Friday, 12 April 2013

Thatcherism: did it reverse the economic tide?

There's so much to say about Thatcherism, isn't there? Here's a last set of thoughts for the week - this time, covering the idea that the UK productivity experienced a necessary and productive fillup from Thatcher's economic reforms.

There's only one massive problem with this analysis. It isn't true. Or at least, it isn't true in the simple way that you might have hoped if you wanted to construct a cut-and-dried case for Lady Thatcher's policies (above). No, her governments' actions didn't usher in an era of rapid growth or any better use of resources. Quite the opposite, in fact. Productivity growth slowed during the 1980s, and only picked up again (a bit) in the 1990s, never returning to the heights of those derided Keynesian days (pdf) of the 1950s and 1960s. Looking back, it was in the late 1960s that British productivity growth peaked, not in the 1980s. 

Hang on, though. There is a sense in which the Thatcher reforms do appear to have pepped up British economic performance, after what might just have been a once-and-for-all period of good performance provided by pump-priming policies and large economies of scale in the post-war era. They might not have gone on working well, and in fact relative deindustrialisation in (say) Sweden suggests that they wouldn't. By the time she left office in 1990, Britain had indeed begun to reel in her major competitors - France, Germany, the USA. They had their own massive problems (for instance, German reunification), but it can't be denied that their labour productivity fell away even further and faster than that in Britain. So there is some evidence that labour market and other changes did help Britain avoid that fate.

I wouldn't go too far along this route if I were you. UK labour productivity stopped catching up on the 'leaders' when Britain nestled in just behind them in the 'productivity race'. We could see the whole process within what economists call the 'catch up and convergence' framework, in which developed countries under conditions of free trade and the free movement of ideas constantly jostle for leading positions, alternately surging ahead and then relaxing a little in their turn.

So the record is: well, mixed. There were productivity gains, but they were only relative improvements compared to Britain's developed-world competitors, and they took a long while to turn up. They came, too, at enormous cost in lost production and jobs, much more inequality and a legacy of low wages and poor marginal productivity in jobs around the edge of the labour market. It's a complicated picture.

Remember that the next time someone tells you Lady Thatcher was 'the saviour of her country', won't you?

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