A WEEK IN ECONOMICS (02/04/13 – 08/04/13) THATCHER AND FREEDOM

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Week-in-Economics

Margaret Thatcher is dead: Long live Thatcherism! This is not a slogan left wing activists will support; in fact, many have expressed their revulsion for the Iron Lady in a series of protests, articles, parliamentary debates and pop songs. The intense contempt that has been expressed is paralleled by exhortations of her positive contributions to the UK economy. Thatcher brought the UK – considered a basket case of Europe in the 60s and 70s – into economic prosperity. As her funeral approaches on the 17th April, there is profound differences in opinions on the legacy of Margaret Thatcher.

The difficulty in measuring the impact of a leader on society is ascertaining what the alternative would have been. If Margaret Thatcher had not taken the reins of power, how different would the UK have been? Commentators have been assessing pre-Thatcher UK noting high inflation and unemployment, the strength of the trade unions, exchange controls, house purchase liberalisation, nationalised industries, and financial deregulation. The Thatcher government, lasting from 1979-1990, completely changed the face of the UK economy. During her stewardship, inflation, which during the 70s was fluctuating and at one point was over 20%, fell and stabilised between 5-10%. Unemployment, in general, increased; trade unions were weakened significantly. Today, unions are less powerful, and strikes less common. However, there has been an increase in wage inequality. Exchange controls were abolished and credit restrictions were eased, allowing foreign direct investment, and increased holidays abroad as travellers could carry more cash when travelling. She ensured (council flats and the like) tenants renting from local government were given the right to buy to help labour mobility, and the private renting market was deregulated. This has caused an increase in appetite for property as an investment asset, raising prices and creating property bubbles. Her greatest contribution was to privatise nationalised industries in energy, telecoms, manufacturing and travel industries. The bulk of the economy is now being run by private interests, companies in which individuals can invest as shareholder.  For Thatcher, businesses created wealth, not government. In this regard, financial deregulation, culminating in the Big Bang of 1986 which broke the grip of vested interests and opened the space for international financial institutions to enter the UK, allowed the UK financial system to become a hub. GDP has risen by 29.4% since the 1970s and more jobs have been created in the service sector with a decrease in the manufacturing sector.

Critics are keen to point out that the  economic crisis currently experienced by the UK is due to Thatcher’s commitment to the free markets. In her obdurate pursuit, she is accused of encouraging a culture of greed and destroying traditional industries, which together have broken the social fabric of society. Individualism marks today’s society; not social cohesion. Thus, the vituperative reaction from socialists and labour politicians such as Glenda Jackson stems from their dismay at how modern society is progressing: consumerist, individualistic and driven by a money lust

In its more simple manifestation, neoliberal concepts of the free markets and the invisible hand assume that the market participants will eventually meet at an equilibrium price and quantity. In the event of market failure, such as monopolies charging higher prices for lower quantity, or failure to provide public goods, government will intervene through regulation, taxes or subsidies. No market can ever be truly free; governments are required to enter on certain occasions.

Irrespective of whether a state is a free market economy or centrally planned, governments should uphold three broad principles:

1)      Protection

Governments are responsible for the protection of their population through securing borders, and policing the state. This will also mean a strong rule of law, so that citizens know their rights and are not upended wrongfully by fellow citizens or organs of the state. They should also protect the general wellbeing of their citizens.

2)      Maintenance

Governments need to maintain the infrastructure and the aesthetics of the country. Roads are important for communication; cleanliness is important for living standards.

3)      Empowerment

It is expedient for citizens to feel free, and not oppressed. This is a very esoteric element and rests upon access to knowledge, employment, and also social activities.

While general, these principles are the foundation of a market economy; without them, a market economy is likely to crumble. However, if the government provides all services, it is likely to become bloated, and inefficient. In this regard, Thatcher’s commitment to the free markets was to reduce the burden on the state. (paradoxically, public spending rose to account for growing unemployment (benefits increased) although as a percentage of GDP it decreased). To reduce pressure on the government entails putting power into the hands of people, i.e. empowerment.

The problem is how invested a people will be to ensure their own living standards. Today the Conservative government are introducing a radical reform program on welfare, which will save the government £19 bn. The welfare cuts are intended to spur the private sector into greater dynamism and create more jobs. Unfortunately, it is anticipated that removing benefits will negatively affect areas such Blackpool, whose inhabitants are marked by low skills. The government are expecting private sector companies to set up in these regions, but if money is tight, then this will mean little demand for goods. In this scenario, what use is the private sector?

So the first point before removing benefits should be increasing skill sets, and providing the avenue for goods to be sold in this region. These two things have to work hand in hand, requiring the government to work with the private sector. In doing so, there can be a change in working culture, and more investment of both public and private sector into the affairs of the people. It is on this point where we find the most important criticism of Thatcher: she failed to understand the needs of the people. But in dismantling the state influence, Thatcher imparted to the private sector the responsibility of taking care of its stakeholders (specifically, the consumers and the employees). Their failure to so show more flaws in the private sector, than the state that enabled it to have a greater consciousness of the people it depends on. Freedom, and empowerment, has responsibilities.

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