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Medieval And Modern History Economics Essay

First of all, England was in a deep economic crisis, with the first oil crisis of 1973, which had compounded the difficulties evident in the late sixties. Since the mid-1950s, the United Kingdom in fact loses ground against its neighbours, its average growth rate was around 2.8% annually in the 1960s, while France and Germany experiencing annual growth close to 5%. Between 1973 and 1979, growth was 1.5% lower, even negative in 1974-1975, “unemployment rose to 1.3 million in 1978” (Norman Gash, Madsen Pirie, 1989, p1), the inflation increased to 25% in 1975. England was ranked to 15th position of OECD countries in 1971 (but the 5th place in 1951 …), Great Britain fell to 18th position in 1976, when its share in world industrial production fell below 10% while it was 20.5% in 1955. The finances of the United Kingdom were in the red: trade deficit, the deficit of current account, increasing debt, falling pound reflects the continuing difficulties of the British economy, which the ‘oil shock of 1973’s (Jenkins, p336) has worsened. Successive governments, whether Labor or Conservative, are forced to implement austerity policies to break inflation and reduce the external deficit: the uncertainty engendered by this policy known as ‘stop and go’ in turn hinders the investment effort and companies’ research and development.. In 1979 the British economy was characterised by 12% of inflation, by a deficit of the balance of payments in 1970’s, “resulted in high interest rates because of the need to defend the pound” (Pugh, 1989, p304), and public spending had grown rapidly” (John Redwood, Madsen Pirie, 1989, P6).

Social crisis, then with the return of mass unemployment, which had disappeared since the Second World War, but also, nearly 15 million working days lost due to strikes in 1974, and 10 million in 1977-1978, 30 million in 1979. Unions refuse limitation to 5% of the increase in base salaries that wants to impose the Callaghan government. Winter 1979, called “Winter of Discontent”, saw successive strikes increasingly unpopular which paralyzed the country. ‘In this winter of Discontent’, two out of three manufacturing companies were affected by strikes and stoppages’. (Norman Gash, Madsen Pirie, 1989, p2)

Cultural crisis, finally, with a society mode built by the Labor Party after the war and perpetuated by successive governments for 30 years, having reached its limits: the welfare state, ubiquitous and predator on the one hand, always greater national wealth (government spending accounted for 59% in GDP), was no longer able to ensure economic growth nor full employment.

It is in this context that the elections occur. Margaret Thatcher campaigned on the theme of British decline, socialism was for her as “unmitigated evil, a perversion of human nature and a blight upon the land” (Jenkis, p322) imposed by all-powerful unions, who have instilled in the population a culture of dependency. She undertakes to give priority to ‘enterprise culture” (Pugh, 1994, p20), free market, curb inflation and to “curtail the role of the state” (Pugh, 1994, p20). Thatcher decided to follow “drastic measures” (John Redwood, Madsen Pirie, 1989, P6). She easily wins the elections of May 1979: a vote clearly based on the discontent of the consensus state-employers-unions, became inoperative. She said in Perth during her campaign ‘Today it is socialism which is in retreat and Conservativism which is advancing..’(Jenkins, p323)

We can not therefore underestimate the seriousness of the situation in Great Britain in the late 1970s. England was the “sick man of Europe”, through this study we will analyse how Margaret Thatcher and her administration drive the country with economic policy with the objective to break down the inflation and to enable Britain economy to recover balance growth. We will first explore whether it was a “Thatcher Revolution”? and in a second part we will see if this “revolution” was a success a “miracle”. Finally we analyze the statement.

Mrs. Thatcher was in power for 11 ½ years from May 1979 to November 1990. Through this study, we will see if her policy and goals as prime minister were a success. We will also show the failures and dangers for the future of England. In the first time we will analyse the political system through its evolution, the transformation of the British state and parliament. Then in a second step we will see economic, social policy.

Thatcher Revolution:

It was in this context that Margaret Thatcher led the Conservatives to victory in 3rd of May, 1979, the day after becoming the first woman to head the government of a Western country. Born in 1925 in Grantham, Lincolnshire town, Margaret Hilda Roberts (Thatcher is her married name) was educated at Oxford, she started in politics in 1950 and was elected in 1959 in Finchley, north suburban district East London. She describes herself as “a politician of conviction”, she intended to implement a program, supported by some basic principles to stem the decline of the country. “Under three successive governments led by her, Britain has been transformed” (Madsen Pirie, 1989, p1)

Her values of his native environment: middle-class family – his father was, as is well known, a “grocer” and a local politician – Margaret Thatcher was in high values “Victorian”, magnifying the work, leadership, family and nation, she saw the key to the British success in the nineteenth century. Her values differ from what has been in the “end of consensus” which had prevailed from 1945 to mid-70s: consensus with the trade-unions, consensus on maintaining the prerogatives of state in the economy, a consensus finally around social protection, through the welfare state, introduced by the Labour Party in 1946.

The views of Margaret Thatcher were radically different: she advocated the free market and, unlike the Keynesians, would lead the fight against inflation before it against unemployment. The idea of redistributive taxation seemed nonsensical , the high tax rates with the main effect of discouraging initiative and to curb the further growth, she considered the existence of social inequalities as stimulating social mobility, as the trade unions, she thought that they had excessive powers and were contrary to democracy. “The Right Approach to the Economy” is directly inspired by the party’s program of 1970, and monetarist theories of Milton Friedman as the liberalism of Friedrich Hayek. For monetarist, “price rises could be restrained by restricting the supply of money to the economy” (Pugh, 1989, p303). She wanted to “roll back the frontiers of the state” (Jenkins, p369) and refocus on its natural function: to guarantee the currency, maintaining public order and National defense.

Thatcher revolution in action:

The liberalization of the economy has performed under four themes: the affirmation of the primacy of the market, privatization of some public sector, reform of labour relations and tax reform.

The assertion of the primacy of the market was made in 1979 by removing a certain number of controls over income, prices, dividends and wages. “Inflation led to price controls, wage controls in order to combat rising public spending” (Madsen Pirie, 1989, p12). The government has effectively abolished the incomes policy and price from Callaghan government. The decision made by Thatcher “to curb inflation by monetary means was an excellent decision”, the value of the British currency has risen and has helped to make the British economy more attractive to investors. (Madsen Pirie, 1989, p12). In mid 1980s, Lord Young was responsible for the deregulation unit and made good progress and results; however, the government was faced with the necessity to regulate the financial services industry, to regulate privatized telephone and gas companies to comply with the creation of an integrated European market (John Redwood, Madsen Pirie, 1989, P12). Deregulation enabled “substantial improvement in customer service with lower prices and better services in airline and bus industry. (John Redwood, Madsen Pirie, 1989, P13)

Then there was the liberalization of capital movements began in July 1979 that accelerated the internationalization of the British economy and stimulated the activities of the City of London. Mergers, investment of foreign multinationals have thus been encouraged and Great Britain was the European country most open to Japanese investment since 10 years. After a trip to Japan in 1982, Mrs Thatcher did not hesitate to encourage Nissan to set up factories in Britain; it was realized the following year. The export of the British capital has enabled the UK to continue to invest heavily abroad (Leruez, 1991, p146), and assets of the UK exceed 100 billion pounds by the end of 1988. This liberalization of the economy was completed in October 1986 by the deregulation of activities in the City in London. Despite the competition of other capital markets, this revolution has allowed London to maintain its role as a leader and pioneer in the “financial industry” (Leruez, 1991, p146).

Although the privatizations program “the most unique success” (Madsen Pirie, 1989, p10) is now considered as en essential reform of the Thatcher government, it should be noted that it was not given an importance in the election manifesto of 1979. This show the inherently adaptable character of the action of Mrs Thatcher (Leruez, 1991, p147), and ‘became the centre piece of the Thatcher Revolution’ (Jenkins, 1989, p370). The economic justifications of denationalization are the following: decrease the influence of state and the political decision making on the economy, increased efficiency and innovation of companies, decentralizing economical decision and negotiations of wages and working conditions. Major privatizations (‘Britoil’, ‘British Telecom’, ‘British Gas’) and most symbolic (‘Rolls Royce’, ‘privatization of water’) (Leruez, 1991, p147) started between 1979-1983. The privatization process enabled success of major industries, “British Airways” became “highly profitable and successful airline”. (Madsen Pirie, 1989, p10). Even the “British steel” became in Europe the “most productive and profitable”. The Privatization of Jaguar was considered as a “signal for a major change of attitudes in that company”, with “improvement of quality of product, with emphasis on training, cooperation from de workforce as shareholders” (Madsen Pirie, 1989, p11). Between 1983 and 1987 under the second term of Mrs. Thatcher’s privatization program will bring more than 10 billion pounds, or 5 times more than the previous. Privatization enabled companies to decide by themselves concerning investments, strategies, and became ‘synonymous with popular ownership’ (Jenkins, 1989, p370). In 1978-1979, “thirteen out of the eighteen have been privatized’ (Madsen Pirie, 1989, P11). ‘Harold McMillan denounced privatisation as “selling the family silver”.(should I give a comment for this, please help me) (Pugh, 1994, p317). In 1988, the public sector accounted for only 4% of employment and 7% of GDP. Its about the quarter of the public sector companies transferred to the private sector and ‘600,000 employees transferred from the public to private sector’ (Jenkins, 1989, p369).

Thatcher encourages the liberalization of initiative; indeed, we observed the growth of entrepreneurship, more of “one million opted to set up their own companies between 1979 and 1987”. (Madsen Pirie, 1989, p15). As new opportunities have been allowed for people working in the deregulated sectors (public transport, air transport, catering) which adhere to the advantage of markets and competition. Private companies have realized the importance of “quality, training and research and development”. (Madsen Pirie, 1989, p15)

In the mid 1980s, England experienced a significant rise in “industrial and commercial activity” with an increased number of investments. Indeed, the “North Sea industrial and commercial companies” have achieved a rate of 8% return during the 1970s, which reached 4% in 1981, and increased beyond 10% in 1987. (Madsen Pirie, 1989, p15)

Politically, Thatcher government has achieved one of its objectives: the expansion of public shareholding. Shareholders were now outnumbering unionized in the adult population: 20% against 3% in 1979. In addition, three quarters of these new shareholders will own shares in newly privatized companies. (Leruez, 1991, p150). There was a revolution by the expansion of shareholding, ‘one in five of the population become shareholders’ (Jenkins, 1989, p369). ‘From 1979 to 1987, there was an increased from 7 to 20 per cent of the owning shares of the population’ (Jenkins, 1989, p370)

On the other hand, the government decided to implement strategies such as “the housing programme” to “encourage home ownership at the expense of council housing” (Madsen Pirie, 1989, p8). The ‘extension of ownership’ was a revolution, ‘a million council tenants purchased their own homes’ (Jenkins, 1989, p369)

Others reforms were on trade unions in order to regulate their actions. The 1980 law on labour relations merely limit the company ‘closed shop’, to prohibit sympathy strikes. The 1982 Act is much more restrictive, yet it limits the “closed shop” by requiring that it be approved by 80% of staff concerned and for 5 years only. But it has other limitations: while giving a strict definition of a “conflict of legal work”, it increases the penalties for illegal actions, authorized or even just tolerated by the union involved, with potential fines. The 1984 Act contains mains provisions: It stipulates that a referendum, ‘secret ballots’ (Jenkins, 1989, p370) of members must be held before the strike, without a prior vote conflict becomes illegal. The law requires the ‘election of union executive’ (Jenkins, 1989, p370) every 5 years. With the 1984 Act, we passed from the definition of the legal framework of trade union action to the control of the internal democracy of trade unions. In 1979, the British trade unionism was 13 700 000 members or 54.6% of the workforce (Leruez, 1991, p153). In 1988, union members were only just over 10 000 000, the unionization rate fell to 35%. The primary cause of the decline in unionization is the fall in industrial employment (coal, steel) between 1979 and 1986. The culture that encourages individualism and the poor public image of unions led to the decline of unions. ‘In 1987 only one per cent of voters would consider trade union power to be the chief issue facing the country, when in May 1979, 73 per cent of people had believed to be so’. (Jenkins, 1989, p369). The marginalised membership in Trade unions shows the revolution in the British beliefs, mentalities and is the ‘most singular of her [Thatcher] achievements’ (Jenkins, 1989, p370)

The Strikes launched against Thatcher or during Thatcher Administration have been failures (The steel strike in 1980, The strike of public service in 1981). The defeat of the miners in 1984 after a conflict during a year from March 1984 to March 1985 marked a turning point. It was a revolution, the government has managed to resist and endure for a year of strikes in the coalfields and put an end to Arthur Scargill’ actions. (Jenkins, 1989, p369)

The other structural reform in the economy was the “taxation”. This reform is directly linked with the general objective of liberation of the individual initiative and to decrease the weight of government on individuals and on businesses. The VAT rate is replaced by a single rate of 15%. The corporate tax decreased from 50% to 35%, but employer contributions to the functioning of social security had greatly increased (under Labour was down). However, individual contributions to Social Security grew faster than the cost of living. The general effect of this global redistribution of taxes was an increase of the poorer part of the population poverty with the existence of inequalities in income and living conditions across regions. (Leruez, 1991, p157)

Through these reforms, the government had a budget surplus of 3, 6 billon pounds in fiscal year 1987-1988 and 14 billion from 1988-1989 (including 6 billion pounds from privatizations)

The Thatcher measures helped the British economy to perform: between 1979-1983, productivity was 2, 1%, above EEC and OECD performances. Between 1982 and 1988, Britain will record better results than the major OECD partners (Layard & Nickell, 1989, p215). The “brutal” measures of 1979-1981 have allowed a dramatic improvement in the years 1982-1988, which shows the “undoubted vitality” of the economy. (Leruez, 1991, p159). This ‘miracle’ some observers said that ‘something surprising has happened to British productivity’ (Layard & Nickell, 1989, p215). Thatcher actions in 1979, by doubling the VAT and suppression of the incomes policy had consequence on increase of the inflation in 1980. In 1979 inflation was 13, 2% and decreased to 5,6% in 1988, a decrease of 7,6 points. (Layard & Nickell, 1989, p216).

After 12 years of Thatcherism, we highlight structural problems in the British economy: For Jenkins (1989, p329), “the greatest failure of the Thatcher Revolution has been in the application of market economics to the Welfare state”. The priority of the government was to “get rid of inflation” before creating employment. (Madsen Pirie, 1989, p13) Unemployment ‘double’ from 4,7% in 1979 to 8,5% in 1988 and concerned ‘primary wage earners’ (Layard & Nickell, 1989, p216). We thought that in 1986, unemployment fell but in reality it was a decrease of the ‘number of people receiving benefits’ (Layard & Nickell, 1989 p216). The Government created “training programmes” such as “Manpower Services Commission” (Madsen Pirie, 1989, p13) but it was a mismatch between ‘skills demanded and skills held by the unemployment’ (Layard & Nickell, 1989, p218). The inadequacy compounded by the socio-economic disparities between regions: Development disparities between north and south of England have increased since the recession of 1979 to 1982. In January 1987 there were 1 740 800 unemployed in the North and 1 185 000 in the South. In January 1989, there were 1 878 000 unemployed in the whole country, 1 102 700 in the North. “94 per cent of the 1979-1986 job losses had been in the Midlands and the North” (Jenkins, 1989, p330). ‘Immobility of labour’ and the ‘decline in manufacture’ explained theses regional disparities. (Jenkins, 1989, p330) The ‘Two nations’, ‘The privileged’ and the ‘People’ (Jenkins p372) as Disraeli described characterised the ‘polarisation’ (Jenkins, 1989, p372) of the British population with the ‘emergence of two entirely different socio-economic systems’ (Andrew Broadbent in New Society, 14 May 1986, quoted in Jenkins, 1989, p372). Inequality increased by inequality in ‘pre-tax earning’ and even by the unequal distribution of the average direct tax rates. ‘The number of families with children in poverty rose by 580,000 to 1,171,000 in 1986’ (Church of England, Not just for the Poor, 1986, p46)

Nigel Lawson characterised the economic growth improvement by 4% between 1883 and 1988 as “economic miracle’.

The measures implemented have reduced inflation from 22% in 1980 to 7% in 1985 and a decrease of 3% in 1986. (Pugh, 1989, P306). However, “deep-seated problems of the economy remained’ (Pugh, 1989, p304) with a high level of unemployment. (3,2 millions in 1985) (Pugh, 1989, p306).

This ‘economic miracle’ defined by Nigel Lawson was actually an economic mirage: The rise of the demand for consumer goods has been “artificial”, it rested on an ‘inflated debt’ and spending on imports helped to unbalance trade deficits with more than £15 billion from 1988 to 1989. (Pugh, 1989, p306). The ‘Statement’ of Thatcher may be compared to important social marginalization of a significant proportion of the population that appears even in the unemployment statistics a disaster.

It was a ‘revolution’; in that she broke sharply with the principles that guided economic policy in Britain since 1945 (Callaghan, Healey Government, Welfare State, Keynesianism policy). “They [Ronald Reagan, Margaret Thatcher] were revolutionaries in their thinking and in their ability to inspire others to accept fundamental change” (Martin Feldstein, Project Syndicate, 2009), and also because it was implemented as a routine set of ideas that were a ‘world view’.

Peter Jenkins (1989) returns to his ascension, puts into context and shows how her policy in stark contrast with everything that has been done before. Margaret Thatcher was indeed a revolution, a political belief, a philosophy and style beyond the umpteenth administration, yet another government. There is a before and after Thatcher, was discovered here in what her legacy will be decisive for the British political landscape for years to come.

For Martin Feldstein (2009), ‘Margaret Thatcher brought such profound improvements that there is no going back”. Regarding to the ‘miracle’, it must be taken to mean ‘economic miracle’, because in the 1970s, Britain was really the ‘sick man of Europe’.

The growth, prosperity and productivity performance in England can be considered as a “miracle”. However, this revolution does not take advantage and do not concern the whole population. Jenkins used the word ‘half revolution’, because Britain remains divided into ‘Two nations’, but at the same time ‘two ideals’ between ‘the new Enterprise ideal’ and ‘the Welfare ideal’.(Jenkins,1989, p378)

The reforms of Mrs Thatcher allowed her to fully address the globalization of the years 1980-1990.

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