The policies of Mrs Thatcher: "we will not reflate"

Margaret Thatcher’s political approach was founded in a central belief in individualism.  Milton Friedman famously commented:  “the thing that people do not recognise is that Margaret Thatcher is not in terms of belief a Tory.   She is a nineteenth-century Liberal.”  Her assertion that ‘there is no such thing as society’  was not a slip of the tongue, nor was it misrepresented; it echoes related statements by Bentham and Hayek (who she much respected), and it was central to her beliefs. 

The strong political convictions were not accompanied by any understanding of economics.    In 1981, 364 economists signed a letter in which they wrote: “there is no basis in economic theory or supporting evidence for the government’s belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment”.   Mrs Thatcher was still prepared to say in 1985 that  “we will not reflate”.  The statement is listed in the Thatcher archive as being followed by applause; as I remember the broadcast, there was rather more embarrassed silence.   She had just said that the government would do nothing to support economic growth (reflation) in the apparent belief that she was saying that the government would not devalue the currency (inflation). 

Her  economic policy was based not just in a belief in markets, but the argument advanced by Bacon and Eltis in the 1970s that the public sector stood in the way of the growth of the private sector and that markets  had to be permitted to operate.  Most economists recognised in the 1970s that Britain had fundamental economic problems, reflecting its reliance on the ‘old staples’ – coal, cotton, and heavy engineering.  The Wilson government had sought to modernise and ‘redeploy’, moving workers gradually to new industries and guding the relocation of industry to move work to workers.  The Heath government initially said it would not support ‘lame ducks’ but relented when it realised the implications for national defence and stepped in to save Rolls-Royce.  Thatcher, the first Prime Minister too young to have served in the war, pledged not to support declining industries regardless of the consequences.  Cuts, widely  condemned by economists at the time,  exacerbated the slump.  Unemployment soared to over 3  million – it would have been 5 million if the government hadn’t repeatedly changed the way unemployment counted.  Manufacturing industry disappeared.  Many parts of the country never recovered; we are still in the resulting slump.

In terms of social policy, however, Thatcherism is remembered more for what was said about welfare than what it did.  It is easy to forget, for example, that Margaret Thatcher was one of the prime movers of the 1980 Education Act, concerned with the integration of children with learning disabilities into mainstream education. If the welfare state is seen as an ideal, then Thatcherism was opposed to it; the Thatcher governments were criticised for the development of unequal provision, privatisation and the ‘residualisation’ of welfare (especially in housing). If, however, the welfare state is seen as a range of services, the practical impact seems more limited: welfare expenditure was largely maintained and even (in health and social security) increased. The greatest impact seems to have come not from the reduction of state welfare, but from the reform of public sector administration and management intended to imitate the workings of the private market. Much of the current policy of the Conservative Party today is concerned with the more fundamental task – a programme which may be presented as austerity, but has little to do with economic management and everything to do with ‘rolling back the frontiers of the state’.

The coverage of Margaret Thatcher’s record in the last week  has emphasised how divisive her politics were, and still are.    The Economist notes in their appreciation that in the early 1980s  “She was, for a time, the most unpopular prime minister on record.”  In July 1984, a Gallup poll for the Daily Telegraph showed that 34% thought Mrs Thatcher would be the best Prime Minister, when support for her party was at 37.5%;  in July 1986, Mrs Thatcher had 28% satisfaction, and 66% dissatisfaction, when her party had 33% support.  That, as I recollect, was the pattern throughout her premiership, with one exception – her management of the Falklands crisis.  It is often forgotten – and it was  denied  by her supporters at the time –  but she was consistently less popular than her party.

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