Thatcher v Keynes
January 2, 2013Posted by on
‘I shall never cease to admire her courage and determination. – But at the end of it, she was a great and noble failure, who forgot or ignored half of what she really needed to do, and so lived to see almost all her successes negated. And until conservatives in Britain and America are ready to recognize that, they too will fail, over and over again’.
Abridged here from a commentary with the title Anatomy of Thatcherism that first appeared in 2009 at the Project Syndicate and written by Robert Skidelsky, he would seem to support Hitchens’ view of Margaret Thatcher. Clearly a Keynesian, Skidelsky sees Thatcherism as the outcome of Thatcher/Reagan economics.
‘The Thatcher revolution inspired policies to free markets from government interference. Many people attribute the global crisis to these very ideas, the Anglo-American model of capitalism is deemed to have failed. The following hindsights are judgement on which elements of the Thatcher revolution should be preserved, and which should be amended as a result of global economic downturn’.
The Thatcherite assumption was that that minimally managed and regulated markets are both more stable and more dynamic than those subject to extensive government intervention. The period 1950-1973, with no global recessions and faster rates of GDP growth – and growth of GDP per capita – than in any comparable period before or since. Recorded economic comparisons show that markets plus government have done better than markets minus government.
By the 1970’s the pre-Thatcher political economy was in crisis simultaneously rising inflation and unemployment indicated something wrong with the system of economic management of John Maynard Keynes. Government spending was on the rise, labour unions were becoming more militant, policies to control pay kept breaking down, and profit expectations were falling. Thatcherism emerged as the alternative to state socialism.
Thatcher’s government’s anti-inflationary policy was the Lawson doctrine of macroeconomic policy coupled with conditions conducive to growth and employment. Here too the record since 1980 has been patchy. Inflation in 1950-1973 and 1980-2007 was about the same, just over 3%. Inflation targeting failed to prevent a succession of asset bubbles that brought recessions in their wake.
Keynesian orthodox macroeconomic policy aimed at full employment was overturned by the Lawson doctrine and the “supply side” reforms introduced by Thatcherite governments. Unemployment has been much higher since 1980 than in the 1950’s and 1960’s
The de-regulating financial markets worldwide brought about the corruption of money, without improving on the previous growth of wealth – except for the very wealthy. The average world citizen would have been 20% richer had world GDP per capita grown at the same rate between 1980 and 2007 as it did between 1950 and 1973. In unleashing the power of money, the Thatcherites contributed to the moral decay of the West.
By returning most state-owned industries to private ownership, the Thatcher revolution killed off state socialism. The British privatization program’s greatest influence was in the former communist states, to which it gave the ideas and techniques needed to dismantle grossly inefficient command economies. This gain must be preserved in the face of the current clamour to “nationalize” banks.
Set up to protect the weak against the strong, labour unions had become, by the 1970’s, enemies of economic progress, a massive force of social conservatism. It was right to encourage a new economy to grow outside these structures.
Thatcherism ended the policy of fixing prices and wages by central “bargains” between governments, employers, and trade unions. These were the methods of fascism and communism, destroyers of economies and political, liberty.
Skidelsky concludes that in rebuilding the shattered post-Thatcherite economy, we should be careful not to revive the failed policies of the past. As long as central government takes responsibility for maintaining a high and stable level of employment, Keynes thought, most of the rest of economic life can be left free of official interference. Building a proper division of responsibility between state and market from this insight is today’s main task.