Counterfactual: What Would Have Happened to the UK Economy Without Thatcher?
Love Thatcherism or hate it, intellectual honesty demands acknowledgement that the UK economy reversed the horrific relative decline that occurred in the 1960s and 1970s. This chart is hard to ignore:
But the left is loathe to give Thatcherism much credit. As I noted in a previous blog post, Paul Krugman will concede only that there “is a case the Thatcher changes in taxes, labor regulation, etc. created a more flexible economy, which made the good years under Blair possible.” Just “a case.”
Margaret Thatcher used to say that “there is no alternative” to free-market capitalism. Well, no viable alternative. But there was a political alternative back in 1979, Labour (now called Old Labour).
So what if Margaret Thatcher and the Conservative Party had lost the 1979 general election? Well, one look at the Labour Party’s 1979 manifesto, “The Labour Way is the Better Way,” shows the left proposing nothing more than more of the same — all-powerful industrial unions, government ownership of industry, and confiscatory taxation. More Keynesian-fueled democratic socialism with a bit of help from North Sea oil. From the manifesto:
The Government’s industrial strategy is about how to create more wealth and more jobs through a constructive national partnership with unions and management. The Conservatives will not admit that nowadays governments must step in to help create employment, to limit prices rises, to assist industry to modernize itself. They are ready to gamble the people’s future on a return to the nineteenth century free market’ – despite its pitiless social consequences. They are as dangerously out of their time as a penny farthing on the motorway.
Would more of that have resulted in the same sort of reversal of misfortune that happened under nearly two decades of more pro-market Conservative government? Unlikely.
Perhaps after a couple more years of pain, the transformation of Old Labour into more market-friendly New Labour would have begun anyway. Yet it was Thatcher’s success that made Tony Blair’s party makeover possible, just as Ronald Reagan’s success empowered Bill Clinton and the New Democrats.
Or perhaps America’s 1980s rebound would yet have ignited a free-market revolution in Britain by 1990 or so. But the UK economic hole would been so much deeper by then. In 1979, UK real per capita GDP was 64% of America’s. If America had boomed and the UK hadn’t, by 1990 the ratio might have have been closer to 50% rather than the actual figure of 68%. (Today it’s 73%.) And at that point, the UK would have been closer to being a third-word nation than a first-world one. A submerging market.
See, there really was no alternative.