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Margaret Thatcher: the woman, the legend … and the myths
William Keegan:
Far from being a time of economic miracles, growth in the 80s was no better than it was in the 70s: and inflation was conquered only by the effects of a long and damaging recession
It could be said of the politically Naïve fraternity (including my mother and late aunt), that thay prefer the legend to the facts.
It has been like that following the death of Margaret Thatcher, with the latter in the role of "The Woman Who Transformed the British Economy". As one who chronicled events from 1979-90, I have to say it did not feel like that then and does not feel like that now.
One would expect a "transformation" of the economy to show up in the statistics for economic growth. But what the facts show, as opposed to the legend, is that the annual rate of increase in GDP between 1980 and 1989 was 2.2%, exactly the same as the 2.2% per annum recorded between 1970 and 1979, the decade when everything was supposed to be going to pot.
These statistics come from the late Christopher Johnson's balanced assessment of a most controversial period, The Economy under Mrs Thatcher 1979-1990. Johnson concludes: "Mrs Thatcher is likely to go down in history more for her political and military than for her economic and social record." As for "lasting" effects on economic growth, the average growth of GDP since 2005 has been an exiguous 0.6%. Some transformation!
There was always something bogus about Thatcher. The prayer she quoted in 1979 about peace and harmony was the work of a French cleric during the first world war, and had nothing to do with St Francis. Harmony was the last thing Britain's first woman prime minister brought to her country.
Unfortunately, the sale of council houses at knockdown prices, while popular, led to no serious attempt to build more social housing – this didn't fit with the dogma – so the seeds were sown for the housing crisis of today.
Productivity was generally considered one of the successes, but this was less a case of a miraculous industrial revival than of a higher batting average because fewer people were playing. I recall asking whether, in their obsession with small business, it was the Thatcherites' ambition to turn every large business into a small one.
The problems were evident from the beginning. Having inherited an inflation rate of 10% in 1979 and promised to halve, if not eliminate, it, Thatcher presided over a policy – monetarism – which, far from conquering inflation, was so ineffective that within a year inflation had risen to almost 22%. Thanks to the worst recession since the second world war, the year-on-year rate of inflation was down to 3.7% by the time of the 1983 election.
It was not just dead industrial wood that was lost: many thriving firms went under. At one stage, the chairman of ICI asked Thatcher whether, given the squeeze, she wanted firms such as his to remain in Britain.
Thatcher was the most unpopular prime minister since records began – until the Falklands war. She was lucky to win the 1983 election, because the opposition was split, thanks to the breakaway from Labour by the Social Democrats – who, if they had stayed, might have helped to dissuade Labour from running on a vulnerable ticket.
Apart from trade union reform and misleading achievements in productivity, the Thatcher period was noted for offering privatisation not only to this country but to the rest of the world. Some was good; some was bad.
But the gravamen of the economic charge against her is the neglect of manufacturing industry. Although output did grow a little over the period, our performance was far more sluggish, vis-a-vis the rest of Europe and the wider OECD area, than you would think from all the crowing about economic "miracles". As Jim Prior, her first employment secretary, wrote of his monetarist colleagues: "Their attitude to manufacturing industry bordered on the contemptuous. They shared the view … that we were better suited as a nation to being a service economy and should no longer worry about production."
Having created an unemployment crisis in order to reverse the (largely) self-inflicted doubling of inflation, the Thatcher government proceeded to create a "dependency culture", massaging the figures by encouraging the jobless to claim disability benefit.
Privatisation hardly figured in the 1979 election. It was subsequently seized upon as a diversion from the wider failure of economic policy and a useful source of revenue. But the most adventitious source of revenue was the North Sea – a source to which one Thatcherite would refer as "what we are using to finance unemployment".
Poverty increased dramatically, as society became more unequal, and the postwar consensus was destroyed. As the sacked cabinet minister Lord Gilmour observed: "The sacrifice imposed on the poor produced nothing miraculous except for the rich."
Eventually, we had the Lawson boom, with inflation back to 10%, and, all other panaceas having failed, recourse was had to the Exchange Rate Mechanism to control inflation.
Well before the poll tax and the difficulties over Europe, the impression gaining ground in her cabinet was that the prime minister was showing signs of going off her head. The manner in which she behaved, and, finally, the way her cabinet colleagues responded, poisoned the Conservative party.
No wonder they prefer the legend.