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
Continued from previous page
Inverting Lenin’s view of governments as being the board of directors for the ruling class, the Thatcherites depicted government (at least Labour Governments when in power, which was about half the time under Britain’s two-party system) as the Board of Directors of the labor unions. They argued that industrialists could not manage in the face of unequal competition with the unions. Creditor-oriented monetarism thus merged with free-market economics of a particular kind. A Keynesian “market,” the Thatcherites accused, was very different from what an ideal market should be. The kind of competitive market that union leaders wanted was one of low unemployment conducive to wage-push inflation. For the Thatcherites, creating a “competitive market” and price stability became euphemisms for breaking trade union power.*
Creating a Populist Opposition to Public Spending
Monetarists recognized that in order to reduce taxes (without increasing the public debt), it was necessary to cut back public spending proportionally. This was, conveniently, part of their plan to scale down government in general. The path of least resistance was for politicians to create a backlash against government waste, and to reduce everyone’s taxes somewhat, while “simplifying” the fiscal system by shifting taxes away from wealth (especially in the finance, real estate and insurance sectors) onto consumers via sales taxes, excise taxes and the value-added tax (VAT).
The biggest problem faced by Mrs. Thatcher in pursuing this regressive fiscal policy was that most voters initially viewed the government as subsidizing essential public services, ensuring economic security and helping families in need. But voters also were taxpayers. Mrs.Thatcher played on their resentment against public subsidies to those who were less hard working (i.e., poorer) than themselves. Seeking to attract voters to her cause through their perceptions of the existing system’s unfairness and visible inefficiencies. Although most came from wage-earning families and their natural sympathies lay with labor, she was able to denounce trade unions for their featherbedding and extortionate wage demands.
In sum, Mrs. Thatcher made no apology for fighting against tax-and-spend policies, trade unions and public ownership. What she challenged was nothing less than her society’s traditional value system. She appealed to the narrowest and most immediate self-interest of voters, not to their idealistic hopes. Her success is reflected in the fact that the 1980s became a decade in which income and property taxes were rolled back and governments began to be downsized not only in England but throughout the world.
Opposition to public spending – and the taxes to pay for it – was fanned by warnings about the dangers of inflation eroding the purchasing power of wages. What was not stressed was that the main source of global inflation was the United States, whose war in Southeast Asia had created a budget deficit and forced the world off gold. America quadrupled grain prices in 1971-72, and OPEC countries followed suit with oil prices. By the end of the 1970s the U.S. Federal Reserve raised interest rates to 20 percent in order to end the inflation by deterring bank lending. This plunged England and other countries into economic crises of their own. Future historians no doubt will find it remarkable that they sought to cope by curtailing their own budget deficits and money supply.
The monetarists viewed inflation as a domestic phenomenon that could be countered by cuts in public spending and general austerity. But their policies only made things worse, by collapsing employment and output. Falling tax revenues pushed government budgets even further into deficit, and rising interest rates increased rather than lowered prices. (Economists call this the Gibson Paradox.) High interest rates collapsed the stock and bond markets, leading to capital outflows and lower foreign-exchange rates. This increased the price of imports, pushing up prices accordingly. But monetarist politicians single-mindedly blamed the inflation on not following their austerity policies even more stringently and not cutting government spending by even more!