When I was a young Reagan administration official, Margaret Thatcher was a particular hero of mine. But looking at her impact in retrospect and with the benefit of more maturity and experience, it seems to me that she has left a very mixed legacy.
I had lived and worked in Europe in the 1970s as Director of European Marketing for Scott Paper Company based in Brussels. I remember having been appalled at the decline of Britain's economic performance and at the erosion of its standing in the world at that time. The constant strikes, the increasingly dilapidated infrastructure, and general mood of gloom were irritating and depressing.
One incident in particular was extremely revealing. Scott's affiliate in Italy, Burgo-Scott, had installed a new paper machine at the same time as the British affiliate, Bowater-Scott. As it happened, the two companies bought exactly the same type of machine. After a year of operation, the Italians reported that their machine was producing at the rate of 50,000 tons per year. This was astonishing news because Bowater-Scott was reporting a production rate of only 35,000 tons per year. But the British affiliate had been in business much longer than the Italian affiliate and had a reputation for excellence. Indeed, the other international affiliates were all judged according to the standards established by the British affiliate.
So at first there was great skepticism in at the Brussels headquarters about the Burgo-Scott numbers. "I mean, you know how Italians are. Of course, they are exaggerating," it was said. But the Italians swore they were telling the truth and invited outside engineers to come and see for themselves. Sure enough. Burgo-Scott was doing what it said it was doing, and that was a lot better than Bowater-Scott. Repeat this example a thousand or so times across the economy and you get an idea of what was happening to Britain.
Thatcher played a key if not decisive role in stopping that rot. One reason why the Reaganites loved her so much was that she stopped it by getting the government's hands out of a lot of pies and letting market forces have free play. Deregulation, privatization, an end to subsidies, and a halt to labor union tyranny was the order of her day, and it worked in many positive ways. Of course, she was greatly assisted by the development of the North Sea oil fields that compensated for lagging British competitiveness in manufacturing and technology. But with competition, free markets, sound government finances, and renewed animal spirits, Britain climbed back from the number six spot among world economies to number four, at least until the arrival of China and Brazil.
Of course, her high point was the determination with which she defended the Falkland Islands. There was never any question of her backbone or of her dedication to a strong and proud Great Britain.
But here is where the questions arise. Despite her valiant fight for the Falklands, Britain today is militarily and geopolitically weaker than it was then. Indeed, it is questionable that the British navy and army forces today could carry off a defense of the Falklands. A major reason is that Thatcherism shared the major weakness of Reaganism -- the faith in laissez faire, that left to themselves market forces and free trade will automatically optimize welfare and productivity.
Thus Britain had little or no response to the strategic industrial and trade policies of countries like Germany, Japan, Korea, and now China that focused on catching up to and displacing major British industries like autos, steel, electronics, and machine tools. Manufacturing as a percent of GDP fell from 25 percent to around 12 percent and the economy became ever more dependent on the financial gnomes of London. But now we have seen that the gnomes have feet of clay that are dissolving in the aftermath of the great recession and global financial crisis. With the North Sea oil fields now going dry, Britain has little to sell beyond some lovely real estate.
That may last for some time, but somehow it's not the way one expects that Maggie would have wanted things to go. On top of that is the problem of the growing gap between a wealthy elite and increasingly poor average citizens. When Thatcher came to power, 1 in 7 British children lived in poverty. By the end of her reforms that number had risen to 1 in 3. The privatization of many of Britain's national companies and large parts of its infrastructure at bargain basement prices enormously enriched British banks, but did little or nothing for the average bloke. The focus of the entire economy became short term financial gains. This is probably not what Maggie had in mind.
Finally, her hostility to the rest of Europe and the EU was chauvinistic and short sighted. Some today are saying she was right about Europe and right not to have the UK in the euro. Well, maybe. But imagine an EU with a truly committed UK at its core. Britain could have balanced Germany, helped create a euro that would have had a banking union behind it, provided powerful impetus to gaining political legitimacy for the EU parliament and presidency.
But that didn't happen. And as things stand, it's not at all clear that the UK has a bright future.
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