THATCHARISM 1979-1997
INTRODUCTION
1974-1979: Labor Government with Harold Wilson as Prime Minister
1979: election Conservative Party victory, Thatcher became Primer Minister
In UK, Thatcherism is an attempt to establish a new political and ideological frameworkbased on a mixture of liberal and authoritarian New Right Ideas
THE FIGHT AGAINST INFLATION - MONETARISM
Thatcher economics = inspired by M. FIREDMAN'S quantity theoy of money:
- need to lower the money supply to stop inflation
- Mony sypply = total amount of money circulation in the economy
- by adopting monetarism, the Thatcher Goc broke with the post war consensus
Keynesianism:
- main goal = maintain full employment
- gov role = manage demande
Monetarism:
- main goal = keep inflation under control
- Gov role = control the money supply
Applying monetarism in UK:
- Set high interest rates to decrease the demand for money
- Finance the budget deficit without printing more money
- Allow the exchange rate to flow
- Thatcharism failed to control the money supply
- Irony: inflation fell, but while the money supply was increasing
- Monetarism failed, just like Keynesianism before it but for different reasons
CONTROLLING PUBLIC EXPENDITURE
Ideal: running the nation's buget like a household budget
Cash limits on the public sector
Emphasis on indirect taxation
Sold public assets to help finance the budget deficit
Another move away from keynesian demand management
Thatcher engaged in a policy of denationalization
Assessment
Positif point: budget surplus reached by the 1980s
Higher unemployent -> rising state benefits and social security expenditure
Higher expenses in defense, law & order
FISCAL POLICY
New emphasis on indirect taxation:
- fall indirect taxes -> income tax rates from 83% (1978) to 40% (1988)
Consequences
Rise in overall tax revenues, which helped lower the budget deficit
Higher gap between high & low earners. Income tax breaks favored high incomes, business people especially
PROMOTING A FREE MARKET ECONOMY
Endo of income policies
Privatization
Wage settlements to be made by employers and their workers
The market would decide the level of settlements, not the governments
Reduces the State's direct involvement in the economy
Encourage people to participate in the country's economic and political life
Assesment:
- helped free market and improve competition
- bought money to the state coffers: the gov raised £32.9 from privatisation
- Imporved productivity in some sectors
- Increased unemployment drastically - high levels of unemployement were tolerated to bring greater economic efficiency
Labour market:
- Hostility towards trade unions
- Thatcher was against the people who were blocking the country by going on large strike movements
- Trade Unions were seen as an obstacle to competitiveness
- Income policies seen as a cause of inflation