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