Margaret Thatcher and Mikhail Gorbachev in 1988. Photo by Hulton Archive/Getty Images.
The world lost one of the great ones Monday: Former UK Prime Minister Margaret Thatcher passed away, aged 87. Twenty-three years after her rule, the UK’s longest-serving PM remains a polarizing figure, but there’s no arguing against her achievements. Not that her record’s perfect—she did much to advance freedom and free markets in the UK and globally, but like every politician, she had some policy duds. Still, her legacy is unmistakable, and her successes and failures alike taught the world some important lessons.
The biggest: Capitalism is the best way—for economic growth and personal freedom. Eastern Europe was a dreary place under communism. People lived under tyranny, and for most, even modest personal wealth wasn’t worth hoping for. But Thatcher (along with Ronald Reagan, Karol Wojtyla, Vaclav Havel and others) stood up for their human rights, helped tear down the Iron Curtain and gave former Soviet satellites some of the tools they needed to rebuild. The capitalist systems states like Czechoslovakia (and later the Czech Republic), Estonia, Latvia, Poland, Lithuania and others adopted bore her imprint, and today, these nations have vibrant economies with free, flourishing, prosperous citizens.
Domestically, she was just as revolutionary. She changed the UK’s political debate, permanently—she taught politicians on both sides that free markets and free trade are necessary to stay competitive. It was Thatcher who tore open the UK’s once-stodgy banking system, lightening regulations and opening the sector to foreign investment and competition. The Big Bang made the UK the premier destination for global banking, helping it unseat New York as the world’s biggest financial center. Reducing the state’s role in the economy—whether through privatizing utilities and other assets or opening interests like rail to private investment—helped usher in a new era of economic dynamism. Times were very hard for her first few years, but between GDP’s nadir in 1981 and Thatcher’s 1990 departure, output rose by nearly one-third.
Of course, this is where it gets a bit muddy. Privatization was obviously an economic necessity—coal, gas and their ilk were albatrosses on the state’s balance sheet, and inefficiency abounded. And post-privatization, these industries emerged much more competitive and productive—mining and utilities output has soared since the 1990s. But the social costs were dear—read up on the 1985 miners’ strike if you don’t believe me. And in the areas most deeply impacted by the mine closures brought by privatization—particularly in Wales—the structural shift to a services-based economy took a generation (and, in some areas, remains ongoing). The interim saw countless men displaced and, despite the best efforts of retraining programs, unable to find similarly steady or gainful employment in other arenas. That’s one big reason benefits payments soared under Thatcher. The net economic gain from privatization was overwhelming. But that doesn’t diminish the localized losses.
At the same time, however, she reconstructed the economic system to make it possible for people to bounce back. Thatcher was the ultimate self-made woman—she wasn’t a privileged child. Nope, she was a grocer’s daughter who earned her way to Oxford academically, and she forced her way into the old boys’ club in Westminster. She was an individualist through and through, and her goal was to use the free market to enable that individualism in others. She cut red tape throughout the corporate sector, empowered employees, reduced income taxes and largely allowed businesses to operate as they saw fit, believing profit motive would steer an appropriate course. And, largely, she was right—if she weren’t, Tony Blair wouldn’t have bothered incorporating her ideas into the New Labour manifesto. He and Gordon Brown wouldn’t have continued deregulating the UK economy throughout the late 1990s and 2000s, and Peter Mandelson wouldn’t have battled protectionism as EU trade commissioner last decade. And current PM David Cameron wouldn’t have picked up where they left off. (His and Chancellor George Osborne’s financial regulatory overhaul, however, is another matter.)
Thatcher’s individualism scored on another front. She recognized the EU’s potential to become “a European superstate exercising a new dominance from Brussels,” and she held the project at arms’ length. Much as she wanted Britons to take charge of their own economic destiny, she wanted her country to chart its own course rather than be shackled to others. Domestic political interests forced her to join the ERM despite her objections that it amounted to a straitjacket, but reality soon proved her right (see: Black Monday), and her objections laid the groundwork for the UK’s Maastricht opt-outs. Needless to say, the wisdom of that decision should be obvious.
One of her decisions wasn’t so wise though—the poll tax. In 1990, Thatcher essentially instituted a head tax on every person in Britain, replacing the property value-based system, which funded local spending. She argued it was more fair—that people don’t receive public services in an amount relative to their property value, so why should their contributions be scaled so. But it was her downfall. Because total local spending didn’t fall, most low- and medium-income households ended up shouldering a much bigger burden. 200,000 strong turned out in Trafalgar Square to demonstrate against the poll tax before it took effect, and during its short existence, avoidance was rife and revenues fell. That sowed the seeds of Thatcher’s ouster, and the world was reminded once again that regressive taxes don’t work. Ever.
As world leaders mourn Thatcher’s passing and remember her legacy, I have one particular hope: That those in charge of Europe allow peripheral nations to give their economies a fighting chance. Thatcher taught us public sector cuts alone won’t pull a country from the doldrums. Individuals and private businesses need a system that allows them to compete—they need lower taxes, fewer regulations, freer trade and freer capital if they’re going to make up for their governments’ reduced presence in the economy and, over time, absorb displaced workers. So, troika officials, how about it: In honor of Baroness Margaret Thatcher, let’s give Portugal, Spain and others a little more deficit flexibility so they can abandon those dastardly tax increases you made them pass.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.