Thatcher - black gold or red bricks?

Thatcher did not save Britain from economic decline. In many respects her economic performance was poor, even with the irresponsible fire-sale of British assets. It is time her legacy reflected this.

Oliver Huitson
11 April 2013

Image: Wikimedia

Beneath the ‘sycophancy/street party’ binary of reaction to Thatcher’s death are questions of alternatives and efficacy. When the MP of Finchley took power in ’79, with Britain in a dire economic situation, was there really “no alternative”? The question presupposes that Thatcher’s slash ‘n burn monetarism at least worked.

As the badge pictured above states, “If Maggie is the answer it must be a very silly question!” – which it was. Francis Wheen’s Strange Days Indeed portrays the sheer ridiculousness of the late 70s with considerable wit and atmospheric detail. But Thatcher’s ‘success’ often hides just how silly an answer it really was.

Despite sending unemployment ballooning to 3m and decimating whole communities Thatcher did, from a certain perspective, eventually pull the economy back around even if never matching the achievements of the post-war model in terms of growth. Overseeing two recessions, average growth under Thatcher was around 2%. Yet the means by which she managed those apparently successful economic achievements require some examination. As Anthony Barnett argues, North Sea oil was critical:

“[It] came on stream bringing in an estimated £70 billion in revenues, it turned the UK into an OPEC country, an oil-exporter, and it overturned a chronic balance of payments problem rooted in the post-war period of clinging to imperial over-stretch.”

What happened to the proceeds from this unexpected and unearned windfall? Easy come, easy go – it was spent. Contrast this to both the Gulf states and the Nordic countries, who invested the proceeds of their natural resources to provide ongoing national income, and one of the defining features of Thatcherism is revealed. On top of the oil revenue binge, many vast state-owned industries were also sold off at knock-down prices. Highlighting her economic extremism, these included natural monopolies like gas, water and electricity; the toll booth economy - which would reach its zenith with Major's privatisation of the trains - was core Thatcherism. As Tom Mills notes, “These privatisations proved to be hugely profitable for the City of London and represented a massive transfer of wealth from public to private hands”. This wasn’t so much flogging the family silver as flogging the family home and renting it back – a process continued under Blair. Under the sweeping liberalisation she instigated, Britain now owns very little and we instead pay firms – often based overseas – for the privilege of using our own airports and water supplies, to name but two examples.

Another of Thatcher’s magic potions was 'home equity withdrawal' or remortgaging - drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. To a significant extent, Thatcher grew the economy by unleashing easy credit, asset inflation (including house prices) and equity draw downs – ‘wealth creation’ indeed.

As an economic programme this is evidently unsustainable – oil runs out, assets run out (add the NHS to the list) and relying on rising house prices is, as the world has so painfully learnt, not exactly a model of financial prudence. The critical point is that without these asset sales and home equity it is questionable whether the economy would have been growing at all.

The story of Blair's New Labour is eerily familiar. Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate. But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period. “We have abolished boom and bust” became the Global Financial Crisis.

Thatcherism is the ultimate in live now, pay later. Or rather, let others pay later. Conservative thought is inescapably rooted in time, both forward and backward facing, yet Thatcherism – like much neoclassical economics – is largely void of any temporal narrative; all must be consumed. And consumed now. The relationship between ‘those who are living, those who are dead and those who are to be born’ becomes not one of continuity but of expropriation, the efforts of both past and future are sucked into the current moment and devoured in a gross concertina. 

Her destruction of industry, too, bore the same marks of time compression. Like the textbook models of her intellectual acolytes, displaced workers would effortlessly reskill and slide into more productive and competitive industries: like financial services. Thirty years later, many of those decaying communities are still waiting. Indeed, many of them will be precisely those targeted by Cameron’s welfare purge. Thatcher may be gone but her work continues.

My first memory, incidentally, of anything concerning politics was Thatcher, or rather the effect she had on my otherwise very mild-mannered father. In the late 80s, aged around 5, I was baffled that this woman could generate such visceral loathing. Growing up, I absorbed the highly nuanced understanding that Labour – good, Tories – bad, but this made it all the more disorientating to hear at the kitchen table some years later that “Labour are just the same as the Tories now”. Tony Blair, Thatcher’s “greatest achievement” in her view, had arrived.

Ten years later, in the City, I worked for a long time under a lively (and vocal) working-class Thatcherite, quite a significant demographic in Thatcher’s reign that some find hard to reconcile. He combined a playful, ‘loadsamoney’ vulgarity and Gordon Gecko fantasies with a strident, Gareth Keenan’esque militarism – all of which he found well accommodated in Thatcherism (the Falklands war satisfying the latter). After we’d got the pleasantries out the way (“fucking militant lefty”, “soppy liberal bastard” or combinations thereof) what always marked the end of hostilities was a heart to heart moment, his chair pulled close to mine, sotto voce:

“No no, seriously, I’ll be straight with you, the reason my parents loved Thatcher, what meant more than anything to them - she let them buy their own house”

The ‘right to buy’ policy allowed many to buy their own home at a greatly reduced priced, something they would never have been able to do otherwise, and – all else being equal – that was clearly a positive step. But like so many of her policies, this was ultimately a combination of something for nothing (the gap between purchase price and market value) and the appropriation of past and future resources – the social housing built up by former generations was rapidly sold off and wasn’t replaced, a significant factor in today’s chronic housing shortage. As the Independent writes,

“More than 1.25 million tenants took advantage of the “Right to Buy” scheme, which raised £18bn and converted thousands of Labour voters into Conservatives – though as council-housing stock shrank, homeless beggars appeared on the streets for the first time in 30 years.

How different today’s youth might find their housing predicament if the proceeds of right-to-buy had been ring-fenced and put towards further social housing. But the moment must consume all, posterity be damned.

Post-war, the ‘golden age’ – which in many respects it was – ended long before Thatcher came to power. As Jamie Mackay notes,

“The post-war 'consensus' version of nationalisation had essentially replicated old forms of power.”

On the issue of both economic ownership and control, the divisions persisted and escalated, exacerbated by the monetary devastation of the oil shocks in ’73 and ‘79. This line of thought was echoed by Ken Loach when I interviewed him earlier this year about his new film, The Spirit of ’45. An impressive and moving film, I still left the screening wondering whether it would have had greater impact had he really engaged with the Thatcher issue – she didn’t only win, she won three times. She answered something.

But her answer, like Blair’s, contains a disturbing truth - Britain seems no longer able to generate sound productive growth and prefers the toxic mix of financial alchemy, asset sales to finance a balance of payments deficit, and house price inflation and draw-downs to maintain domestic demand. As Elliott and Atkinson argue in their new book, Going South, Britain’s problems are deep-rooted and quite fundamental: we are in real danger of “de-developing”. Their comparison of the UK with developing countries chimes with elements of Will Davies’ recent article, ‘Britain’s Brehznev-style capitalism’,

British capitalism already has many of the hallmarks of Brezhnev-era socialist decline: macroeconomic stagnation, a population as much too bored as scared to protest about very much, a state that performs tongue-in-cheek legitimacy, politicians playing with statistics to try and delay the moment of economic reckoning.”

If Thatcherism was the answer, it could plainly never remain the answer for very long – it is unsustainable even by its own internal logic, such as it is. Making things for a world market is competitive, it’s hard, it needs sound infrastructure, solid education and joined up government. So much easier to simply flog the assets built up by previous generations and bestowed by geography, and load the next generations with debt (Thatcher ran deficits in all but two of her eleven years). What is this if not a “something for nothing” culture?

Managing the demands of ownership, participation, reciprocity, equity and productivity still seems as far as off today as it did in ’79. The question of what Thatcher really achieved, and what she left behind, needs to be answered afresh by her supporters post-08. She did not save Britain from economic decline but merely postponed it, and gorged on the assets of both past and future in the process. Thatcherism was a remarkably irresponsible, economically stagnant and anti-social creed; we are still reeling from the consequences.

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