Thatchererism and its Long-run Consequences
|Author:||Mgr. Petr Hlína|
|Year:||1998 - winter|
|Leaders:|| † prof. Ing. Luděk Urban CSc., Jean Monnet Professor
|Work type:|| Economic Policy
|Awards and prizes:||M.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good masters diploma thesis|
|Abstract:||Margaret Thatcher was Britain's longest-lasting prime minister in the 20th century, the wartime Churchill apart. At the same time she was adored by some people and hated by the others but all of them had to cope with the radical transformation of the British society, which she undertook. Even today the legacy of Thatcherism is alive.
Mrs Thatcher came to power when the UK was in a particularly unsatisfactory economic shape - high inflation was combined with stagnating economy, rising unemployment and social unrest. The British companies, many of them being state-owned, were known for poor productivity and lack of competitiveness. Thatcher's economic programme, ideologically resulting from monetarism, supply-side economics and traditional British conservative values, was based on tight monetary policy (designed to conquer the inflation), privatisation, deregulation, trade union reform and tax reform.
Whereas the results of the anti-inflation policy are inconclusive, the other cornerstones of Thatcherism (intended to boost the supply-side) had far-reaching effects. M. Thatcher privatised not only the traditional industries, nationalised by the previous Labour governments, but also the utilities, long considered to be "natural monopolies". Privatisation was accompanied by deregulation, i.e. opening up most industries to competition and relaxing the restrictions on trade and investment. The taxes, notably the marginal rates that had reached unthinkable levels in the Labour era, were cut and the relative importance was shifted from direct to indirect taxes, especially the VAT.
M. Thatcher's reform of the trade unions, that had been exceptionally militant and radical in the UK, merits respect. In a series of labour laws she made the unions liable for the actions of their members and easier to sue for damages when strikes were called illegally. Secondary picketing and the closed shop were outlawed, the balance of power was shifted from union leaders to individual members.
The result of the Thatcherite policies was a fast productivity growth, thanks to which the relative economic decline of the UK was stopped. The companies were effectively forced to be more competitive or close down. The businesses had to cope with competitive pressures, on the other hand, they could benefit from a deregulated labour market, lower taxes and a liberal financial and trading system. For the same reasons, Britain became a magnet for foreign direct investment. The privatised companies also experienced a rapid improvement in productivity and efficiency. By creating a proper incentive structure, M. Thatcher succeeded in reviving entrepreneurship in the British society. An immediate effect of Thatcher-forced restructuring was high unemployment, for which M. Thatcher was often criticised. However, most jobs were lost in unproductive industries or, as productivity improved, fewer people could do the same amount of work. The trade union reform, combined with social security reform and liberalisation, created favourable conditions for creating vacancies elsewhere in the economy, chiefly in services. Despite the fact that M. Thatcher was often blamed for high unemployment, from today's point of view a contrary may be justified. The evidence is the unemployment rate at historically low levels, a striking fact in comparison with other European countries.
Further criticism of M. Thatcher was aimed at lack of state interest in improving education and training, insufficient promotion of R&D, failing to encourage longer-term management, selling out national property to foreigners, deindustrialisation of the UK and poor cooperation at the EC level. However, Thatcher's programme, defending a hands-off liberal approach was very coherent. The government did not adopt any specific schemes to promote R&D, to keep some "special" industries in British hands or to keep some manufacturing sectors in Britain. And that was the major strength of the programme, thanks to which Britain became so much different from the rest of Europe.
By facing competition, both domestic and foreign, the businesses in the UK have learned to be competitive. Quite logically, there is no other way to do so. The fact that in many industries the foreign companies predominate is not relevant. The benefit to the British society does not depend on the nationality of a business. In particular, the British services sector was a big beneficiary of the reforms and now its competitive position is very strong, taking into account that this sector has long been thwarted by state involvement in many other countries.
|Downloadable:|| Diploma Thesis - Hlína