The claims made for Mrs Thatcher’s transformative powers are grossly exaggerated
The empress has no clothes or, at least, not the clothes in which so many want to robe her. Despite all the praise, Mrs Thatcher did not arrest British economic decline, launch an economic transformation or save Britain. She did, it is true, re-establish the British state’s capacity to govern. But then, although she wanted to trigger a second industrial revolution and a surge of new British producers, she used the newly won state authority to worsen the very weaknesses that had plagued us for decades. The national conversation of the last six days has been based on a fraud. If the Thatcher revolution had been so transformatory, our situation today would not be so acute.
In the 20 years up to 1979, Britain’s growth rate averaged 2.75%, although it had been weakening during the ills of the mid-1970s. In the years before the banking crisis, there was a vexed debate about whether the Thatcher reforms, essentially unchallenged by Blair and Brown, had succeeded in restoring the long-run growth rate to earlier levels. Certainly, the gap in per capita incomes between Britain, France and Germany had narrowed, as, apparently, had the productivity gap.
The question is whether any of it was sustainable. Now, there is a growing and dismaying recognition that too much growth in the past 30 years has been built on an unsustainable credit, banking and property bubble and that Britain’s true long-run growth rate has fallen to around 2%. The productivity gap is widening. All that heightened inequality, the unbelievable executive remuneration, wholesale privatisation, taking “the shackles off business” and labour market flexibility has achieved nothing durable.
This bitter realisation has been sharpening in non-conservative circles for some months. The pound has fallen by 20% in real terms since 2008, yet the response of our export sector to the most sustained competitive advantage since we came off the gold standard has been disastrously weak. Britain’s trade deficit in goods climbed to 6.9% of GDP in 2012 – the highest since 1948 – and February’s numbers were cataclysmically bad. Britain simply does not have enough companies creating goods and even services that the rest of the world wants to buy, despite devaluation.
The legion of Mrs Thatcher’s apologists argues she can hardly be blamed for what is happening 23 years after leaving office. But economic transformations should be enduring, shouldn’t they? Thatcherism did not deliver because dynamic capitalism is achieved through a much more subtle interplay. She never understood that a complex ecosystem of public and private institutions is needed to support risk-taking, the creation of open innovation networks, sustained long-term investment and sophisticated human capital. Believing in the magic of markets and the inevitable destructiveness of the state, she never addressed these core issues. Instead, the demand for high financial returns steadily rose through her period of office, along with executive pay, even while investment and innovation sank. And the trends continued because none of her successors dared challenge what she had started.
Instead, her targets were trade unions and state-owned enterprise in the ideological project of brutally asserting the primacy of markets and the private sector, and thus a conservative hegemony, in the name of a fierce patriotism. This was real enough: she really did want to put Britain back on the map economically and politically and the task force sailing for the Falklands embodied the intensity of that impulse. But she did not pull it off, as even she acknowledged, in her more honest moments out of office.
Trade unions certainly needed the Thatcher treatment in terms of both accepting the rule of law and the need for responsibilities alongside their rights. But companies, shareholders, banks and wider finance also needed this treatment. But as “her people” and part of the hegemonic alliance she aimed to create, they would never get the same medicine. Instead, her Big Bang in 1986, allowing banks worldwide to combine investment and commercial banking in London, was a monster sweetheart deal to please her own constituency. Britain became the centre of a global financial boom, but at home this meant an intensification of the financial system’s dysfunctionality, helped by little regulation and a self-defeating credit boom, worsening the anti-investment, short-termist that needed to be reformed. This is now obvious to all. But for nearly 30 years, the apparent success of Thatcherism hid the need.
However, in one serious respect, trade unions were a proper target. By the late 1970s, a handful of trade union leaders in effect co-ran the country, the beneficiaries of the failure of successive governments to bring free collective bargaining into a legal framework. This despite the fact that they could not deliver their members to agreed policies, and the third year of an incomes policy had collapsed. On this question, the Labour party was intellectually exhausted and politically bankrupt; the Conservative government under Heath had been defeated too. It had become a first order crisis of governability, even of democracy.
This was her opportunity and she seized it . The early employment acts and the victory over Arthur Scargill‘s NUM decisively reaffirmed that the fount of political power in the country is Parliament, at the time a crucial intervention. But she wildly overshot. Trade unions within a proper framework are a vital means of expressing employee voice and protecting worker interests. Labour market flexibility – code for deunionisation and removal of worker entitlements – has become another Thatcherite mantra that again hides the complexity of what is needed in the labour market: employee voice and engagement, skills and adaptability. When she left office, 64% of UK workers had no vocational qualifications.
The best thing that can be said about Thatcherism is that it may have been a necessary, if mistaken, staging post on the way to our economic reinvention. She resolved the crisis of governance but then demonstrated that simple anti-statism and pro-market solutions do not work. We need to do more sophisticated things than control inflation, reduce public debt, roll back the state and assert “market forces”.
The coalition government is developing new-look industrial strategies, reforming the banking system and reintroducing the state – as a vital partner – into areas such as energy. New thinking is emerging everywhere. For example, in the north-east of England an economic commission chaired by Lord Adonis, of which I was a member, recently recommended the de facto reintroduction of the metropolitan authority in Newcastle, abolished by Mrs Thatcher. It would co-ordinate a pan-north-east redoubling of investment in skills and transport, along with winning more investment. And it wants the local economic partnership to work in the same building as the proposed new combined authority, driving forward an innovation and investment revolution. This complex interaction of private and public the commission is trying to develop is a world away from Thatcher – and widely welcomed.
The empress really has no clothes. Wednesday’s funeral is a tribute to the myth and the conservative hegemony she created. If the royal family is concerned, as is reported, that the whole affair will be over the top, they are right. Mrs Thatcher capitalised on a moment of temporary ungovernability that, to her credit, she resolved, then sold her party and country an oversimple and false prospectus. The landslide Mr Blair won in 1997 was to challenge it, but he did not understand at the time, nor understand now, what his mandate meant. The force of events is at last moving us on. But Britain has been weakened, rather than strengthened, by the revolution she wreaked. • This article will be opened for comments on Sunday morning
Posted by admin | Posted on 09-04-2013
Category : Business
Tags: bruce, capitalism, comment, debate, economics, economist, form, guardian, hand, led, market, sensitive, stage, theatre, trumpett
Bruce Norris’s play skewers the failings of capitalism, but ignores some sensitive and nuanced debates
In broad terms, I’m sympathetic to the central theme of this play by Bruce Norris. From 18th-century America to today, he examines the idea that capitalism has failed as a model of human advancement – that it’s just led to a “greed is good” culture. If we look at the last 20 years, I can’t disagree – something has gone badly wrong, not least with the role of banking and the City. But Norris’s position is too black and white: the reality is a lot more complex.
Churchill famously said that “democracy is the worst form of government, except all those other forms that have been tried”. It’s the same with capitalism: yes, something has gone wrong, but it has still led to huge leaps of prosperity. Look at the Soviet Union: not only did it collapse in chaos, it revealed huge levels of poverty and disparity. If you took a straw poll, I don’t think anyone watching this play would want to return to 18th-century standards of living.
The play is also a bit too hard on its narrator, Adam Smith: we see Jim Trumpett, a passionate advocate of the free market, inspired by Smith’s writings about the “invisible hand”, and the way that market interference can be bad for society. Smith did write about this in Wealth of Nations; but he also wrote The Theory of Moral Sentiments, which is much more about cooperation – the need for a “helping hand”, as Gordon Brown put it in 2010.
Norris tries to marry Trumpett’s rise and fall with what’s going on today in the eurozone. To me, this felt glib and clunky, and I was frustrated by the fact the play didn’t really consider how we can get out of today’s crisis. There’s a line about handing the keys back to the driver after the car has crashed. That’s a bit trite – and it ignores the sensitive, nuanced debate that’s going on between today’s economists about the negative effects of capitalism, and of excessive austerity.
I did enjoy the play, though – and I appreciate that many of these flaws are down to the necessary constructions of theatre. You wouldn’t want to go out on a Friday night to watch a lecture about how we can get out of this economic mess. That would make for dull theatre.
• Neil Shearing is the chief emerging markets economist at Capital Economics Ltd. The Low Road is at the Royal Court, London SW1 (royalcourt.org) until 11 May.
Posted by admin | Posted on 30-03-2013
Category : Business
Tags: archaeologists, comment, comment is free, connection, explanation, final, leicester, plantagenet, professional, relatives, uk news, victorian
I’m in favour of a spot of Plantagenet controversy over King Richard’s burial place. It’s good for popular history – and tourism
Who says the Wars of the Roses are over? Five hundred years since the Battle of Bosworth, the Yorkist side is turning in on itself, and the Richard III Society may have finally met its match in the Plantagenet Alliance.
The former, in association with the University of Leicester, kicked off last year’s stunning exhumation of Richard III’s body from a car park in Leicester, and Leicester is where it wants his final resting place to be. Now the latter, consisting of 15 living relatives of the king, say they are planning to use the law to insist he be buried in York instead. You might wonder what they’re all getting so worked up about – and this Richard III business certainly defies all logical explanation.
In strictly scientific terms, there was no point in digging him up. Archaeologists thought he was under the car park – and indeed he was. Historians thought he had curvature of the spine – and it looks like indeed he did.
It was the sensational and emotional impact of the discovery that mattered, and many professional archaeologists and historians – and indeed journalists – found that uncomfortable. Words like “trivialisation” and “stunt” were bandied about, especially after the Channel 4 documentary that dwelt as much on the players as the results.
The editor of History Today, Paul Lay, blames “the pernicious influence of the solipsistic celebrity genealogy series Who Do You Think You Are?” for a demand for history to which we can “relate”. Indeed, Plantagenet Alliance members are “relatives” of the king, no less. And no more, either. As he had no children, they can’t claim to be his descendants.
It’s easy to mock the people who straightforwardly project their present concerns on to the past. As a curator, I’ve met endless people who feel a “special connection” with Anne Boleyn, or Victorian prostitutes, or various other unlikely candidates.
It’s easy too, if you look back at the past, to draw connections between people’s barmy obsessions and their own age. The Victorians were very taken with the idea that Henry VIII might have had syphilis, a disease that was central to their own health fears. Today the most modish explanation of the king’s maladies is Kell’s disease. If Henry VIII belonged to the rare Kell positive blood group, he would have found difficulty in fathering more than one child with any Kell-negative woman. The theory matches his reproductive history; but it’s also the perfect solution to have arisen in our own age, when genetics appears to have all the answers.
So I do have some sympathy with the professional historians and archaeologists who roll their eyes at the enthusiasts who stomp around fields on Saturdays in unconvincing costumes, complete with modern eyewear, or cry at archaeological digs. But ultimately if you push me, I’m always going to be on the side of the tearful. There seems to me to be something admirable, indeed noble, about the people arguing over Richard III. They’re doers rather than naysayers, romantics rather than realists, people looking for meaning rather than numbness. And I do wonder what professional historians are beavering away for in their ivory towers, if not to have history become part of the common currency of life.
Of course, it’s fun to point out the inaccuracies or sensationalism or elisions of historical drama, or history designed for public consumption. In another sense, though, it’s self-defeating, because if you constantly deride the offerings of this whole industry that produces what the Americans call “public history”, its customers will slip away to football, or Facebook, and leave us all the poorer.
Even if emotion isn’t your thing, look at the money. Whoever gets the final tomb of Richard III will have a new and possibly profitable tourist attraction on their hands. So I’m all in favour of a spot of Plantagenet controversy. There’s only one thing worse for a subject than being talked about. It’s not being talked about.
Posted by admin | Posted on 26-03-2013
Category : Business
Tags: comment, comment is free, countries, cyprus, deal, euro, europe, european, love, single, spain, world news
Getting tough on Cyprus was sensible. Elsewhere in the eurozone, a much softer touch is needed
Once again the euro has been saved, but the eurozone continues to stumble towards disaster. The distinction matters, even if European finance ministers emerged from their late-night negotiations talking proudly of having kept Cyprus inside the euro and – though they didn’t say this explicitly of course – of having stiffed Russian fatcats. For while southern European debtors are the problem for the euro, it is northern European creditors who are the problem for the eurozone.
In technical terms, the ministers have reason to be pleased. With the Cyprus deal, they have achieved two things. They have proved that member countries will do almost anything to stay inside the single currency, rather than suffer the ignominy and economic cardiac arrest that an exit would bring. If neither Greece nor Cyprus will leave, then no one will, short of revolution.
Second, they showed that the German-led emphasis on running the euro through tough love still works. And toughness is right when faced with banking crises, which is what Cyprus’s troubles amounted to: ever since the great Walter Bagehot coined the phrase “lender of last resort” in the 1860s, it has been evident that financial rescues must be mixed with punishment.
In 2008-09, amid panic after the Lehman collapse, there was too little punishment of bankers, shareholders and creditors who had let their institutions take reckless risks. Rescuing the financial system took priority. The same was true during the European bailouts for Ireland and Spain. The Cyprus deal improves on that, and sets a helpful new precedent.
Those who deposited large sums in Cypriot banks were not just tax-evaders in their home countries, though often they were that; they were also lenders to these banks who enabled them to act recklessly in Greece and elsewhere. A bank deposit is the same as a loan. So making depositors of €100,000 or more pay for part of the rescue is just the same as defaulting on debt.
Nevertheless, the Cypriot deal is a sensible reinforcement of tough love. The real problem with it at least as a focus of eurozone policy and politics, or as a cause of back-slapping satisfaction, is that it misses the bigger point. It is all about tough, and not at all about love. For the love part is what the eurozone now needs to focus on. Not for Cyprus, specifically, but across the whole single-currency area.
A currency can be saved, rather as in the 1920s the gold standard was preserved, but it is the countries that really matter. If the eurozone economies spiral further into in recession, their politics are going to turn nastier and nastier. The 25% vote in Italy’s election for the anti-establishment Five Star Movement led by the former comedian, Beppe Grillo, is a foretaste. And Italy may well have a second election in the next few months, in which the rebellion against austerity, the euro and above all Germany is likely to intensify.
Banking crises in countries such as Greece, Cyprus and Spain do pose genuine dangers. But a never-ending recession, with youth unemployment at 36% in Italy and over 50% in Spain, is a much greater hazard. And the tragedy is that it is avoidable – if only Germany and the other northern Europeans would drop their insistence on fiscal austerity for all and in every circumstance.
This week the International Monetary Fund advised the Netherlands that it really did not need to keep on cutting its budget deficit. It was good advice, and the same applies to Germany. They should be stimulating demand, not repressing it in a fit of sado-masochism.
The hope has to be that German policy will change once the federal elections are safely out of the way in September. Yet by then, Italy, the zone’s biggest sovereign debtor and its third-largest economy, might have elected a vehemently anti-German government, led either by Grillo or by the man he calls “the psycho dwarf”, Silvio Berlusconi. If the prospect of that doesn’t make the northern Europeans see sense, then nothing will.
Posted by sysadmin | Posted on 24-03-2013
Category : Business
Tags: budget, chris, comment, comment is free, deal, decorating, donned, economic growth (gdp), economic policy, economy, george osborne, guardian.co.uk, overalls, riddell
Chris Riddell on how the chancellor has donned his decorating overalls to deal with a stalled economy
See original here: George Osborne papers over the cracks
Ministers fail to clarify whether scheme to help first-time buyers could be exploited by those wanting more properties
Continue reading here: Steve Bell on the Help to Buy scheme – cartoon
Posted by sysadmin | Posted on 21-03-2013
Category : Business
Tags: called, comment, economy, housing, part, real estate, the guardian, year
No matter how cunningly Osborne selects who he wants to protect, large parts of the population are going to get hurt
George Osborne’s budgets follow a trajectory. It runs thus: Summer 2010, fiscal pain now, economic gain later. Spring 2011, a call for a March of the Makers, with policies designed to rebalance Britain away from the City and towards other industries. Last year, a bundle of small flashy measures that came apart so quickly it will be remembered as the Omnishambles. At least Wednesday’s budget lacked the fidgetiness and the bombast of old.
The chancellor can no longer claim to spy green shoots or even promise a turnaround before the next election. As he admitted, government borrowing is now forecast to keep rising as a proportion of GDP all the way till 2016. What he offered instead was a budget that manages economic decline in terms designed to appeal to Conservative voters. More state money going towards helping people on and up the housing ladder – on top of all the Bank of England billions to boost lending that have instead gone into cheaper mortgages. Another reduction in fuel prices. And a squeeze on public-sector pay and a raid on their pensions, part of which will fund cheaper childcare for working families. That last item may prove particularly tricky for Ed Miliband to oppose.
Running through all of this is a canny ability to do populism on the cheap. None of these giveaways cost a lot, yet they will certainly make a few headlines (although perhaps rather more timely ones than the Evening Standard front page that divulged much of the Red Book detail before Mr Osborne had even stood up to speak). But it’s unlikely that they will distract attention from the economic mess this government has landed in less than three years after taking office.
Down, down, down
Growth forecasts down – again. Borrowing projections up – again. An economy not likely to go into a triple-dip recession soon, according to the Office for Budget Responsibility, but enjoying the worst recovery in 100 years. The government’s austerity did not cause all this, as this week’s tumult in Cyprus reminds us, but it has exacerbated Britain’s chronic economic weakness. To all intents and purposes, this is a depression – except this time Herbert Hoover is at the controls, rather than Franklin Roosevelt. However big a failure, plan A lives on. The spending cuts will continue, while responsibility for growth will continue to be outsourced to the Bank of England. The Treasury plainly has a lot riding on Mark Carney, soon to take over in Threadneedle Street. Where Mervyn King would push back on some of Number 11′s proposals for new lending schemes, Downing Street’s clear hope is that Mr Carney will be much more enthusiastic.
Yet the monetary activism we have seen to date – £375bn in quantitative easing, £80bn in funding for lending – has not got the economy out of the doldrums. Even so, there is no question of extra government spending. Forget about the immediate £15bn public-works programme called for by Vince Cable; Mr Osborne found £3bn for capital spending, to begin in 2015. And that will come from other parts of the budget, so the boost it provides to the economy will probably be minimal. The same goes for the National Insurance cut for employers, which will provide useful loose change for small businesses and barely be noticed by bigger ones.
Home truths
One of the few clear stabs at a growth strategy was the money for mortgages. This will not come off the public finances, but are loans taken out by the government from the financial markets and lent on to would-be buyers who are short on deposits. Part of Mr Osborne’s charm offensive to an “aspiration nation”, it carries faint echoes of the 1980s: Thatcher’s right to buy reimagined as David Cameron’s even righter to buy. But it is a worse and more muddled policy than that. If the problem with the housing market is that there is not enough of it, then the government should be encouraging the building of more (ideally council) houses. On the other hand, if the problem is that house prices are too high for would-be buyers, then the state should not be helping to push them up. Add to that the prediction by the OBR that by 2015 real wages will be 9% below where they were in 2009 and you have a policy that is encouraging indebted Britons to take on more debt, despite the fact that they’re getting poorer. A very dangerous prospect.
It is also notable that the coalition’s rhetoric about making Britain more productive has been replaced with a return to that age-old British obsession with the property market. Rebalancing is dead: long live the old, busted economic model.
Fighting talk
Even amid a slump, some are still doing very nicely, as demonstrated by Wednesday’s news of the nine Barclays bankers awarded £38.5m in bonuses (including £17.5m for the aptly named Rich Ricci). Just who lost out from the budget was less obvious. And yet we know that any chancellor setting out a “fiscally neutral” budget – as Mr Osborne said he was doing – must take as much with the one hand as he gives with the other, so losers there must have been. Mr Osborne did not exactly deny it. Instead, he wrapped the worst of the news in passages of the speech so technical that casual listeners would have switched off.
While the Liberal Democrats have been insisting that the downward ratchet to benefit rates that Mr Osborne announced last autumn would have to be the last attack on the needy, the chancellor revealed his desire for fresh cuts to welfare, while discussing a public-spending aggregate called “annually managed expenditure”. Mr Osborne quipped that AME, whose biggest component is social benefits, had been “annually unmanaged” by Labour. He resolved to impose a cap, which would surely be hard to make stick without entirely breaking the link between welfare provision and welfare need. Will his cap mean that if more people claim disability benefits then the rates will be automatically be cut? All-important details won’t emerge till the spending round in June, and that could prove to be a political bloodbath.
The second big group of losers are public sector workers. The big squeeze on their pay will now continue for another year; significantly the chancellor said this would not just be a case of continuing with a 1% limit on general rises, but would also involve cutting back on so-called progression payments which reward teachers, civil servants and others for their experience as they develop their career. Then there were the obscure changes to pensions, which abolish so-called “contracting out”. State employees, as well as the dwindling band of private sector staff who still have access to final salary pensions, are going to face a hike in National Insurance equivalent to a penny and a half on the basic rate. Whereas the coaliton recently boasted of having put public sector pensions on a sustainable footing, after one poisonous row with the unions, Mr Osborne hinted that he expects public sector employers to claw back the extra National Insurance that they are now expected to pay by further reducing the benefits in the years ahead. Stand by for another showdown.
Long, hot summer
The Eastleigh byelection set the coalition’s two wings against one another and Wednesday did little to repair relations. Where Mr Osborne’s budget represented a plausible Conservative strategy for sharing out the pain of a failing economy, there was little here for the Liberal Democrats. They can point to the early fulfilment of their pet project of a £10,000 personal allowance, but voters are unlikely to rate it as a distinctively Lib Dem achievement. Indeed, with the hike in VAT to 20%, tax credit cuts and earnings lagging behind the cost of living the average voter might not notice anything at all. And then, of course, there will be particular spending ministries headed by Lib Dems such as Vince Cable and Ed Davey which can now be expected to put up a fight against the fresh demand for more cuts.
If squabbling with the Liberal Democrats were the end of it, Mr Osborne would probably be well satisfied. But as that spending round in June looms, he is likely to run into resentment from several Tory colleagues too. Ministers charged with administering even protected budgets like schools and hospitals might rage when they discover that they are in for more industrial strife on questions like pensions; others – such as Theresa May in the unprotected Home Office – can be expected to turn up the volume against additional cuts.
Politics is set to get bumpier, but perhaps the politics of parsimony is inescapably so. Where the chancellor effectively gives up on growth, and instead concentrates on how to dole out the pain, then no matter how cunningly he selects who he wants to protect, large parts of the population are going to get hurt. And there is never too much of a gap between financial pain and howls of political anguish.
