Margaret Thatcher Was a Privatization Pioneer, and This Is the Story of How Her Agenda Did Nothing But Make Life Worse for Millions of People
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If Sherman was the ideological gadfly, Mrs. Thatcher was the master of political tactics. Her genius lay in seeing that public bureaucracies were ripe for the plucking, along with the Keynesian macroeconomic theory that served as their intellectual foundation. Most Britons believed that once a path was embarked upon, it could not be changed, to say nothing of being diametrically reversed. The denationalization of industry appeared politically impossible. Indeed, Labour governments believed they could bring one sector after another into the public domain. To Mrs. Thatcher this was the road to serfdom, and she sought to reverse the trend. She alone had the confidence to go on the offensive rather than passively decrying the trend towards larger public control of the economy. It was largely a result of her initiative that Britain, the nation with Europe’s strongest social democratic tradition and the most highly developed public sector, became the first to reverse what seemed initially to be an inexorable trend toward greater state control.
The Monetarist Attack on Full-Employment “Demand Management”
Mrs. Thatcher, Keith Joseph, Alfred Sherman and Nigel Lawson challenged the idea that economies could be managed by income policies aimed at achieving full employment. This objective, voiced by John Maynard Keynes in the 1930s in his General Theory, had become political orthodoxy throughout most of the world by the 1950s and ‘60s, and was endorsed both by Conservatives and Labour.
In America, the (“Full”) Employment Act of 1946 had replaced what Marx called the chronic “reserve army of the unemployed” by employment policies aimed at absorbing surplus labor through public spending. This policy met its Waterloo at the hands of Gardner Ackley of the Council of Economic Advisors and Robert McNamara, who tried to calculate just how much war America could afford, and indeed how much was needed to create “effective demand.”
In England, Mrs. Thatcher and her allies opposed Keynesian income policy on the ground that it supported wages (and hence, priced British goods out of world markets) simply to create “demand,” without regard for productivity. The achievement of “full-employment stability” was illusory, the monetarists accused, for it entailed monetary instability. Acting as the employer of last resort (or injecting enough “effective demand” to ensure full employment), governments created inflationary pressures by monetizing public debts. The ensuing inflation threatened bondholders and hence deterred their motivation to save, by reducing the purchasing power of their rentier income. The tacit assumption was that their “saving” would have funded new direct investment and employment rather than real estate or stock market speculation in assets already in place.
The major backers of monetarism duly became the rentier interests (banks, insurance companies and other institutional investors, as well as wealthy coupon clippers) who feared seeing the value of their bonds, loans and other claims on the economy’s wealth eroded by inflation. It was not hard for monetarists to show that their self-interest lay in backing an economic doctrine which depicted governments as being inherently inefficient, wasteful and/or corrupt, dominated by vested interests such as the labor unions. The Thatcherites argued that wherever public enterprise played a major role, it suffered from bureaucratic inefficiency and waste. Decision-making by entrenched constituencies (the labor unions in Britain, party members in the USSR and Argentina, and campaign contributors in the United States and Japan) led publicly owned companies to be managed uneconomically.
The way to stop this process was to turn off the monetary spigot which funded public spending. Contrary to Keynesian prescriptions, the monetarists argued, governments should limit their regulatory activity to control over the money supply, increasing it at a constant rate. They could do this only by not running into debt in the pursuit of full employment programs and other social spending. In sum, whereas Keynes had provided a rationale for government planning to sustain full employment, with an inflationary bias that he welcomed as leading to the “euthanasia of the rentier class,” monetarism took the side of creditors in urging fiscal austerity of the type imposed by the IMF on debtor countries.