Friday, 19 April 2013

Margaret Thatcher R.I.P.

It's quite fascinating to witness how divided the UK is on the contribution Margaret Thatcher made to GB. I was living in South Africa during her rise to power, and to me she was undoubtedly the saviour of the UK. Around this time the UK was a basket case to do business with. We were importing frozen peas into SA and we were never sure if and when we would get them. Unions and strikes were the order of the day and this uncertainty eventually drove us away from our natural trading partner to find alternative sources which included France and Germany. Also we had a constant and increasing stream of Brits emigrating to escape the high taxes and frustrations of working in GB, so we learnt that hard work certainly didn't get any recognition!

Then along came Thatcher and step by step, change by change GB came alive again. So I would say that for those who grew up outside of the UK, she really did put the GREAT back into GREAT BRITAIN.

To sum up I have quoted extracts from a lecture in 1999.

What We Can Learn from Margaret Thatcher


Sir Rhodes Boyson

Margaret Thatcher has her place in world as well as British history. Her very name is used to denote a way of thinking: Thatcherism. She herself was not an original thinker, and on her resignation the editor of the Daily Telegraph described Thatcherism as a powerful collection of beliefs about the capacities of human beings in a political society. The ideas were not new but were put into operation by a very remarkable woman. It was the happy coincidence of the right person, in the right place, at the right time.

When she became leader of the Conservative Party in 1975, Britain was on the brink of disaster, threatened by total collapse. The weak Labour government with a small majority presided over a bankrupt economy in hock to the IMF and threatened from within by a challenge to law and order itself. When she was forced from power in 1990, she left a sound economy and a confident and well-ordered society. The lessons are writ large.

The achievement was remarkable, starting with the fact of being the only woman Prime Minister in British history -- something America has yet to emulate. She enjoyed 11 and a half years in office, longer than any other 20th century politician (in fact, the longest since Lord Liverpool in the 19th century). She won three successive general elections, two of them being landslide majorities, and lost none. The secret of her success lies in a combination of qualities, which both saw her into leadership and were the essence of her period in power:

  • Courage to see an opportunity and take it.
  • Decisiveness in times of crisis.
  • Clear beliefs held with an evangelical zeal. During the 1979 election, she ridiculed the Socialist Prime Minister Callaghan saying, "The Old Testament prophets did not say `Brothers, I want a consensus.' They said, `This is my faith; this is what I passionately believe; if you believe it too, then come with me.'" Her crusading qualities were embedded in her Methodist background, which gave a moral purpose to all she did.
  • Physical strength. She needed little sleep and would certainly have been killed by the IRA bomb in Brighton if she had not been working on her conference speech at 2:00 a.m.
  • Intellectual capacity. She entered Oxford at 17 reading chemistry.

She was a slight, pretty, feminine woman in a man's world. She turned what could have been a disadvantage into a useful weapon, and she had luck.

The "British Disease"

In the 1970s, Britain's economy was in a sorry state: Many people were regularly referring to the "British disease." This was not an exaggeration: "during the nineteenth century and the first three fifths of the twentieth century the United Kingdom remained ahead [in terms of output per head] of nearly all the main European countries."13 "Since 1960, however, an absolute gap emerged...[and] by 1973 most European Economic Community countries were 30 to 40 per cent ahead of Britain."14

Productivity was much lower than in continental Europe: According to studies by international corporations, at the end of the 1970s net output per head was over 50 percent higher in German and French plants than in corresponding plants in the United Kingdom.15 To top this all, Britain experienced rampant inflation -- from 1972 to 1977, while the OECD price level rose by 60 percent, the British level rose by 120 percent -- and high unemployment -- by 1977, the British unemployment rate was 7 percent, or 2.5 percent above the OECD average.

This appalling record seemed paradoxical to the late Mancur Olson: "Britain has had more giants of economic thought than any other country," and "[m]ost of the great early economists, and certainly men like David Ricardo and John Stuart Mill, were classical liberals." Their work had a definite impact on British public opinion: "classical liberalism was more popular in 19th-century Britain most countries of continental Europe." And yet, "Britain has suffered from the `British disease' of slow growth." He concluded: "[W]e need something besides the level of economic understanding to explain economic performance."16

It seems to me that Olson makes a mistake in lumping together the British economic thinkers of the 18th and 19th centuries with those of the 20th. First of all, while it is hard to dispute British supremacy in economic thought in the 18th and 19th centuries, I very much doubt that the same can be said of British economists in the 20th century. There have been notable exceptions, no doubt, but it seems to me that, compared to the previous centuries, the 20th century has been one of mediocrity as far as British economic thinkers are concerned.

Nor am I impressed by John Maynard Keynes -- whom Olson quotes as evidence that British supremacy in economic theory continued in the 20th century -- because his influence, in my view, has been disastrous. Britain and the world would have definitely been better off had Keynes devoted his tremendous intellectual powers to some other subject.

Finally, the majority of the Economics profession in Britain after Keynes' death in 1946 has been notable for its mediocrity and its contempt for the free market: Let's not forget the manifesto of 364 British economists against Mrs. Thatcher's policies. Contrary to what Olson thought, the "British disease" was another example of the power of ideas, of wrong ideas: The anti-capitalistic consensus among British economists has undoubtedly contributed to Britain's decline.17 In particular, let us see why Britain's stagflation in the 1970s and her relative economic decline did not take place despite the influence of John Maynard Keynes, but because of it.

Ideas and Interests: The Case of Britain

To put it bluntly, by the 1970s Britain was a basket case. Many economists agree that the excessive power of labor unions was responsible for the sorry state of Britain's economy.24 For example, according to Samuel Brittan:

[M]any of the particular perversities of British economic policy stem from the belief that inflation must be fought by regulation of specific pay settlements. To create a climate in which the unions will tolerate such intervention has been the object of much government activity. This has involved price controls, high marginal tax rates, and a special sensitivity to union leaders' views on many aspects of policy. The post-1972 period of especially perverse intervention began, not with a change of government, but with the conversion of the Heath Conservative government to pay and price controls.25

Brittan is referring to the disastrous economic policies uniformly pursued by Conservative and Labour governments in Britain during the 1970s.26 In particular, the Conservative government to which Brittan is referring started with admirable intentions. In the Conservative manifesto for the 1970 election, one reads:

[W]e reject the detailed intervention of socialism, which usurps the function of management, and seeks to dictate prices and earnings in industry.... Our aim is to identify and remove obstacles that prevent effective competition and restrict initiative.27

These admirable intentions were not followed by equally commendable policies. In fact,

[T]he Conservative government of 1970-74 was the most corporatist of the post-war years. Its economic policies ended in disaster and the Conservative party lost two elections in succession. Not surprisingly, Mr. Heath lost the leadership of the party....28

According to Brittan, the excessive power of organized labor also influenced the tax code, with devastating consequences:

For most of the postwar period the real trouble has been...not average tax rates but the very high marginal rates of tax, both at the top and at the bottom of the income scale. The top marginal rates are not only higher than in other industrial countries, but reached at a much lower level of income. These are entirely political taxes. The revenue collected at the top is trivial in statistical terms; and the real effect is certainly to lower revenue.... As the diversion of scarce energy and talent into trying to convert income into capital, or into benefits in kind not taxable at these rates.29