Mr Seldis

Since the announcement of her death yesterday, much has already been written about Margaret Thatcher, the British Prime Minister from 1979 to 1990. Some of it has been complementary, but much of it has been vitriolic; Thatcher, it seems, is as loved and hated in death as she was in life. She was certainly a controversial figure in the world of both economics and politics, arguably the most controversial Prime Minister in modern British history.  She is the only Prime Minister to have an “-ism” named after her. Her 11 year reign and three consecutive election victories are unprecedented since the 1820′s. But is the criticism justified and how will economic historians remember her?

As the tweets will testify, there are two primary accusations launched at Thatcher. The first is that Britain was a far less equal and equitable place at the end of her tenure than the beginning. The second is that she destroyed a way of life and created high levels of structural unemployment by closing down the British coal industry. She would be the first to admit that she is guilty on both charges. However, as ever, it is important to put these arguments in context.

The Gini-coefficient is the mostly commonly used method for demonstrating income inequality, where 0 is total equality of income (i.e. everyone earns the same) and the closer to 1 the more unequal the distribution of income. In 1979 Britain’s post-transfer gini was 0.29. By 1990 it was 0.34, where it has remained pretty much since. (Data). Clearly the distribution of income was more unequal by the time Thatcher left office. Yet a gini of 0.34 is about the same as Canada, Japan and Australia today – countries that are put forward as examples of social and economic equality.

The closing of the coal mines, and with it the destruction of the way of life for millions of people either directly or indirectly effected, was the defining moment of her leadership. Many parts of Britain have been mining coal since the Roman Empire. By the 1920′s coal mining employed 1.3 million men and Britain supplied nearly two thirds of the world’s coal. That was the peak. By the time Thatcher came to power the industry was in rapid decline. It still employed nearly 250,000 men, but the coal was generally of a low quality and was getting increasingly expensive to mine. The industry was inefficient and struggling to complete with both cheaper foreign coal and alternative fuel sources, especially petroleum and nuclear, and required an annual subsidy of $4 billion every year in today’s money just to stay afloat. Thatcher’s premiss was that the subsidy should stop and if mines are efficient enough to complete on the global market then they will survive. After a long and bloody series of strikes, she got her way. Today only a very small handful of mines remain in operation. Economically Thatcher has been proven correct, however the point remains that plenty of other industries, such as farming, receive subsidies to protect that way of life, so why not coal. Given that Thatcher’s party, the Conservatives, largely represented the middle and upper classes, and the coal mining was very much a lower class industry, stopping the subsidy was seen as political more than economic, and being harsh and uncaring on those who have the least to lose.

History has proven Thatcher to be correct more often than she was wrong. It is my contention that many of her harshest critics look at Thatcher’s reign with rose-tinted spectacles, and assume the UK was a paradise of equality and tranquility before she erupted onto the scene in 1979. That is far from the case. The UK was heavily hit by events of the 1970′s. The winter of 1978-79 was known as “The Winter of Discontent“. Someone was needed to modernise the British economy and, in my view, Thatcher was the right person and the right time. She was disciple of free market economics, monetarism and supply-side policies, and the British economy was significantly more efficient and dynamic by 1990 than it was in 1979. Yes, there were winners and losers from that process. But aren’t there always when change is involved?

The story goes that Thatcher took with her wherever she went a quote, wrongly attributed to Abraham Lincoln. It nicely encapsulates her economic and political philosophy:

You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot help the wage-earner by pulling down the wage-payer.