Under the banner of so-called “supply side” economics her economic assault to restore the competitiveness of the British economy was three pronged. First, trumpeting the virtues of free markets, privatisation was the centrepiece of her policies. By value, almost half of the stock of public assets was transferred to private ownership during Thatcher’s term of office – including utilities such as telecommunications, gas, electricity and water and flagship firms such as British Airways. Although the rhetoric may have been one of promoting a property owning democracy, in reality shares were quickly concentrated in the hands of rich individuals and large firms.
Attacks on the unions
Second, in the name of flexible labour markets and increasing incentives there were draconian attacks on trade unions and a reduction in rights in the workplace. On the tax front, the structure of income tax, which spanned rates from 25 to 98 percent in 1979, was slashed to only two – a basic rate of 25 percent and a top rate of 40 percent. The budgets of 1979 and 1988 in particular were a bonanza for the rich and wealthy and decisively increased inequality and poverty.
Third, in financial markets Thatcher scrapped international capital controls in 1979 and all direct banking controls were phased out between 1979 and 1981. In 1986 the “Big Bang” liberalised banking and finance and replaced centralised control with “self-regulation”. Other countries quickly followed suit, and this set the scene for a massive expansion and globalisation of financial markets.
Thatcher’s acolytes claim she presided over an economic miracle and cite improvements in productivity between 1982 and 1990 (4.9 percent compared with 1.9 percent between 1973 and 1979) as evidence for this. But to suggest that this restored the competitiveness of British capitalism is a myth. The gains that were made were due to the savage shakeout of industry during the 1979 to 1982 recession – which saw unemployment double from 6 percent to 12 percent. It was almost completely due to the intensification of work. The assault on unions and workplace organisation meant that bosses were able to get people to work harder and longer – in other words, as Marx put it, to raise the rate of exploitation. This is what really lay behind supply-side economics.
But firms did not respond to this by investing in more and better technology. Between 1979 and 1988 the capital stock in Britain rose by only 2 percent. But even this was highly unbalanced. The net real investment in banking, finance and business services was 8.2 percent per year compared with a mere 1 percent in manufacturing, and this laid the foundations for a massively distorted economy based on the finance sector. Thatcher shocked British capitalism into a one-off productivity gain through the intensification of work. She did not lay the foundations for the long-term recovery of British capitalism.
A watershed?
Writing in International Socialism in 1987 Pete Green noted that there were those who saw Thatcher and her cronies as “a bunch of wild and fanatical ideologues who hijacked the Conservative Party”. They argued that Thatcher constituted a decisive break with policies that had characterised the long post-war boom and been pursued by Labour and Conservative governments alike. But it is not the case that monetarism and the abandonment of so-called Keynesian economics were an innovation by Thatcher. These had already been put in place by her predecessors in the Labour government. The watershed was in 1976 when, after a bail-out from the IMF, the goal of full employment was abandoned. Monetary targets were adopted and cash limits put on public spending, which was cut by 8 percent in 1977, for example.
The coming crisis
Thatcher did not cause the world economic crisis of 1979-82 or the one in the early 1990s. But she did make these recessions deeper and longer and her government shifted the burden decisively and purposefully onto working class people as whole swathes of manufacturing were wiped out in a process of “creative destruction”. The causes of crisis lie deep in the capitalist system. However, Thatcher was the author, with then US president Ronald Reagan, of the entrenchment of the neoliberal policies that triggered the current crisis. Thatcher’s policy of the right to buy council housing and the liberalisation of the financial sector shaped the economic booms of the late 1990s and most of the 2000s and at the same time laid the foundations for the economic crisis and recession since 2007.
As well as Pete Green’s article in International Socialism 35 (1987) “British Capitalism and the Thatcher Years”, Nigel Healey’s “The Thatcher Supply Side ‘Miracle’: Myth or Reality”, which appeared in The American Economist (Vol.36, no.1) in 1992, was also very useful in writing this article.
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