Britain's economy transformed under Thatcher

As Margaret Thatcher was one of the most political figures of modern British history, there was a depressing inevitability about the sporadic street parties celebrating her death.

The events were rare and in the worst possible taste, yet the plaudits and criticisms delivered by political and business leaders from across the spectrum following her death at the age of 87 were indicative of the way the former prime minister split opinion.

Fittingly, Thatcher’s efforts to transform Britain’s economy during her 11-year premiership have proved no less controversial than the memory of the woman herself. Undoubtedly, her economic policies and business reforms changed the country. But did they change it for better?

When Thatcher came to power in 1979, Britain was derided as the ‘sick man of Europe’. The country was in thrall to militant trade unions; partly as a consequence of this, the UK’s much-vaunted manufacturing industry was falling behind the US, Japan and Europe in terms of productivity and quality.

Chief among her reforms was the sell-off of state-owned industries to the private sector. Well-known public companies such as Rolls Royce, British Gas and BT were all privatised. Though controversial at the time, the reforms subsequently became “accepted wisdom”, according to Mark Littlewood, director-general of think-tank the Institute of Economic Affairs.

“Her greatest achievements were undoubtedly her economic reforms. During an immensely difficult time, she managed to steer the economy to safety by privatising state-owned industries, curbing the growth of government and reducing the stranglehold of the trade unions,” he said.
Fulsome praise was also forthcoming from John Cridland, director-general of the CBI.

“Baroness Thatcher’s leadership took the UK out of the economic relegation zone and into the first division. What Baroness Thatcher did to reshape the British economy gave us a generation of growth,” he said.

But while Thatcher reversed the UK’s economic fortunes – the recession of her first term, which was the worst since World War II, gave way to GDP growth of 29.4% during her government – many of her measures remain divisive. Her policies are difficult to disentangle from the global shift towards free market capitalism, while measures to unshackle the City, which came to be known as the Big Bang, have been criticised as a precursor of the 2008 financial crisis.

Freedom of the City
Along with the liberalisation of City working practices in 1986 – which included the change from open-outcry to electronic, screen-based trading, and pulling down of barriers between City firms and advisers and opening up the market to foreign players – abolishing exchange controls in 1981 set the path for London to become the pre-eminent global financial centre.

“The Big Bang paved the way for the spectacular growth of the financial services industry in the UK,” Iain Begg, a professor from the London School of Economics, told the Associated Press. “It went from a cosy banking centre doing business with the rest of the world to a major league player earning money from the rest of the world.”

At their worst, the reforms engendered a culture of insatiable greed, neatly summed up by Gordon Gekko’s “greed is good” mantra in the 1987 film Wall Street, Oliver Stone’s parable of financial greed and stupidity. They also fired the starting gun for further light-touch regulation and banking deregulation pursued by the Labour administrations of Tony Blair and Gordon Brown.

Romano Prodi, the former prime minister of Italy, put it bluntly in The Telegraph. “Thatcher and [Ronald] Reagan are the fathers of the global crisis,” he said.

Other experiments, namely her adoption of monetarism – controlling the amount of money in circulation to manage inflation – were equally important. “When she came to office, controlling inflation was considered as the anchor of policy,” said Dennis Turner, former chief economist at HSBC. “The mantra said a low inflation rate would lead to stable interest rates and a stable pound.”

The policy worked insofar as Thatcher was able to reduce inflation to 4.6% by 1983 from 10.7% at the time of the 1979 general election. The problems emerged due to difficulties in deciding how to measure money and Britain’s move to a ‘petro currency’ with the boom in North Sea oil. The boom in oil production kept the exchange and interest rates high, further damaging Britain’s already flagging manufacturing industry.

Whether loathed or loved, Thatcher’s influence on the world of business continues to be felt. The destruction of the manufacturing base is slowly being repaired as part of the heralded “rebalancing” of the economy, and the City is viewed with a mistrustful eye. Yet her economic philosophy had perhaps the most profound effect.

Free markets are now the norm and, though monetarism was quietly shelved in 1983, her approach changed the way successive governments have viewed monetary and economic policy.