The economic legacy of Mrs Thatcher

Nick Crafts provides his account here.

33 replies on “The economic legacy of Mrs Thatcher”

Thatcher Led.

You might not have liked where she was leading to, but she did lead. It’s a lot more than can be said of our present economic and political cadres.

Thatcher led, alright, but it was a road to nowhere.

All of the banks are on life support. Christ only knows how many financial scandals there have been over the last 30 years.
And still the big question- how will the UK pay for itself in the world ?

can I have some of that UK failure please? Employment is at pre crisis levels at 29.56m

The 1970s was a difficult period, which saw the Labour government ask for an IMF bailout in 1976.

In response to a spike in inflation, trade unions demanded compensation and the industrial relations situation was horrific with sympathy strikes and mass meetings agreeing on walkouts on a show of hands, being regular features at big plants.

A recession began soon after Thatcher’s 1979 win coinciding with a second oil embargo in 5 years. In the US, Paul Volcker’s Fed imposed a contractionary monetary policy in late 1979 to cut inflation and the recession in 1979-80 was followed by an even bigger one in 1982-83.

The top rate of income tax in 1979 was 83%.

Deregulation of state monopolies that mainly served their own interests was generally a good thing, whether in the UK, Australia or Sweden. That doesn’t mean there should be no regulation.

A strange thing about the British economy is that in the home of the industrial revolution, the record in recent decades of the commercialisation of inventions, has been poor.

The closure of key industries has not been compensated by services and North Sea oil is running out.

The UK has not had a goods trade surplus since 1981, or more than 30 years ago. Despite a relatively large surplus on services, and on overseas income, Britain has been in overall current account deficit ever since the mid-1980s.

Hardly Germany’s fault!!

Today’s trade figures again disappointed. Have a look at Table 16 here for the effective sterling exchange rates index data pre 2008 and post 2008.

So much for devaluation as a panacea.

BBC World last Sunday showed a debate with a public audience in London on the subject of divorce from the EU.

A Daniel Hannan, a Tory MEP, in a ‘Cry God for Harry, England, and Saint George!’ mode, cited Norway (with its half trillion dollar wealth fund) and Switzerland (the oldest tax haven) as examples to emulate and he spoke of the potential of recapturing markets in the former colonies.

He likely never sold a bean in any market — foreign or domestic.

I’m on a bit of a nostalgia fest and bending the kids’ ears with music that has never come up on their radar. The much maligned UB40 (I owned one myself once) with ‘1 in 10’. Because the idea of one in ten being unemployed was catastrophic and appalling. What are we at in Ireland? One in seven? Would be one in five without emigration? How’s the Eurozone, let’s see: one in eight?

One of the most terrifying number ones.

@ Tull

The unemployment rate is a poor KPI. What sort of jobs have been created since 08 in Dear old blighty ? Anything better than in the US?

“There are jobs, but most are poorly paid. Low-wage jobs accounted for just over 20 per cent of job losses during the recession. Since employment started growing in recent times, low-paid jobs accounted for almost 60 per cent of all job growth.”

And how is the North of England doing?

@Michael Henningan

You and some others seem to be determined to ignore long term fluctuations in FX rates regarding the UK and its supposed demonstration that FX slides don’t make any real difference. The table you refer to starts onlt at 2004 which coincides with a sort of plateau top in sterling’s FX history. Here is some perspective dredged up from January. GBP was historically overvalued at the start of that series. It is not now. Had it stayed there, what do you think would have happened to the UK economy?

“I don’t think you can sensibly say the UK did not benefit from sterling’s depreciation from late 2008 because you don’t know what would have happened to the UK economy without it. Given the Anglo-Saxon property speculation, high levels of consumer debt etc I think it is difficult to argue the UK would not have had a worse economic performance without it.

You may recall that Sterling was touted as the new Deutschmark by the Conservative government after 1990, when it had appreciated significantly on a trade weighted basis to around 97.

The ERM exit took that back to a far more sensible average of 84 (not really going much below 80 at any point). This was a level many of us thought sustainable, and some others had declared would cause 8% plus inflation rates and a new inflationary spiral. (sound familiar?)

In 1998 & 99, sterling appreciated again, back through 90 and ended up basically going sideways around 100 for a decade. In ‘08, it dropped from having been right at the top of its range to, briefly, right at the bottom in the mid 70 odds. Over the last year it has averaged around 82 and a bit.

These moves over such a long timescale are actually comparatively dull and modest for FX.

It is likely that the 1999 appreciation and the property boom that allowed sterling to maintain those high levels for a decade was unhelpful to exporting industry and skewed the economy in a way that would take as long to un-skew.
Sterling is not now at “devalued levels” as if it had sneakily done an Italy or Argentina, it is simply out of its long overvalued boom territory and at a sensible level.

It could go significantly lower. If so, expect the French to get very vocal, as they are a direct price competitor in the defence business – and without that France’s trade balance…”

@ seafóid

‘And how is the North of England doing?’

This is something I composed in Dublin around 1991. It was meant for speaking aloud – in fact I don’t think I have ever written it down – so I’m not sure if it will carry properly. From memory then.

Winding up as a know-all with no balls
curdling cliches in a collapsed colonial outpost
was not my intention when I chugged from the station.
Eight years back I left my beloved Chester city
wall-ringed, gently-pretty,
Rome old home, snug in the Dee.
The green desert plains were the land of my birth,
and if you would learn to understand me,
come to England and see, what it means to be:

Made in the North.

You’ll find it’s no suprise that Wordsworth at his height
In awe and rapture
captured the dread full moon at Scafell Pike,
Cross the Pennines to Hull for the Librarian obsessed with death,
whose tricks and superstitions didn’t spare him his breath,
Sing Larkin was a miserable git, and he was rather fond of it.

As for our painters, it’s the PreRaphaelite creed,
who hang in the galleries from Port Sunlight to Leeds.

But if you want to know my England take a trip to Birkenhead
Where the docks of Cammell Laird lie withering or dead.

We got a letter once from Canada – and this is actually true –
They’d stumbled on the Great Lakes and they didn’t know what to do.
They asked of us if we, would build a little ferry,
so we set out to sea what was really necessary,
We took the contract on that ship – and how that monster grew
we built it big enough to take:
four thousand sheep, three thousand pigs, one thousand cattle,
two hundred passengers in state luxury,
And the bloody train track too
which we cast at mighty Crewe.

We built dreadnoughts on the east coast
And liners on the west
And underneath each prow was writ: “Original and best” (bragging)
And when a hundred thousand passengers sat down to eat their meals,
The crockery came from Staffordshire and the cutlery: Sheffield Steel.

Ah we dug the Mersey tunnel
And we forged the iron bridge
And it was Lancashire fusiliers who held the kop at Spion Ridge.

You may not like our satanic mills. But when you looks down your high street,
We’re not responsible for the Stephen’s Green Shopping Centre, neo-pseudo – crypto- Greek.

American that is.

And you may claim if you like our wealth was got through trading slaves,
But don’t forget just who it was who taught the bosses to behave.
Mr Ghandi thanked us,
Because he knew we went on strike: shutting down our looms to earn the Indian workers rights.
Tell me who’ll do that now,
Six years since Union Carbide went burning lungs out at Bhopal?

With the salt we panned from the wiches. With herring and cod, mutton and beef, cotton, glass, steel, iron and brick we built, clothed fed and ran and empire.

From the North.

Now from Stockport up to Darlington
The fishermen still drown
but it’s not the catch within their nets now
but submarines that pull them down.

We were taken piecemeal
When they provoked the miners’ strike
And we listened to their petty laws and forgot
Workers should Unite.

With Thatcher ranting lies
beginning her trail of hate
She picked on miners and miners’ wives to lay bare the welfare state.

You know I had a little brother
who worked down the Rossington pit,
Now he turns his euro dollar
As a bar boy in Madrid,

And my local town is Blacon
Where heroin comes in vans
And our only metal export now
Is the Brighouse and Rastrick
Brass Band.

You see we’ve become a dream
Of misty Hovis ads., we’re either chirpy or we’re stupid
Coronation Street or Likely Lads.

And here am I
winding up as a know-all with no balls
Curdling cliches in a collapsed colonial outpost
And maybe it was a ruptured epidydimis that finally got rid of us
But that was not my intention
when I chugged from the station
Eight years back I left my beloved Chester City,
Rome old home. Snug in a crook of the Dee,
And if you would learn to understand me,
Come to England, come to England, come to England,
And see.

What it means to be
And what it means to me.

Made in the North.

@ seafóid

Posts crossed there. Yes, I did try that on them and ‘Eaton Rifles’ with a go at explaining that the boys are still at it.

For some reason I went straight to this – right from 1980.

I look out every day and see the sullen masses of refugees coming into Dun Laoghaire from Hollyhead, starving, no shoes…oh wait I don’t. In fact the flow of traffic is probably the other way.
I would say the countless hundreds of thousands if not millions that are in employment in the UK due to the enlightened monetary policy of the Old Lady are far better off than if the UK was under the jackboot of the ECB.

If you stood in middlesbrough bus station it would be the same. Ireland is in London’s hinterland. You will always have irish people going to London innit. But is the UK better set for 10 years of zero growth than the EZ? I doubt it. Look at those banks and those house prices. Even the social climate via the daily hate. England has over 50 million people. Most densely populated big country in Europe. No coherent economic strategy. No ECB around but still headed for a triple dip. It looks grim. Muintir Shasana – I feel sorry for them.

As the recently revealed interview with Kohl (2002) confirms, the euro was, and remains, an undertaking – largely his doing – to ensure peace on the Continent.

The most recent survey in Germany shows overwhelming support for maintenance of the euro.

Thatcher was right about the reasons why it came about and reflected British reservations which are centuries old. As far as Hibernia is concerned, it was, and remains, a question of which team to join.

It might have been wiser to stick with the devil we knew. But the choice is now made and it is definitive cf. Draghi at his most recent press conference.

Question: Mr Draghi, I have got a couple of questions from viewers at Zero Hedge. And one of them goes like this: Say the situation in Greece or Spain deteriorates even further and they want to, or are forced to, step out of the euro area. Is there a plan in place so that the markets do not basically collapse, or is there some kind of structural system like a structural safety net, especially in the area of derivatives?

Draghi: You are asking questions that are so hypothetical that I do not have an answer to them. However, I may actually have a partial answer. These questions are formulated by people who vastly underestimate what the euro means for the Europeans and for the euro area. They vastly underestimate the amount of political capital that has been invested in the euro. And so, they keep on asking questions like “if the euro breaks down” and “if a country leaves the euro area tomorrow”. The euro is not like a sliding door, it is a very important thing; it is a project in the European Union. So, that is why you will have a very hard time asking people like me “what would happen if?” There is no plan B.

In addition, I think the ECB has shown its determination to fight any redenomination risk, and OMTs, with their precise rules, are there for this purpose.”

I doubt the Sasanaigh need your pity. No coherent strategy as opposed to who…the now defunct European project. The Brits have a better chance than us with the Dead Hand of Frankfurt at our throats.
As regards their financial sector-better shape than your average EZ bank. A good deal of the bad stuff has been admitted to.

Interesting that 2007 was chosen as his year for comparisons when more timely data is available.

@DOCM at 7:07 pm
The most recent survey in Germany shows overwhelming support for maintenance of the euro.

Truly amazing. I’ll have to eat some of my hats:
Euro-skepticism in Germany on the decline
09.04.2013 · German approval of the single currency has risen noticeably. A rectn survey shows that almost 70 percent want to keep the euro — last year it was only half as many. [my translation – CG]

When do you think RBS will be back as a private company? The UK has huge questions to answer now the oil is no longer so fluirseach. Way behind on things like apprenticeships and infrastructure. I saw a TGV the other day. The UK put the money in estate agencies. Have you seen Sarah Beeney recently? The Euro may turn out to be like Francie Bellew. And the Tories could pull dear old blighty out of Europe. The Yanks are more interested in Asia than the special relationship. Very interesting times.

Everything seems to work well when I go over there.
So Draghi denied the possibility of Euro break up. We know it is a fact now.

@Carolus Gaviensis

“Truly amazing. I’ll have to eat some of my hats”

I shouldn’t rush out to buy the HP sauce to go with those hats. Even Germany has Öffentlichkeitsarbeit Jungs (I think that’s ‘PR Guys’ in German?) who dress lots of 5hit up to make it look like facts. I’d put the HP sauce on the 5hit to make it a bit more palatable if I were you.

PR Guy is on the money. Unless somebody put something in the water, this poll stinks. Last year only 50% of Germans wanted to stay in.

Unless you’re going to argue that the power play in Cyprus has won German approval for their new found position as UberHerren of all Europe, I think this poll is baloney.

@Seafoid, GK

I see your Specials and raise you the Jam

See that and raise again with some Style Council brilliance…

@ grumpy

Yes the long run matters and the last UK current account surplus was in 1984 – – long enough to produce some conclusions.

I put the reference to the Tuesday’s stats office release as it showed the sterling trend over a decade as it was convenient for a blog post. I did know what happened after the ERM exit etc.

There are a lot of issues in play and for example, now that the UK car industry is foreign-owned and part of global supply chains, changes in rates can have a marginal impact. Ditto for pharmaceuticals. Some other companies take the gains without cutting price.

The UK Dept of Business (BIS) says JP Morgan analysed episodes of sterling weakness other than post the ERM exit, and finds mixed effects on net trade. Following the early 1980s depreciation, net trade mostly acted as a drag on growth, and increases in net trade after the early 1970s depreciation may have been mostly due to demand movements. JP Morgan concludes that, as the economy recovers, rebalancing towards a more export-intensive economy will be a very slow process.

An analysis by the European Commission indicates that price competitiveness, measured as the real effective exchange rate, can explain an estimated 36% of the difference in the change in export market shares across euro area members, once the outlier of Slovakia is excluded.

At the same time, over 60% of cross-country differences in market share changes are influenced by non-price competitiveness factors, such as product differentiation, technological content, or product quality. On top of differences in market shares, growth in exports overall is found to differ across euro area countries due to variation in the markets they export to and the type of goods and services they export.

BIS says: “Overall, export growth is found to have been driven more by changes in foreign demand than by changes in price competitiveness or other factors.”

Some in the UK were surprised in 2010 to learn that Ireland was a bigger market for UK exports than the BRIC countries combined.

In February, the HSBC bank’s chief economist, termed the UK’s exports to China “a rounding error.”

In the three months to Feb the deficit on trade in goods with the EU was at £14.5bn, the worst in any three month period on record. The current account deficit was was 3.7% of GDP in 2012 – – the highest since 1989 and only the fourth time since 1948 that it has been above 3% of GDP.

@ seafóid

I looked up those pieces you mentioned at 5.44. Very good. I’ll take that as a complement. I’m going to have to find some Mairtin O Direain in translation.

@ Gavin
Here is a start

It’s about his feelings comparing his life as a civil servant in Galway /Dublin to his father’s and grandfather’s life farming on the Aran Islands. I think it is a reflection too on the modern world and alienation and being cut off from one’s links to the past.

I used to work in India and the construction workers for Uttar Pradesh always reminded me of the poem.

The poem ‘Stoite’ in Rogha Dánta engages with the theme of uprooted man adrift from the moral sanctions of traditional rural life, a subject that receives its most exhaustive treatment in Ar Ré Dhearóil (1963), where he explores a moral crisis inherent in ‘an chathair fhallsa’ (the false city). Attractively simple in theme and language, his work shows a capacity for acute observation. A striking feature is the repeated use of a simple vocabulary in which words such as cloch, cré, carraig, and trá (stone, clay, rock, and strand), serve to evoke the values which the poet sees as being eroded by modern urban society.

This is also sort of on the same wavelength

@Michael Hennigan

“Yes the long run matters and the last UK current account surplus was in 1984 – – long enough to produce some conclusions.”

It isn’t just the length of the ‘long-run’. Do you think that occurrence in 1984 is not connected with sterling’s prior precipitous fall (not the moderate correction it has undergone since 2008 by comparison)?

During 1984, sterling averaged $1.20 (DING!!! Current account surplus)
During 1983 it averaged $1.55.
During 1982 it averaged $1.80
During 1981 it averaged $2.30

In the 2 years following 1984 sterling strengthened to average $1.35 and $1.50 respectively (note vanishing surplus).

Significantly, those are approximate AVERAGE figures, not peak to trough ones sometimes used in order to exaggerate more recent currency movements. Those are proper orders of magnitude for currency depreciation, not the Namby Pamby stuff of late that has done little more than take the edge off the UK’s potential export failure and debt deflation.

I do understand that you understand the essentials of FX markets, but I think you overstate the the argument that it doesn’t matter – the case that currency provides little or no influence and should therefore be ignored as a total canard.

Docm regularly makes reference to UK economic figures and the post 2008 correction in GBP in order to claim this is some sort of proof that FX rates influencing the current account is an exotic and fanciful intellectual construct of out of touch economists.

That is fine piece of composition. Full of imagery and bite. It is worthy of a wider audience.


I would say the countless hundreds of thousands if not millions that are in employment in the UK

So what were the “countless hundreds of thousands if not millions” who were in the UK before Thatcher doing there, hmm?

@ grumpy

You are correct to highlight that currency movements can have significant short-term impacts.

I used to produce dollar accounts for a US company selling mainly in the UK, France and Germany and currency losses can make a mess of an annual plan.

Trying to buy Swedish krona forward in September 1992 in Jeddah was also an experience.

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