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Last Updated: Thursday, 6 May, 2004, 17:07 GMT 18:07 UK
What do we owe to Thatcherite economics?
By James Arnold
BBC News Online business reporter

Margaret Thatcher
She started out as radical; now she's the mainstream

To understand the importance of Margaret Thatcher, take a look at Tony Blair.

Here he is in a famous speech to the 1999 Labour conference: "Every person liberated to fulfil their potential adds to our wealth... Every person denied opportunity takes our wealth away... Not equal incomes. Not uniform lifestyles or taste or culture. But true equality: equal worth, an equal chance of fulfilment, equal access to knowledge and opportunity... The class war is over."

Whatever the political antagonisms, the economic payoff from all this talk of opportunity, access, potential and liberation is still seen as Mrs Thatcher's most enduring legacy.

But 25 years after she came to power, how much do we really still owe her?

Lucky break

The debate, understandably, still rages.

Madsen Pirie
Britain was the laughing stock of Europe in the 1970s
Madsen Pirie, Adam Smith Institute
To begin with, there is still a surprising amount of disagreement over whether she gets the credit for a 1980s boom.

The Thatcher government "rode its luck" in the early 1980s, says Andrew Gamble, director of the Political Economy Research Centre at Sheffield University.

It misjudged the scale of the economic slump resulting from soaring oil prices, which rapidly pushed unemployment over three million.

But because it escaped being voted out of office in 1983, the economic wreckage proved a perfect base for the emergency reforms of the mid-1980s, Professor Gamble says.

Boom for the few

Nor, once reforms got under way, were things as perfect as memory suggests.

Did the rich get richer, and the poor poorer? Get all the economic facts and figures of the Thatcher era

Roger Middleton, an economic historian at Bristol University, admits that growth accelerated from a low base.

But to qualify as a boom, he argues, a period should produce strong gains in efficiency, equity and equilibrium.

Although Dr Middleton allows the first criterion, he insists the 1980s fail badly in equality of income and macroeconomic stability.

Coddled by tax cuts and soaring house prices, high earners controlled an ever-widening share of national income.

And boom-and-bust policies, he insists, "were a macroeconomic disaster."

"They took a stable economy and turned it into an unstable one."

Rich pickings

Poppycock, says Madsen Pirie, president of the Adam Smith Institute.

"Britain was the laughing stock of Europe in the 1970s," he says.

Policemen during the miners' strike
On the march for cheaper inputs
"If stable meant not growing, then I suppose you could call it stable."

Arguments over inequality are muddier than they look from the bare income figures: overall real earnings rose strongly, and opportunity-widening policies such as council-house sales genuinely redistributed wealth.

And Dr Pirie contends that the primary economic virtue of Thatcherism was in lowering the structural costs of doing business.

Labour and financial markets were deregulated, and privatisation of utilities - oil and gas, power, water and so on - resulted in what economists call lower input costs.

On message

This is where something like consensus emerges: the notion that Thatcherism created a more competitive foundation for the economy has become orthodox among politicians of the left, as well as the right.

Tony Blair
He's got the right idea
The dirigiste management of the 1970s, under which commissions of civil servants decided what sort of cars Britain should drive, was eagerly dismantled.

Controls on economic activity were relaxed: opening of capital markets, for example, has seen Britain become arguably the centre of the world's financial industry.

Unemployment, the curse of the Thatcher years, has all-but vanished - largely, economists argue, because of the deregulation of the Thatcher years, and the subsequent decline in strikes.

And income taxes, which were confiscatory - a top rate of 83% - in the late 1970s, have come down and stayed down.

Market failure

There are still pockets of dissent.

Professor Gamble questions whether Thatcherite deregulation may be behind Britain's feeble record on productivity: growth here slowed during the 1990s, a sharp contrast with runaway improvements in supposedly equivalent economies such as the US.

The problem, Professor Gamble argues, is that dismantling the 1970s control economy was all very well, but it was never replaced by any considered approach to human capital.

Investment in education, for example, has lagged in Britain - something Professor Gamble attributes to Thatcherite fear of state planning.

"They thought the market would provide," he says.

"The market is good at providing some things, but not everything."

Long live the queen

But the revolution has barely begun.

What Mrs Thatcher did to state utilities, Tony Blair could now do to public services, Dr Pirie argues.

And it's taken some time, but Mrs Thatcher now has acolytes all over Europe, notably the upwardly mobile French Finance Minister, Nicolas Sarkozy, and Italian Prime Minister Silvio Berlusconi.

Just as Mr Blair embraced Thatcherism in the 1990s, so Europe's left-wingers are starting to convert: German Chancellor Gerhard Schroeder, for example, has just pushed through labour-market reform.

In the ex-communist east, where less embarrassment attaches to her political legacy, it is hard to find a statesman who doesn't hold her in awe.

Thatcherism is still a growth business, and the export market is looking promising.

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