half the working week production figures for the first quarter of 1974 were 95% of the normal figures.
Two consequences of the Keynesian consensus which had a large impact on this lack of efficiency were iii) an increasingly powerful and militant union movement, shown by an average wage increase in 1975 of 25% and in 1979 number of days lost to strike action (29.74 million) which was the fifth worse year since the turn of the 19th century
and iv) the increasing nationalization of British industry.
The final consequence of the Keynesian consensus that I believe was a priority for Thatcherism to tackle was v) the rampant inflation that typified much of the 1970’s e.g. The Retail Price Index running in double figures in all but one year after 1973 peaking in 1975 a 25%.
That Britain was in relative decline and that things needed to change was acknowledged in the 1970’s with both the government of Heath (70-74) and Callaghan (76-79) trying to address some of these problems. The Heath government came to power espousing market reforms and as part of this wound up the prices and incomes board of the Wilson government, hoping to allow the market to regulate these. Early Budgets were deflationary in an attempt to bring about a recession and thus improve industrial efficiency by driving ‘lame duck’ concerns out of business. Government policy began unraveling with the nationalization in quick succession of Rolls Royce and The Upper Clyde Shipbuilders to save both concerns from going bankrupt. These early set backs showed the governments lack of strength and were followed by two national miners’ strikes and the infamous 3 day weeks. In both miners strikes the government were utterly defeated. Thus the Heath government appeared set on a course of reform which would come to form a central plank of Thatcherism but had neither the will power nor general support to push them through.
The Callaghan government in many ways signaled the ‘death knell’ of Keynesian. With Callaghan himself stating at the 1976 Labour party conference, “You cannot now, if you ever could, spend your way out of a recession.” These sentiments were backed up by Dennis Healy’s (Callaghan’s Chancellor) attempt to control yet another run on Sterling by a combination of stringent reductions in expenditure, wage restraint and a move back to balanced budgets. All of which were to become a theme of Thatcherism, even if they were not always successful. Further expenditure cuts were also imposed with the IMF loan ($13.9billion) of 1976. So as can be seen some of the themes that were to come to epitomize Thatcherism were already on the political agenda before she won the 1979 election.
We have seen the historical position Britain was in and some of the political and economic positions that Thatcherism was a reaction against, but what was Thatcherism and what was its theoretical basis.
Nigel Lawson, the second Thatcher Chancellor, described Thatcherism as a mixture of free market reform, monetary control, privatisation, cuts in taxation and spending, Victorian values and nationalism. To these can be added a fight against both unions and other market distorting special interest groups and a reprioritising of private rights and responsibilities.
While being associated, and indeed named after, Margaret Thatcher, Thatcherism wasn’t a set of ideas formulated by her, but in fact was a strain of thought originating within the Conservative party with Enoch Powell, who was the first heavyweight politician to seriously and intelligently attack the post war Keynesian consensus. Powell’s influence has been largely ignored due to the manner of his dismissal from position of Shadow Health Secretary brought about by his infamous ‘Rivers of Blood’ speech. While many of Powell’s ideas were to become Thatcherism it was Sir Keith Joseph who was to become Mrs. Thatcher’s political and ideological mentor. Joseph consistently and coherently attacked the Keynesian consensus and espoused all of the economic policies that were to become known as Thatcherism, for example in his 1974 speech given in Preston where he attacked the central tenet of Keynesianism, stating that governments could not guarantee jobs, it could only pay for them on borrowed money and in the long run such a policy would in fact destroy the very same jobs it was trying to create.
Joseph and therefore Mrs. Thatcher were primarily influenced by the Chicago School and particularly the two Nobel laureates of this school; F.A.Hayek and Milton Friedman.
Hayek attacked socialism via two main points. Firstly he argued that central planning couldn’t work efficiently because the information needed could not be collected and used by the relatively few people who would need it to run the economy. He further argued that the information required to fully and efficiently run the economy can only ever exist as an aggregate within all the members of the economy. Therefore the free market, which gives individuals the maximum freedom to use their unique information, is the most efficient way to run an economy.
His second argument against socialism was laid out in his book, “The Road to Serfdom”, which was written as a warning to the British people against what he saw as the evils of socialism. Hayek observed that many of the policies of the British Socialists were the same as the policies carried out in Germany in the 1930’s. His basic argument was that government economic control amounts to totalitarianism. Hayek said “Economic control is not merely control of a single sector of human life which can be separated from the rest; it is control of the means to all our ends.”
Milton Friedman is seen as the modern father of monetarism, which is based on the quantity theory of money. This states that price levels, and therefore inflation, are dependent upon the supply of money within the economy. He argued against the Keynesian consensus of using government expenditure to guarantee full employment. He believed that in the short run an increased money supply would increase production and employment, however with time production would fall back to its original levels and the only effect would be a growth in prices. He believed this was due to the fact that consumption rates are relatively stable; people’s rate of consumption was less affected by current income than their expected future income.
Friedman further attacked Keynesianism by arguing that the conventional Philip’s curve was incorrectly specified. He argued that people care more about the real wage rate than the money wage rate, meaning that as inflation raises so would wage demand increase by a similar amount. This would have the affect of shifting the Phillip’s Curve upwards implying that there could be no stable trade-off between inflation and unemployment. He further argued that each economy has a ‘natural’ rate of unemployment and that if a government were to try to peg unemployment at a lower level, inflation would continually rise until unemployment was allowed to return to it’s ‘natural’ level. Again showing there could be no stable trade off of low unemployment for a higher rate of inflation, instead there would be an ever increasing level of inflation. The experiences of the 1970’s appeared to back many of Friedman’s arguments. Therefore if governments couldn’t control demand and employment they should use monetary policy to control the rate of inflation, which was very much how the early Thatcher government planned to manage the economy.
We have seen what Thatcherism became to mean and what its theoretical underpinnings were, but did it achieve its goals and what affects did it have on the country. By considering the affect Thatcherism had on the negative consequences of the post war Keynesian consensus we will see its effect on the nation of Thatcherism.
Firstly Britain’s relative decline, undoubtedly after the end of Conservative rule in 1997 nobody could seriously talk about the danger of Britain economically declining in absolute terms. Indeed growth rate for the period 1979-1988 (2.2% per year) was more than double that of the pre-Thatcher period 1973-1979 (0.9%) when the effect of oil and gas are removed. Also real income rose by 37% during Thatcher’s time in charge. The improvement in Britain’s relative decline while less startling was also undoubtedly present. Britain’s per capita GDP rose from being 10% below that of the average of the OECD 25 in 1979 to being only 5.7% lower in 1997. So while it can be seen that Britain’s gains compared to other OECD countries were small Britain’s relative decline had undoubtedly been halted.
Secondly before British Industry could become efficient the powers of the unions had to be broken. This was achieved by a number of acts of parliament curtailing the powers and rights of the Trade Unions, including removing the legality of closed shops and removing from the unions their exemption from liability of damages caused during a strike. As importantly the second Thatcher government successfully faced down a national miners strike, something the Heath government singularly failed to do. These two factors as well as the general shrinking of the traditional heavy industries resulted in the number of union members falling from over 13.5 million in1979 to under 9.6 million in 1987. The loss of union power and membership resulted in the drastic reduction in the number of days lost to strike action from a yearly average of 11.02 million days throughout the 1970’s down to 2.86 million days lost per year after the miners strike was defeated until 1992.
Another stated aim of Thatcherism was to reduce the states interference in the commercial life of the country, the most obvious way in which this was achieved was with the selling of many of the nationalised state industries. Starting in 1981 with the sale of British Petroleum and British Aerospace and by 1989 2/3 of state industries had been sold off earning over £50 Billion while also increasing the number of shareholders in Britain from 3 million to over 9 million people. Further broadening the base of property owning democracy was the selling off of over a million council houses to occupiers at reduced rates.
With the breaking of unions powers and the privatisation of industry the productivity and therefore efficiency of British industry was greatly improved both in absolute and relative terms. In absolute terms British industry labour productivity grew by an average of 4.5% per year from 1979 to 1988 compared to an average growth in productivity of 0.8% from 1973 to 1979. In relative terms British productivity improved by approximately 14% when compared to15 leading OECD nations from 1973 to 1987.
Another area in which Mrs. Thatcher attempted to ‘roll back the state’ was to pledge to reduce both taxation and government spending. While the conservatives failed to reduce the individual tax burden, in fact the tax burden increased from 31.1% of a workers annual income in 1979 to 37.2% in 1996. It is certainly true that the impression was that taxes fell over the same period; this can be explained by the fact that the direct taxation burden fell from 19.9% to 17.7% of a workers annual income. This can be explained as an intelligent political ploy to appear to be cutting taxes while in actual fact doing the opposite, alternatively it has been stated that taxes on income (direct taxes) have an adverse effect on growth whereas indirect taxes on consumption have no effect on growth, showing that while the alteration of the tax structure was certainly politically expedient it was also likely to have had a positive effect on economic growth.
While the governments of Thatcher and Major certainly succeeded in stopping the increase in government spending and even managed some reductions from 44.4% of GDP spent in 1979 to a low of 39.7% in 1997 these pale into insignificance when one considers that government spending stood at only 30.2% of GDP in 1960. So while the spread of the state and increase in government spending was certainly stopped under the Conservatives, to say that they succeeded in rolling back the state was clearly not the case.
Clearly the primary focus of, particularly the first, Thatcher government was to reduce inflation. This was achieved after an initial increase in inflation to 18% in 1980 which was to some extent caused by the governments pledge to abide by the Clegg report which had the aim of redressing pay differentials which had arisen in the 1970’s between those sectors with strong unions and those without. The Clegg report thus awarded a number of substantial pay awards. However after this initial blip, a measure of the success of the fight against inflation can be seen in the fall in the rate of inflation after 1980. The rate of increase in the RPI from 1974, the first year RPI annual increase stood at over 10%, to 1979 was 15.7% per year. While from 1979-1992 the average RPI increase was 7.2%. Even with the high inflation of the late 1980’s caused by the Lawson boom RPI never increased by more 9.5% per year. Post 1992 when low inflation became a stated target for the government, inflation fell even further averaging 2.6% per year to 1997.
As we have seen in the last section Mrs. Thatcher’s and more generally Thatcherism’s time in office has inarguably changed Britain in many, seemingly permanent ways. I believe the two most significant accomplishments were the, likely permanent breaking of union power and the equally permanent seeming, defeat of inflation. Indeed, now a central feature of economic policy is the setting of inflation targets, which are partially managed by the now independent Bank of England, to ensure continued moderate price rises.
Clearly there were many other achievements of Thatcherism not least returning to Britain its sense of pride and standing in the world. Britain is no longer, as was the case for much of the 1970’s, the sick man of Europe.
While the economic success of Thatcherism, in my opinion, cannot be argued with, its social impact has been far more ambiguous. The most obvious negative consequence has been the increasing divide between the haves and have-nots, clearly shown by the reappearance of the homeless on the streets of Britain’s major cities and further evidenced by the fact that while overall average income increased by 37% the poorest 10% of the population were actually 18% worse off by 1992. To a degree this widening of the social divide was by design to encourage a wealth creation mentality and to increase the incentives for that wealth creation.
In conclusion Thatcherism has had a profound and lasting impact on Britain and to some degree the world. This impact has been both positive and negative but I believe on balance the positive effects have far out weighed the negatives.
Bibliography
Alan Sked and Chris Cook, Post-War Britain. A Political History. New Edition 1945-1992. Penguin 1993
Roger E. Backhouse, The Penguin History of Economics, Penguin 2002
Eric J. Evans, Thatcher and Thatcherism Second Edition, Routledge 2004
Jeremy Black, Britain Since The Seventies. Politics and Society in the Consumer Age, Reaktion Books 2004
Subroto Roy and John Clarke, Mageret Thatcher’s Revolution. How it Happened and What it Meant, Continuum 2005
Todd G. Buchholz, new ideas from dead economists, Penguin 1999
Peter Hennessy, The Prime Minister. The Office and its Holders Since 1945, Penguin 2001
Edward J. Nell, Free Market Conservatism. A Critique of Theory & Practice, George Allen & Unwin, 1984
John Charmley, A History of Conservative Politics 1900-1996, MacMillan Press, 1998
Alan Booth, British economic development since 1945, Manchester University Press, 1995
Peter Clarke, Hope and Glory.Britain 1900-1990, Penguin, 1997
Nicholas Crafts, Supply-Side Policy and British Relative Economic Decline, in HM Treasury, Economic Growth and Government Policy (London, 2001), 23-30.
Robert Twigger, GDP per capita in OECD countries: UK’s relative position, House of Commons Research Paper 98/64, 1998
Peter Clarke, The Rise and Fall of Thatcherism, Historical Research, vol.72, no.192, 1999
Friedrich A. Hayek, Can We Avoid Inflation? lecture before the Trustees and guests of the Foundation for Economic Education at Tarrytown, New York on May 18, 1970.
Arthur Kemp, The Political Economy of Milton Friedman, Modern Age Quartetly Review, 1978, 8-17
Peter G. Klein, Biography F.A.Hayek (1899-1992), http://www.mises.org/ content/hayekbio.asp
A welcome and reasons
Welcome to my Blog, which I am hoping to keep up regularly, commenting on anything that sparks an interest. The reason for the name? Well you will just have to ask any Russian friends you may have.
I have been encouraged for some time to set this Blog up by my better half. Her official reason for encouraging it is to allow me to share my interests, views and opinions with the wider world. The probable real reason however, is so that she doesn't have to listen to me pontificating quite so much.
Above (my second post) you will find an essay I wrote as part of a part time course, A Short History of Economic Thought, I attended at Birbeck and The LSE.
I have been encouraged for some time to set this Blog up by my better half. Her official reason for encouraging it is to allow me to share my interests, views and opinions with the wider world. The probable real reason however, is so that she doesn't have to listen to me pontificating quite so much.
Above (my second post) you will find an essay I wrote as part of a part time course, A Short History of Economic Thought, I attended at Birbeck and The LSE.
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