Thatcher’s Revolution

by | May 6, 2013 | WORLD

Daniel Yergin, Pulitzer Prize-winning American author, energy scholar and economics researcher, wrote recently that the passing of Margaret Thatcher provides “a timely reason to ask: What was the Thatcher Revolution about?” Yergin explains that he tackled that same question 15 years ago and “decided the best way to answer it was by asking Thatcher herself.” […]

Daniel Yergin, Pulitzer Prize-winning American author, energy scholar and economics researcher, wrote recently that the passing of Margaret Thatcher provides “a timely reason to ask: What was the Thatcher Revolution about?”

Yergin explains that he tackled that same question 15 years ago and “decided the best way to answer it was by asking Thatcher herself.”

He quotes Thatcher’s reply: “For me, it was so simple. The state ought not to tell people what to do. My experience reinforced my beliefs. It was becoming obvious to people that the socialist way meant accepting decline. Can you imagine — people accepting decline.”

Thatcher was right about the decline.

“In 1870, Britain was the world’s richest economy, but by the late 1970s it had become the sick man of Europe,” report Guy Faulconbridge and Andrew Osborn at Reuters.

Britain’s accelerating decline and “sick man” status were not a matter of opinion, as evidenced by a confidential dispatch to London titled “Britain’s decline” from Nicholas Henderson, Britain’s ambassador to Paris, in 1979 — the year Thatcher was elected as the nation’s first female prime minister.

“Today we are not only no longer a world power but we are not in the first rank even as a European one,” wrote Henderson. “Our decline is shown not simply by the statistics but by the look of our towns, airports, hospitals, local amenities.”

In what was called Britain’s “winter of discontent” in 1978-79, rubbish was piled two stories high on the streets and bodies went unburied because of strikes by refuse collectors and gravediggers.

A Guardian newspaper report titled “Fear of fights at cemetery gates” quoted minutes of a “secretive central contingencies unit” of the Liverpool council showing that members considered allowing the public to make “their own arrangements for grave digging” but refused to grant this small bit of freedom due to a fear that it could lead to violence against “a mourning party” and “unseemly scenes at cemetery gates.”

Members of the “secretive central contingencies unit” also expressed the fear that “very few people” in Britain, aside from unionized diggers, would have “the skill or the strength” to dig a grave.

Britain’s Department of Environment said there were “150 unburied bodies stored in a factory in Speke, with 25 more added every day,” reported The Guardian. “The bodies could be kept for up to six weeks in heat-sealed plastic bags, but this option was regarded as ‘totally unacceptable for aesthetic reason.’ ”

Three years earlier, in 1976 during the sterling crisis, a once “Great” Britain — with a public debt out of control, hospital workers walking off the job, highly inefficient state-owned industries losing money and Marxism seen as a way forward by much of the country’s intelligentsia and entrenched political class — was forced to plead to the International Monetary Fund for a bailout.

Thatcher’s answer to this economic collapse was more capitalism and less government.

The result: 1979 to 1990 was an economic revival that delivered lower inflation, higher economic growth and across-the-board income gains in every income quintile — overall, an economic reversal that created a Britain that didn’t become Greece or Spain.

Predictably, none of those accomplishments are good enough for the left. Obsessed creating a more equal and “fair” society by way of redistributing income and wealth away from “the rich,” they charge that Thatcherism was a failure, even with income gains in every income quintile, because the distribution of income became more unequal.

On Nov. 22, 1990, during her final appearance in the House of Commons, Thatcher was taunted regarding this issue of income inequality.

She spoke that day of the nation’s turnaround and overall income increases that were achieved by way of increased market freedoms, privatization, deregulation, lower tax rates and a general removal of blockades to entrepreneurial capitalism.

When Thatcher took office in 1979, the top British tax rate on earned income was a confiscatory 83 percent and so-called “unearned” income (which should be called investment income or job-creating income) was taxed at a super-confiscatory rate of 98 percent. Both rates were cut under Thatcher to a more job-producing, income-boosting rate of 40 percent.

“The average pensioner now has twice as much to hand on to his children as he did 11 years ago,” Thatcher told the gathered politicians. “They are thinking about the future. This massive rise in our living standards reflects the extraordinary transformation of the private sector.”

Liberal Democrat MP Simon Hughes challenged Thatcher with the “fairness” criticism, much in the manner of Barack Obama: “There is no doubt that the prime minister, in many ways, has achieved substantial success. There is one statistic, however, that I understand is not however challenged, and that is that, over her 11 years as prime minister, the gap between the richest 10 percent and the poorest 10 percent has widened substantially. At the end of her chapter of British politics, how can she say that she can justify the fact that many people in a constituency such as mine are relatively much poorer … .”

Thatcher’s response was concise and straightforward:

“Mr. Speaker, all levels of income are better off than they were in 1979. But what the honorable member is saying is that he would rather the poor be poorer provided the rich were less rich. That’s why you will never create the wealth for better social services as we have. And what a policy! Yes, he would rather have the poor poorer, provided the rich were less rich. That is the liberal policy.”

Here’s an illustration of why Thatcher’s challenger was wrong to fixate on inequality. Let’s say a gyro shop owner pays his manager $30,000 a year and nets an annual income for himself of $100,000. Now imagine the owner takes a risk and opens a second shop. He now pays his manager $60,000 for managing the two shops and nets a $200,000 annual income for himself.

Both the manager and the owner are much better off, each doubling his income — and the income gap, $70,000 a year with one store, doubled to $140,000 with the second store.

Liberal Democrat Hughes, stuck on “fairness,” centralized planning and income leveling, would complain that the manager is “relatively” poorer, fully ignoring the win-win outcome.

As Winston Churchill put it: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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