Friday, 12 April 2013

Thatcher and 'the markets'

Margaret Thatcher was Prime Minister of the UK between 1979 and 1990, regardless of whether you agree with her policies or not, she was arguably the most influential figure in the UK during the latter quarter of the twentieth century. One of her great successes was in the marketing of Conservative ideology. Part of the reason for this success was her clarity of vision and her conviction in her beliefs. She described her philosophy as simply;
  • Free-market
  • Small state
  • Low tax
  • Independence
  • Individuality
  • Self-determination
Taken in the abstract there is nothing particularly controversial in this statement of philosophy, however her single-minded zeal to reform the industrial landscape of Britain resulted in a much more unequal society.

The reason for this is probably a result of an imbalance between collective and individual freedoms. Society, as a concept, depends on a balance between collective freedom, individual freedom and justice. Thatcher famously derided this concept* and instead focused on the power of money to change lives. Lives were certainly changed by this belief in the power of money; but not all lives were changed for the better.

The basis for her belief in the power of money to enable individual freedom is best depicted by this quote from Galbraith “the greatest restriction on the liberty of the citizen is a complete absence of money”. Thatcher was determined to reduce poverty - to imrpove the lives of the working class. Uunfortunately she went about it the wrong way. Her policies failed to take account of the other restrictions on individual liberty; she was no feminist, she was anti-union and she was responsible for diminishing the powers of local government thereby inhibiting democratic accountability.

The skills and experience of industry were cast aside in a headlong rush to an increased focus on financial services. From the mid-80s financial services began, overwhelmingly, to be a means of accruing wealth rather then servicing production and the wider economy. The financial crisis of 2007 had its beginnings in the financial deregulation in 1986. Furthermore the importance placed on London both as a political and economic centre meant that economic growth in the South-East far outsripped all other regions. This region had always been wealthier but the proportionate increase in  this region (as evidence we could look at house prices) was significantly greater over this period.

The actions of Thatcher’s government and those of the current coalition are strikingly similar in their attempts to do away with the perceived dead-wood. They see industry or the public sector as unnecessary to increasing the wealth of the nation and therefore unimportant. In reality even non-productive sectors of the economy add to its stability and taking these away without first ensuring that there is a secondary means of support can have a significant effect.

To illustrate this I shall use the analogy of a house. Imagine if you will a bungalow with a pitched roof. The front and back walls support the roof and the side walls are therefore non-load-bearing, redundant. As they are not doing anything we could remove them and, providing that the forces stay the same, the roof won’t fall down. We can then erect an expensive looking glass wall to prevent the inside getting wet. This will keep everyone inside dry when it gets stormy and will look pretty and perform marvelously in letting the sunshine in to the dark rooms. But when the wind blows there is nothing to stop the walls from collapsing; there is no lateral stability, as the glass wall is not an integral part of the building. The glass shatters, the roof falls in and everyone gets wet. If we had built a structural framework before we took the wall down then the building would still be stable.

British industry may not have been well run in the 1970’s and during the 2000s it could be argued that there were too many people employed in the public sector, however these had an important buttressing effect against unemployment. They may not have created GDP but they did give people a way of earning a living. I am not in favour of nationalised industry and I would prefer a much smaller central state (albeit with powers and therefore jobs) devolved to local government; however I do believe that government has a role in helping people to support themselves. This, I think, is where Thatcher (and the current coalition) failed. They believe that the state should not intervene, that ‘the markets’ will find a natural balance. 

An example of this was the deregulation of financial services in 1986. The intention was stated as removing the vested interests of the elite and widening access to finance. Mrs. Thatcher apparently believed that this would enable small banks and building societies to thrive. The reality was that the market came to be dominated by big corporate entities comprising many merged banks and former building societies. The government of the time did not intend for this to happen. In my humble opinion this was the inevitable consequence of opening the door to rampant capitalism. Naked capitalism is the enemy of competition; maximum profits are gained by controlling the market and this can only be achieved by either creating monopolies or corrupting the system. Tories now try and blame this on lax regulation by the Labour government of 1997-2010. The laissez-faire culture started long before this; although Labour did not do enough to enforce regulation. They successfully courted businessmen by appeasing the corporations but they were not the first to do this.

My point is of course, that ‘the markets’, unrestrained, will not find a natural balance for the benefit of communities or nations. The only balance they are concerned with is their profit and loss account.

Her acolytes may find much to admire in her leadership but her legacy is tainted with a lack of compassion for the skilled workers who were left without a future and contempt for the unions.  For my part I think it is possible to admire her conviction and appreciate her philosophy whilst also disagreeing with her policies. She was a marvelous orator, a skilled politician but a lousy policy-maker.

*To be fair to Mrs. Thatcher her quote “there is no such as society” is often misrepresented. What she said was that people should not rely on state-handouts on the pretext that ‘society’ is paying them. She explained that society does not exist in the abstract – it is people, your neighbours and their families, your families and the people down the road who pay their taxes. She wished to emphasise that society owes you nothing; you get benefits through a national insurance scheme that all people pay into and therefore have a responsibility to work if you are able. 

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