Thatcherism: Alive and Kicking!

It has become fashionable of late to blame Thatcher and her successors economics for the current downturn and as such there has been a rush to herald the premature ‘death of Thatcherism’. Such sentiments are unmittigated nonsense and nothing more than an overreaction. It is true we are facing the worst economic downturn of recent memory. The banks are falling back under government control where they ought never to be, inverstors are ‘going wobbly’ and consumer confidence is at an all time low. It is tempting in such times of crisis to have a policy ‘revolution’ of sorts. To distance ourselves from pre established norms and conventions that led us down the percieved ‘road to ruin’. But the fact remains, in the words of Thatcher herself: there is no alternative.

The fact of the matter is ‘Thatcherism’ (for want of a better word) is built around one core concept: that the market should be free and that private ownership is preferrable to state control. The markets have been free… but ultimately not free enough. This current financial crisis should be understood not as a failure of free-market economic theory and Thatcherism but as its vindication. The U.S. government in particular has perverted the wisdom of the free market by encouraging banks to make loans that no rational actor would make. Furthermore the market ‘players’ took the risks they did because they held a reasonable expectation of a government bailout should things get hairy. They were right. Therefore the problem, in this view, is not that the markets were free but that they weren’t free enough and they were making rash and unsustainable judgements.

The truth is that it is not capitalism that has caused this economic downturn, but state intervention. Specifically, it was the decision by national central banks, above all the Fed, the Bank of Japan and the pesky European Central Bank, to hold interest rates too low for too long. That was a political decision, not a market one, and therein lies the root of the problems we are facing. The free market needs to be free… not free-ish. Unscrupulous politicians, particularly on the now gloating left, can always win applause by attacking globalisation and free market economics when the going gets tough. Yet the fact remains that every alternative to free trade has failed. Capitalism has winners and losers; but, overall, it has made the world happier, wealthier and more free than ever before.

Open, free markets in short are the solution not the problem and it is in that light that ‘Thatcherism’ will never cease to be relevant. The current temporary panic, and it is temporary, has caused wild swings in global stock markets. During a panic, logic is set aside and emotions rule. One of these emotions is fear, a strong and often irrational feeling which even more often causes bad judgment. It is undeniable that the free market and its actors are inherantly flawed however it is equally undeiable that free markets have produced record growth and provided its proponents with unprecedented, predominantly uninterrupted, prosperity for the better part of 3 decades. At the risk of stoking the fire I almost, and I emphasise almost, believe it would have been better to let some institutions collapse as a punishment for their woeful inadequacies and poor judgements that missed the fundamental message of the free market: let it be free.

“There is no alternative”

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14 thoughts on “Thatcherism: Alive and Kicking!

  1. Dan, I pretty much agree with your comments. My piece yesterday was more thought provoking rather than my own position.

    However, I think it is rather difficult to sustain that the financial crisis was caused by the market being ‘too free’. I think you’ll struggle to find much support for this view.

    While politicians are of course implicated in the causes (in fact I blogged on that very subject), banks and individuals who have borrowed from them are also to blame. At the very least more effective regulation is required in order to avoid a future banking crisis.

    One has to appreciate the human cost of banking failure. Banks are vital and cannot reasonably be allowed to fail. As bank share prices plunged, the Government were rightly concerned about a general run on the banks. And so we as conservatives have had to accept the nationalization or part nationalization of Britain’s main banks, a possibility that would have seemed outrageous 12 months ago. Equally, both political parties are now developing policies to cushion the affect on the real economy.

    Thatcherite political economy may of course not be dead, but it is under threat.

  2. To an extent I agree Dan. I staunchly took one side in order to stimulate debate but i do concede we need a re think. Incidently I was not suggesting the market was ‘too free’… I was suggesting it wasnt free enough! The problems came about when governments did begin to interfere either by encouraging ridiculous amounts of borrowing or institutions such as the Fed keeping interest rates stupidly low. The market needs to be by and large left to its own devices. That is afterall the purpose of a free market. Thatcherism is alive although I concede it is not entirely well but it will be soon enough. The principles of thatcherite economics will serve us for many decades to come. That is if Obama doesn’t become a protectionist president after all a free market relies heavily on america!

  3. On second thoughts there are a few points I’d like to take issue with:

    1) You argue that any suggestion that Thatcherite political economy is under threat is “nonsense”. However, you then go on to admit that banks have fallen under the ownership of the state “where they ought never be”. Clearly this shows that Thatcherite political economy is threatened?

    2) You suggest that “There is no alternative.” However, surely the Nationalization of major banks, the injection of state funds into the financial markets, and increasing public debt in order to fund both this and spending increases, shows that there is an alternative?

    3) You yourself suggest Thatcherism prefers private to public ownership and the free market to state intervention. In which case aren’t recent government and conservative supported policies an affront to Thatcherism?

    4) “Furthermore the market ’players’ took the risks they did because they held a reasonable expectation of a government bailout should things get hairy.”

    – This is not right. Banks securitized sub-prime mortgage loans by borrowing from banks further up the chain. As this system of lending and borrowing became more and more elaborate, few knew the extent of toxic debt. Once the subprime sector fell, however, the full extent became clear. This firstly suggests that banks didn’t even conceive of the need for state bail-outs, and it points the blame to the regulatory authorities who failed to keep track of the level of toxic debt. If anything, this indicates the need for new regulation, certainly not less.

    5) “Yet the fact remains that every alternative to free trade has failed.”

    I don’t think that many people are arguing for protectionism. In fact quite the opposite. The global economy is suffering from a contraction of world trade. Protectionism is not the way forward.

    6) “I emphasise almost, believe it would have been better to let some institutions collapse as a punishment for their woeful inadequacies and poor judgements that missed the fundamental message of the free market: let it be free.”

    – This may be considered a Thatcherite view. However, the point I made in my blog yesterday was that this view, as a consequence of the financial crisis, is no longer credible. It wasn’t enough to let the market be free. If this had been the case, there may well have been a run on the principle banks and a severe economic crash.

  4. 1) I never dismissed the suggestion thatcherism was being challenged… I dismissed the suggestion it was dead. It isn’t.

    2) Yes there is an alternative… but it is not a viable or sustainable one. History has proven that. However I do think that given this situation we do have to take a minoor step back in order to move forward.

    3) Yes they are but no they will not be long term policies because if they are things will only get worse… nationalisation doesnt work!

    4) The problem was the government and other institutions meddled with the markets when they should have let them be. They encouraged record and (again) unsustainable borrowing levels.

    5) Im glad you concede protectionism is not the way forward… perhaps you should examine obamas economic plans which include the pulling out of/ renegotiation of NAFTA

    6) The market wasn’t free enough!! If it was I doubt we would be in this situation.

    Look all this post was asserting was that Thatcherism is not dead… far from it… it has suffered a minor set back because it has not been implemented properly. I aawait your response because lets face it… you never give up lol

  5. LOL. If i wasn’t so busy today I’d challenge your points, especially points 1, 2, 3, 4, and 6. Point 4 is just a bad analysis of causation, pretty much wrong. And hence point 6 is also a wrong assertion.

  6. I think what the current economic crisis shows is something of a logical contradiction; that of how you can mix Thatcherite economics with what is, in its purest form, a Socialist government. It begs the question of whether we would be in such a state had Brown called a snap election upon his coming into office – I think we would. I don’t think either of the parties at the moment have anyone capable of handling the economy, unless you consider Vince Cable, who I believe to be the most capable of the economic spokesman for each party. I mean, we have Darling, who is bloody hopeless, and Osborne, who seems to be being revealed as slimy not only in character but also in actions…

    On a lighter note, there are a number of ‘Kings College Socialist Workers Party’ posters carrying the slogan ‘Capitalism is Dead’ which are all over the Uni at the moment, and students must have sense, because i’ve never seen so many full bins!

  7. I believe despite Brown’s (and the Treasuries) stepping into the breach, Blair, what with his revamping a dead party, and his ten years in office sufficiently changed the tone and manner of that party to make your suggestion that its a socialist government ‘in its purest form’ somewhat mistaken.

    Right now its an economic battleground and what with Whitehall needing to be responsive to the City, I think the Treasury and Brown did what they thought was best in the situation, which is oddly enough what most able governments have done around the world (including the US), whatever their political leanings. So to a certain extent we must concede politics not really entering into the equation: it was a matter of necessity, and in this instance Brown had to act less like a politician and more like a General in a war.

    Now we are on the sidelines, viewing the fighting, and despite the adept workings of the modern media we don’t, and won’t, know all the facts which entered into Brown’s decision making when he gave the order to use public money to support failing private enterprises. The ramifications of their collapses could of been enormous. Hence Labour doing what it needed to do. Therefore we have to accept, as Clausetwitz said, that we will not know all of the factors which led to the action, and as critics we should only really criticise Brown’s course of action if we know every aspect of his decision making – something we might never really know till his memoirs come out.

    As for what you said of students, well I heard through London Student that SOAS Socialist Party had a recent rally against capitalism in the City and is tastelessly planning to “dance on the grave” of capitalism outside Lehman Brothers London office in Canary Wharf. Blooby idiots!

  8. I disagree, I think the problems have stemmed from the fact that despite the re-branding as New Labour, the backbenches are dominated with left-wing socialists, and so the Party as a whole is still somewhat socialist. Perhaps it was the right decision to use public money to try and save the situation, but only time will tell. You argue that we need to be responsive to the City, but at the moment it looks like this will only dig us in deeper, although to be honest I have no clue what we should do. No-one truly knows all of the facts, and for this reason it isn’t really the time for criticism. In hope for the future, the economy recovered phenomenally after Black Wednesday and so perhaps we can hope for this to happen again.

    Ah the rally, from what I hear it was quite poorly attended, although of course it will be made out to be most greatly attended rally since anti-Iraq. I’m just glad it seems that people around here have sense, as the Socialist Workers seem to be looking unsuccessful at best in their attempts of ‘Killing Capitalism’.

  9. Pingback: Did the credit crunch kill Thatcherism? «

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