The end of the Thatcher era

FT.com – Financial Times/Columnists – The end of the Thatcher era
Published: April 27 2009.   By Gideon Rachman

“The British people had given up on socialism. The 30-year experiment had plainly failed – and they were ready to try something else.”

So mused Margaret Thatcher on the eve of her first general election victory on May 3 1979. But as we approach the 30th anniversary this weekend of the Iron Lady’s arrival in Downing Street, many British people have concluded that once again “a 30-year experiment” has “plainly failed”. This time, however, it is the experiment with Thatcherism.

The closing of the Thatcher era is an event of global significance. Many of the policies pioneered by her government in Britain were copied in the rest of the world: privatisation, deregulation, tax cutting, the abolition of exchange controls, an assault on the power of the trade unions, the celebration of wealth creation rather than wealth redistribution.

Mrs Thatcher came to power 18 months before Ronald Reagan and the two swiftly developed an ideological love affair. But the real triumph came when Thatcherite ideas started to catch on in improbable and inhospitable environments – such as the Soviet Union and France.

In the early 1980s, while Mrs Thatcher pioneered privatisation, France under President François Mitterrand pushed through wholesale nationalisations of banks and industrial conglomerates. But while she sailed determinedly on with her free-market policies, famously proclaiming “the lady’s not for turning” Mitterrand was forced into a U-turn in 1982. At the end of his period in office, he too was a privatiser.

By the end of the Thatcher era, free-market reforms were being pursued in China, eastern Europe, India and the Soviet Union. On her last visit as prime minister to Mikhail Gorbachev’s Russia, Mrs Thatcher noted wryly that the new mayor of Moscow seemed to be a disciple of her own economic guru, Milton Friedman. Two of her closest advisers published a book with the exuberant title of Privatising the World. She herself exulted: “People are no longer worried about catching the British disease. They are queuing up to obtain the new British cure.”

But, almost 20 years after she left Downing Street, the British economy is once again in deep trouble. Almost everything that Mrs Thatcher opposed – nationalisation, raising taxes, Keynesian economics – is back in fashion. One by one, the signature policies and achievements of the Thatcher years are being dismantled in Britain.

Her celebrated decision to cut the top tax rate to 40 per cent has been reversed. There will now be a top rate of 50 per cent, announced last week – and opinion polls suggest that the change is very popular. Britain has also now effectively nationalised its large banks, just as the French once did under Mitterrand.

No reform captured the spirit of the Thatcher era more completely than the “Big Bang” of financial deregulation in 1986, which set the stage for the inexorable rise of the City of London. But the City is now in the doghouse and there is a rush to re-regulate the financial services industry. Mrs Thatcher once proclaimed that “printing money is no more”. But the printing presses are rolling again – except that these days it is called “quantitative easing”. Forbidden from public speaking by her doctors, Lady Thatcher is in no position to defend her legacy or instruct her remaining disciples.

Thatcherism is also out of fashion internationally. When Nicolas Sarkozy was elected president of France in 2007, he quietly encouraged the idea that he was the French version of Mrs Thatcher. But these days he likes to be photographed clutching a copy of Das Kapital. Mrs Thatcher venerated the free enterprise of the US. But the new US president seems strangely enamoured of the European social system.

Perhaps most damagingly, Thatcherism has lost the moral high ground. The Iron Lady once proclaimed, slightly sinisterly: “Economics is the method. The object is to change the soul.” She meant that British people had to rediscover the virtue of traditional values such as hard work and thrift. The “something for nothing” society was over.

But the idea that the Thatcher era re-established the link between virtuous effort and just reward has been effectively destroyed by the spectacle of bankers driving their institutions into bankruptcy while being rewarded with million-pound bonuses and munificent pensions.

The same problem has dogged the international versions of Thatcherism. Privatisation in Russia degenerated into a morally dubious grab for assets by a new class of oligarchs. Outrage about executive pay has been building for years in the US.

So is the Thatcher era definitively over? The economic cataclysms and policy reversals of recent months suggest that it surely must be.

And yet there is still room for doubt. When Mrs Thatcher came to power, she and her advisers had been thinking for years about the policies and ideas they intended to pursue. By contrast, today’s political leaders are fighting the economic crisis with whatever tools come to hand. The decisions to nationalise Britain’s banks and to print money were emergency measures – not the products of a carefully thought-out ideology or political programme.

One of Mrs Thatcher’s most famous phrases was: “There is no alternative.” As yet, no major political figure in Britain or the western world has really articulated a coherent alternative to the free-market principles inherited from Thatcherism. Until that happens, the Thatcher era will not be definitively over.

Copyright The Financial Times Limited 2009
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