Margaret Thatcher's Politics and 'Thatcherism'

Loved by many and loathed by some, Prime Minister Margaret Thatcher is perhaps the most influential women of the contemporary western world. Aptly nicknamed, “the Iron Lady,” Thatcher was fierce, and her ambition was uncompromising. She was a principled woman tasked with guiding Britain through disastrous economic times. As a strong believer in free-market economics, influenced by Adam Smith and Fredreich Hayek, Thatcher served as a pioneer for contemporary conservatism and libertarianism not only within Britain, but also in Canada and the United States. But, Thatcher’s leadership, as will be discussed, was far from perfect. Her drastic economic policies proved to be divisive in nature. This paper will argue that while Thatcher’s ambition proved to be divisive, her economic and political policies were, in fact, a necessity given the socio-economic conditions she inherited when she became Prime Minister. As well, Thatcher cannot be single handedly to blame for the unfortunate outcomes of these economic reforms, as the previous governments had allowed unsustainable systems to become status quo. In summary, Mrs. Margaret Thatcher was, indeed, good for Britain.

By the time Thatcher was elected the leader of the conservative party in 1974, the conditions in Britain were far from ideal. By 1970, there were numerous problems with Britain’s political economy on the rise. In particular, high rates of inflation, low productivity (and subsequently growth), and rising rates of unemployment. These economic conditions were the consequences of a number of factors, namely, nationalization, and the failures of the welfare state. Nicknamed “the winter of discontent,” the years of 1978 to 1979 saw some of the absolute worst economic conditions Britain had ever experienced in the post-war era. Unemployment sat at approximately 1.5 million, and the rate of inflation was upwards of 25 per cent. Margaret Thatcher inherited these problems when she earned her position as Prime Minister in 1979. 

One of the first issues Thatcher had to conquer when she stepped into office was the rapidly rising rates of inflation. Inflation was posing a serious issue for the trade unions who were demanding higher wages to keep up with the rising inflation rates. As a result of union discontent there were a series of widespread strikes held by the trade unions. Many of these strikes were a direct protest to the salary caps placed on public sector jobs by the previous conservative party leader, Edward Heath, and the continuation of these caps under Labour. These strikes had radically transformed the conditions for workers who eventually found themselves down to a three-day work week. The Labour party, led by Harold Wilson, and later James Callahan, did nothing to crack down on the power of the unions between 1974 and 1979. In fact, one could argue that the Labour party was merely a puppet for the trade unions. Thatcher recognized that the unions had far too much power, and made it her mission to suppress their control over the British economy. Appeasing the unions was not an option for Thatcher, who became associated with Saatchi and Saatchi's now iconic slogan “Labour isn’t Working.”

Part of the reason that the unions were able to accumulate the level of power that they had was nationalization of the main industries such as, but not limited to, coal, steel, and electricity. Consequently, the government and the union workers held a monopoly on these various industries. So, when unions demanded higher wages to keep up with the rapid rates of inflation, these pay raises would have to come out of the pockets of the tax payer who, were already overburdened by high tax rates that averaged 30-60 per cent. Herein lies the economic issue. Government monopolization of industries eliminates competition; no competition means that industries who provide the services have absolute power over said services, thus, they can withhold their labour as a bargaining tool. This becomes especially problematic when the industries include services that the country cannot effectively run without, such as electricity, garbage disposal, and grave digging (which Britain did go without during the 1970’s). And, because the Labour party was so closely intertwined with the trade unions, Labour was at the mercy of these unions. This system was completely unsustainable, therefore, Thatcher had no choice but to take radical action against it.

To combat the current economic state, and the power of unions, Thatcher acted drastically. Thatcher’s Conservatives embraced the concept of privatization as part of their free-market-capitalism economic ideology. However, privatization served as more than simply just an economic policy. To Thatcher, privatization was just as much a moral principle, as an economic one. Privatization meant economic freedom, which naturally extended to political freedom. This concept fit perfectly with Thatcher’s belief that the state should interfere as little as possible with the economy, and therefore, the individual. But, of course, privatization had significant economic outcomes, some of which were positive, and some of which certainly were not. Firstly, privatization made for more productive work industries. Because of Thatcher’s deregulation of key industries, there was a massive increase in competition, creating a far more prosperous work force than existed previously. Though immediately after these changes were implemented there was a temporary decrease in productivity, it rose substantially by 1986 with manufacturing jobs reporting a productivity growth of 3.5 percent between 1980 and 1986. This growth is a 0.7 percent increase from the period of 1974 to 1979.By the end of the  20th century, there remained only six industries that were still nationalized: the post office, London Transport, British Nuclear Fuels, the Bank of England, the British Waterways Board, and the BBC. As remain to be seen, privatization also proved to be one of the key components in controlling inflation.

In addition to increased productivity, privatization allowed for individuals to become more involved in investing. Individuals could now buy shares in companies for pennies, because private companies were now able to invest in industries. Thus, individuals could become active members of the economy rather than passive ones. The result of this is more social mobility for all classes through economic freedom. Thatcher was also a firm believer in home ownership. She saw owning one’s home as a form of dignity that all individuals had a right to should they work for it. During Thatcher’s mass privatization, she allowed for tenants to purchase their homes from local council landlords under the “Home Ownership Act” of 1980. Due to this policy, approximately two thirds of the tenant population had purchased their homes by 1987.

However, the result of Thatcher’s flurry of deregulations was not entirely positive. As critics of Thatcher will note, coal miners suffered tremendously. While deregulation is successful in driving up competition and productivity, it also rewards industries based on their demand. More to the point, “lame duck” industries will no longer be protected by the government. For coal miners, nationalization was a means of providing job security within an industry on the decline. The coal industry and manufacturing sector saw the loss of nearly 750,000 jobs between 1981 and 1984. Because new technology was slowly making the need for coal obsolete, many mines were closed, and people, unfortunately, found themselves out of work. This large-scale job loss was concentrated particularly in Northern Ireland, Scotland, Wales, Northern England and the Midlands. Many of Thatcher’s critics would like to characterize this set of unfortunate circumstances as a malicious attempt to punish coal miners for not supporting her leadership. However, there is no evidence to suggest that Thatcher (or anyone) knew that the coal miners in particular would suffer such a tremendous loss. Secondly, it is unsustainable to rescue obsolete industries who are not catering to the demand of the market. Doing so would severely damage productivity and growth in the long-term. Lastly, as will be discussed, the issue of unemployment was not exclusive to Britain; therefore, to blame Thatcher alone would be unjust.

Unemployment is perhaps the biggest contention that critics held against the Thatcher government, therefore, it deserves deeper analysis in this paper. In 1986, unemployment in Britain reached a staggering high of 3.4 million. However, it is important to reiterate that this trend of unemployment was not exclusive to just Britain. Moreover, this trend of unemployment pre-dated Thatcher’s leadership. By 1975 unemployment rates (which had been rapidly rising since 1970) had gone to approximately 1.5 million. By the early 80’s, this figure had risen to approximately 3 million, with a peak of 3.4 million, in 1986, as mentioned previously. The number dropped drastically by 1990 reaching 1.6 million. Other countries in Western Europe faced the same issue of unemployment. As Berhard Reiger notes, “between 1980 and 1987, the mean British unemployment rate was 10.5 per cent, placing the country more or less on par with Belgium (11.2 per cent), the Netherlands (10 per cent) and France (8.9 per cent).”In contrast, “West Germany (6.1) and Italy (6.7 per cent) experienced significantly lower rates, while Ireland (13.8 per cent) and Spain (17.6 per cent) registered even higher figures. The United States, who have embraced free-market economics as part of their national identity, had an unemployment rate of just 7 per cent during this period. Additionally, the job market was transforming at this time, which can be attributed to the large scale unemployment. As Reiger observes, “sharp bursts of job losses accentuated the long-term transition into the post-industrial era”.

Clearly, the mass job loss was devastating for many. In many ways, the job loss as a result of Thatcher’s economic reform can be seen as counter to the conservative agenda as the Conservatives, then found themselves dealing with a larger population of welfare recipients. But, Thatcher’s decision to privatize was absolutely necessary in the long term. Firstly, by privatizing, Thatcher was able to reign in the power of the unions, thus restoring proper democracy. Secondly, growth and productivity saw a tremendous increase as a result of increased competition. Thirdly, privatization prepared Britain for the future by rewarding the new industries and phasing out the obsolete ones. Lastly, Thatcher allowed for more investment opportunities for individuals who could now buy shares at low rates.

Margaret Thatcher was known for many things, but her scathingly witty remarks on socialism is perhaps the most notable. “To cure the British disease with socialism was like trying to cure leukemia with leeches”, she once stated. During the post-World War II era, the welfare state was at an all-time high with the adoption of socialist –Keynesian economics, which wholeheartedly embraced the concept of cradle to grave state support.While the idea of the state acting as a surrogate parent for the individual may have been socially appealing to many, it proved itself to be wildly unsuccessful economically. The Keynesian economic policies proved to fail in raising economic growth nor could it contain, or minimize the rapidly growing rate of inflation. The Beveridge proposals were in full swing, which meant universal healthcare, and State provided safety-net for the poor. However, the welfare system proved to be unsustainable and unaffordable. In fact, economic welfare and universal healthcare ended up costing a staggering £47.6 billion, amounting to 31 per cent of the public spending. To make matters worse, the “full employment,” which was deemed a necessity in order to keep this system funded, was evidently far from reality. In no uncertain terms, the cost of the welfare state superseded the government’s ability to fund it.

With these conditions, Thatcher and her Conservatives had their work cut out for them.

In response to these problems, there were two options: Conservatives had to either increase taxation in order to pay for these high-price tag services, or cut government spending--subsequently cutting welfare benefits. The Conservative government, being morally opposed to heavy taxation, cut had to resort to cutting spending on welfare services. Critics of Thatcher will often criticize this decision, characterizing it as cold hearted-- an attack on the poor. However, this spending cut was not a universal cut in such services. Conservatives instead chose to be more selective with who received benefits. This meant that welfare benefits would still be available to the very poor. As Kavanagh notes, the conservatives were to take a “selectivist approach rather than a universalist one”. Additionally, the costliest of the welfare services-- the NHS-- remained untouched by these cuts. Thatcher was deeply concerned with the long-term impacts of the welfare state on British society. She believed, as many of her conservative constituents would agree, that welfare de-incentivized hard work. She believed that the best strategy in fostering an active economy was to incentivise hard work, and reassert the values of the nation on the individual.

Not only was Thatcher concerned with the economic consequences of socialism, she vehemently opposed the economic system based on moral principle. As Reiger notes, “Welfare reform was part of a wider quest for Britain’s moral renewal, or, as the Prime Minister once famously put it, for a return to ‘Victorian values.’” Thatcher, as well as her American friend and political ally President Ronald Reagan, recognized that it was the duty of conservatives to fight the welfare state. Thatcher’s principle belief was that dependency on the state took away from individual responsibility. Instead of state-dependency, Thatcher urged people to adopt habits of self-reliance, obligation to family and community, frugality, and voluntary charity.To Thatcher, State dependency was an issue of morality. In her famous speech, later known as her “Sermon on the Mound,” she says:

“… Intervention by the State must never become so great that it effectively removes personal responsibility. The same applies to taxation; for while you and I work extremely hard whatever the circumstances, there are undoubtedly some who would not unless the incentive was there. And we need their efforts too.”

Margaret Thatcher’s policies were far from perfect, however, the records demonstrate that they made substantial improvements from the previous labour governments. “The problem with socialism is you eventually run out of other people’s money,” she argued. And, that had become exactly the case in Britain.

Cuts in welfare benefits impacted many who depended on the state for financial security. These cuts came quickly, and Thatcher critics, somewhat justifiably, argue that the cuts were too harsh. However, it is important to recognize that these cuts were absolutely necessary. As a result of these budgetary cuts, inflation rates declined from an unsustainable 20 per cent to approximately 5 per cent. As well, taxes for both the rich and poor declined tremendously. The basic tax rate fell from an average 33 per cent to an average of 30 per cent. The highest tax rate of 80 per cent fell to a maximum of 60 per cent. Thatcher believed that any rate of taxation over 20 per cent was unjust, and, therefore, she made it a mission throughout her leadership to continually lower the amount of an individual’s income the state could tax. She famously said:

“Let us never forget, this fundamental truth: the State has no source of money, other than the money people earn themselves. If the State wishes to spend more, it can only do by borrowing your savings, or by taxing you more. And, it’s no good thinking someone else will pay. That someone else is you. There is no such thing as public money, there is only Taxpayer’s money.”

Thatcher’s views on taxation can be seen throughout conservative and libertarian political ideologies today.

“Thatcherism” has undoubtedly become a controversial term. The term indicates more than just Thatcher herself, but also the revolution that she undertook throughout her 11 years as Prime Minister. When political power shifts from one end of the spectrum to another, there are bound to be negative outcomes. The mass unemployment was certainly a horrible side effect of Thatcher’s radical economic reform. Perhaps, if Thatcher had slowed down the deregulation of declining industries, individuals employed by these industries would not have suffered so severely. However, it should also be noted that had Thatcher not taken such action against nationalization, unions would have continued to hold the country at ransom. Under Thatcher, Britain saw the inflation crisis fade away. Financial sectors also so a massive growth. Individuals had more economic and political power than they ever did under nationalized systems, thus the individual was more free than they were before. Thatcher took on a nation in decline, and refused to simply manage it. Instead she chose to revitalize the nation.

Mrs. Thatcher’s divisiveness was certainly evident after her death in 2013.  From obscene banners, to chants of “ding dong the witch is dead!” distasteful displays of protests highlight the extent to which Thatcher divided Britain. Despite her divisiveness, her influence was also admired by many. Canadian Prime minister, Stephen Harper, spoke on Thatcher’s legacy after her passing saying, through her economic policies “she defined contemporary conservatism itself.' Yes, Thatcher was a divisive figure, however her legacy should be considered a net positive for Britain. Her refusal to see Britain as simply a declining power demonstrated extreme strength and resilience. Additionally, her economic policies were absolutely necessary given that socialist policies had pushed Britain into a position of economic weakness, and hyper-inflation. Thatcher reinforced morality throughout her economic revolution, by reinforcing ideas of, dedication to ones’ family and self-reliance. Thatcher was a breaker of glass ceilings, demonstrating that women, should they choose to work for it, can achieve just as much as any man. Divisive as she was, Thatcher was truly a revolutionary in every sense of the word. The lady, certainly, was not for turning.

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