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The Legacy of the Iron Lady

November 14, 2012

Has Thatcherism been embraced and sustained by British political parties?

Bishopsgate Institute

Mark was asked last night to debate the legacy of Margaret Thatcher with one of her former Cabinet ministers, Cecil Parkinson, journalist Owen Jones, and former Labour Cabinet Minister, Clare Short, at the Bishopsgate Institute, Liverpool Street. Below are some of the notes he made in preparation for the event. To learn more about the Bishopsgate Institute, visit www.bishopsgate.org.uk 

–          Loved and vilified in equal measure, there is no doubt that Margaret Thatcher changed the face of this country as the bridge between post war and 21st century. For many people coming of age during her tenure, she inspired a generation.

–          Margaret Thatcher became Prime Minister when I was fourteen and left office when I was twenty six. I was a grammar schoolboy in the 1970s when selective education was under threat. I was repelled by the politics of envy and class war rhetoric at that time. From then on, I preferred the ideas she personified and articulated of choice and individual responsibility.

–          By the time I left university Mrs Thatcher had firmly stamped her mark on our nation and I was convinced that the UK was a place of infinite possibilities. I set up my first business as an undergraduate, got myself professionally qualified, sold that business, set up a second enterprise – all by the age of 29 and here in Britain. These are the very experiences that made me a Conservative – the negative, divisive class warfare of the 1970s versus the exciting sense of aspiration and self-belief that came with Thatcher’s radical liberalisation of our nation.

–          The contrast with today is stark. Nowadays even our most talented young Britons graduate with substantial debt and poorer employment prospects in a higher tax, less competitive domestic economy where they are asked to pay off our nation’s terrifying collective borrowing.

–          The contrast is even starker when compared to the state of this nation by the end of the 1970s, a desperately difficult decade both politically and economically. Britain had become complacent about its place in the world and was being left behind as it failed to grasp the new rules of engagement in the global economy. By 1974, an energy crisis, runaway inflation and a second miners’ strike in two years did for Ted Heath and his government. Harold Wilson and his minority administration fared little better with inflation running at nearly 30% by the end of his tenure, the IMF having been called upon in 1976 to bail Britain out to the tune of £2.3bn (what now seems a paltry sum). As the decade drew to a close, the Callaghan government appeared impotent as it grappled with wage inflation, rising oil prices and belligerent unions. The Winter of Discontent, when nationwide strike action left rubbish uncollected and coffins unburied, provided the iconic images to accompany this sclerotic era.

–          Few under the age of forty can imagine what Britain was like at this time but it is worth reminding ourselves since it helps to understand how the 1979 election represented a real crossroads moment that had the potential to change our entire national direction and just how far our country has come since. Against a backdrop of paralysis, Margaret Thatcher presented a distinctive and radical offering to the electorate. For those who now bemoan her as a divisive politician, they might well recall the divided and dysfunctional country she inherited. By the time she left office, she had restored a sense of pride and confidence in our nation and Britain was a more exciting, prosperous and dynamic place.

–          Upon taking the reins in 1979 the incoming Thatcher government signalled unashamedly that the UK was open for business by abolishing foreign exchange controls. For modern Britons it must seem almost unbelievable that until then whenever travelling abroad you needed to take your passport to be franked at your bank when taking foreign currency abroad.

–          Crucially, her philosophy was about empowering the individual, particularly those who demonstrated a hunger to get on – the ‘workers not shirkers’ or ‘our people’. She understood aspiration in a way that the modern Conservative Party perhaps has not. As she once retorted to Gorchachev when he was critiquing her party, ‘the Conservatives are trying to create a society of haves, not a class of them’. In this way she encouraged individual share ownership and the buying of council houses by their tenants. She liberalised the economy so that people were free to set up businesses and profit from them. And she actively encouraged competition so that consumers would get the best deal and companies would be able to take on the best businesses worldwide.

–          Politically, she changed this country beyond recognition. Whatever her detractors say, the fact remains that Mrs Thatcher was chosen democratically by Britons in three consecutive elections. Not only did she effectively leave the Labour Party out in the cold for eighteen years but she fundamentally challenged her own Party, taking on its establishment and breaking boundaries as a meritocrat who rose to the top not as a result of or in spite of her gender or background but because she worked hard and had the courage to lead.

–          If there was one thing that Mrs Thatcher had in spades, it was authenticity. People knew what she stood for and were able to respect that, even if grudgingly. Since her decline, the absence of leadership and dearth of choice has been a frequent lament in British politics and it is notable how no government or Prime Minister has since tried to dismantle the central tenets of her philosophy.

–          In this constituency of the Cities of London & Westminster, Mrs Thatcher’s most notable legacy is in the liberalisation of the City following the 1986 Big Bang of financial deregulation, something that is now being regularly held up as the cause of the 2008 bust. Before that time, our banks were failing to compete on the international stage. The City was being run like an old boys’ club and was beginning to lose out to rival financial centres. Wall Street was rapidly adopting the derivatives market and introducing automation for programming trades, making London only a backwater. By 1986, London’s trading volumes were a fifth of the size of Tokyo’s and a thirteenth of New York’s while Frankfurt and Paris were starting to be seen as the European alternatives.

–          The Prime Minister and her Trade and Industry Secretary, Cecil Parkinson, introduced the Financial Services Act of 1986. It aimed to internationalise the City, allowing overseas firms to compete in London markets. The fixed commission rule was deregulated, ensuring that stockbrokers had to become more competitive. It eradicated the separation of the broker and market maker and it opened the London Stock Exchange to outsiders, encouraging a wave of mergers and acquisitions. The effect on City life was profound. Once again Mrs Thatcher was breaking down established elites and protected industries so that more people could compete within and benefit from the system.

– The wealth of professionals and business people in the City spent money on housing, restaurants, culture, education, domestic services. Many engaged in philanthropy, to the enormous and lasting benefit of London’s galleries and museums, theatres and charities. The face of London changed forever and for the better, with our city becoming one of the most diverse and exciting places on earth.]

–          The City came to represent a crucial source of revenue to central government and one which the Labour government in particular enjoyed enormously, using the seemingly never ending stream of money to build new schools and hospitals and expand the state.

–          Whether Big Bang was good or not, in light of all that has happened, is hard to ascertain since we do not know just what the British economy or London would have looked like without it. In the absence of Big Bang, would Britain have enjoyed any of the successes of the past two decades?

–          It also depends on one’s diagnosis of our current problem. I would suggest that we are in the midst of a crisis not of capitalism but welfarism. In Western democracies, the state as a share of GDP has become too large and we simply cannot afford it. The state has been able to expand courtesy of loose monetary policy which allowed governments to borrow and private citizens to feel richer and more relaxed about the size of that state as they were borrowing themselves. These developments undermined the Thatcherite philosophy of self reliance.

–          Would Mrs Thatcher have overseen such a state of affairs? Unlikely. Yes, there were unintended consequences of Big Bang. Long term relationship banking was replaced by short term transactional banking. The bonus culture grew up and insuperable conflicts of interest were woven into the system so that brokers worked primarily for their own interests, not those of their clients.

–          However Big Bank liberalisations were later warped when the tripartite regulatory system was introduced by Chancellor Gordon Brown and when combined with excessively loose monetary policy and the consequent expansion of credit and overleveraging of households and governments. If anything, Mrs Thatcher was a crusader for tight monetary policy. She abhorred debt and called upon households and governments to follow the budgetary discipline of the housewife. I suspect she would have fundamentally rejected the notion of ‘too big to fail’, the reward for failure and the way in which competition has been crowded out following the credit crunch.

–          In this way, Thatcher’s legacy has been sorely absent from the governmental response since 2008 to the financial crisis. This has seen failed institutions propped up, even renationalised, the pumping of money into the system regardless of the inflationary consequences and the kickstarting of the economy through Keynesian pump priming rather than lower taxes and looser labour laws.

–          Myths – Public spending was not savagely cut during the Thatcher years. Quite the contrary. Public spending fell only in two years of her tenure. In all the others it rose by an average of 1.4% a year. Critically, however, as a share of GDP, public expenditure shrank from 44.6% at the beginning of her time in office to 39.4% at the end. Between 1984 and 1988, GDP grew by an average of 4.7% a year. In 09/10 the state had crept up to represent 47.4% GDP.