What is Margaret Thatcher’s economic legacy?

The reflections on Margaret Thatcher’s legacy this week have shown how difficult it remains to get the right perspective on those years.  Some have highlighted what they see as her essential economic reforms.  Others have noted the social divisions which were at the least exacerbated during her premiership.  Ed Miliband was able to acknowledge Margaret Thatcher’s achievements while reflecting the differences of opinion in a respectful and thoughtful statement to the House of Commons this week.

A distilled Labour view of the Thatcher legacy perhaps came from Peter Mandelson. Speaking on Sky he said the economic reforms were a “necessary overhaul of the UK economy”.  However, he felt uncomfortable with this conclusion because “I think she was indifferent to the social consequences of the economic changes she was undertaking…[and] she could have done more to support the manufacturing base so her record is, in a sense, mixed.”  That is a pretty neat summary of the New Labour approach: the promotion of market forces, while helping those suffering negative consequences, coupled with a late reconversion to industrial intervention.

When Margaret Thatcher came to power in 1979, so-called Keynesian economic orthodoxy had been discredited.  Keynesianism was a term used to explain all sorts of poor economic decision-making, and somewhat detached from the views of the Great Economist himself.  Even Labour in government had begun experimenting with monetarism. However, amongst other things, a bail-out by the IMF helped destroy our economic credibility.

The Thatcher government believed in freedom and it applied this to economics.  It believed not only in monetarism to fight inflation but in the power of free markets and ‘creative destruction’.  On this basis, as new technology and manufacturing processes developed, so those companies unable or unwilling to change would fail, leaving the way clear for new companies and new industries.  This is how a market economy works but if the negative consequences are not mitigated for people, whole communities can be devastated.  This is what happened.  While the reforms did promote enterprise, they also led to the highest level of unemployment this country has seen.

The impact was profound in places as economic growth seemed to pass whole communities by.  The years of ‘Loadsamoney’ were also the years of rising inequality.  The years of easy access to credit were also the years of urban poverty, as documented by the ground-breaking ‘Faith in the City’ report by the Church of England, which led to the creation of the Church Urban Fund.  When we debate the Thatcher legacy we need to pause to think about the people and communities that were affected.  A philosophy of freedom turned out in practice to restrict the economic freedoms of many.

The Thatcher economic reforms cannot be isolated from the social consequences, as if a bit more effort could have made things a bit easier for people.  To have given more support for manufacturing would have run against the very economic model the Conservatives were using.  Besides, by 1979 government intervention in industry had been discredited as it had departed from economic reality.  There is no such thing as ‘Thatcher-lite’ economic reform,  ‘Progressive Thatcherism’ or even ‘One Nation Thatcherism’.  The battle lines were starkly drawn in the 1970s and 1980s.

There were alternatives. North Sea oil exports pushed up the pound, making it harder for other companies to export.  This was the well-documented ‘Dutch disease’ that faced oil exporting countries.  The Thatcher government channelled some of the the oil revenue into tax cuts.  A more permanent solution would have been to use more proceeds for investment, for example in infrastructure, or better education and training, to help reduce the impact of declining industries; a somewhat more Keynesian approach but one which invested in the future of everyone and not just a few.

What lessons can Labour learn today?  We first have to realise that some fundamental economic reform is required and there are still vested interests we will need to challenge.  We cannot simply repeat the old economic model bequeathed to us by the Thatcher years.  Nor can we revert to the corporatism of the 1970s.  Our values and instincts will lead us to take a ‘One Nation’ approach but that requires a much better and deeper dialogue with the electorate than Margaret Thatcher had. We will want to avoid talking about ‘enemies within’ but not avoid explaining and taking difficult decisions.  Above all, we need to find ways to stimulate the economy while investing in everyone’s potential rather than that of a few, using the market to harness creativity while leaving no one’s well-being solely dependent upon its mercy.

Stephen Beer is an investment manager at the Central Finance Board of the Methodist Church and author the Fabian pamphlet ‘The Credibility Deficit – how to rebuild Labour’s economic reputation’ which advocates a Keynesian economic policy.  This article represents his personal opinion.