IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
“She did not just lead our country; she saved our country” said British Conservative Prime Minister David Cameron as a tribute Margaret Thatcher who died at 87, on April 8th, 2013. Tony Blair, former British Labor Prime Minister, declared: “Very few leaders get to change not only the political landscape of their country but of the world. Margaret was such a leader. And some of the changes she made in Britain were… retained by the 1997 Labor government, and came to be implemented by governments around the world.” Her legacy is more than ever alive and is the proof that politics with good ideas can change countries to the best. Let’s have a quick overview of her doings.
Margaret Thatcher became Prime Minister in a kingdom that was in disarray. The United Kingdom had one of the highest tax rate in Europe with 83% maximum, high unemployment, increasing inflation (18% in 1979) and less and less investments since in 1980 the British GDP was 25% lower than the French GDP. Obvioulsy, the United Kingdom was “the sick man of Europe”.
If Margaret Thatcher’s legacy is impossible to summarize in few words, we want to point out few facts at the domestic, European and world levels that allow her to put the United Kingdom back on track so that it became a stronghold of free market economy in Europe.
Let’s point out that she was elected three times on a row and was increasingly popular. More than a third of workers used to vote for her and supported her policies.
To summarize her policies, it can be said she liberalized exchange controls, labor markets and finance. She cut top income tax rates (from 83% to 40%), defeated militant organized unions and privatized most of the nationalized industries (telecoms, transportations, gas, electricity). She rejected Keynesian fiscal policy and relied on monetary policy.
The British GDP under Thatcher grew by 2 .5% per year, with a maximum at 6% in 1988. It was much more than most of the OECD countries, especially France that was at 1.9%. Thanks to her political and economic stands, Thatcher allowed Britain to have a GDP per head raising more than any other European economies during the 1980’s, the 1990’s and the 2000’s.
Another of Thatcher’s achievement must be underlined since it is the plague of our time : unemployment. Between 1980 and 1990, the unemployment rate in the United Kingdom went from 11% to 6% whereas in France, at the same time, under the Socialist Presidency of Mitterrand, unemployment raised from 7% to almost 12%.
Margaret Thatcher was famous for wanting her “money back”. She was a supporter of the single market program and contributed to its launching. She was in favor of the Single European Act in 1986. All her doings and European polices aimed at exporting liberal economics to all the member States of the European Community.
Margaret Thatcher will be remembered as one of the leaders who defeated the Soviet Union and contributed to its fall. Indeed, she has outspoken in defense of free markets and proved that enterprise-based economy could outperform any regulated economy, especially those of Continental Europe.
Our friend Madsen Pirie, from the Adam Smith Institute and who worked with former Prime Minister Margaret Thatcher has pointed out the decisive mindset that made possible the victory of free-marketers in politics and changed the united Kingdom: “The change was psychological as well as economic, and it was achieved in the teeth of a prevailing pessimism in the political establishment. The talk then was of "managed decline," and no one thought that Britain’s descent could be reversed. Margaret Thatcher showed that a combination of character and resourcefulness could succeed in turning around the nation where few had thought it possible. She proved them wrong, and in doing so earned her place as one of the greatest prime ministers who has ever presided over the fortunes of this nation. More than that, she was one of the few whose resolution and determination stood up to the international threat of Communist tyranny and saw it defeated ignominiously and erased from history.”