Maggie’s Harm?

‘Even The Times now believes that the setbacks of the last few years are proof of the failure of free-market capitalism. How quickly they forget the Thatcher revolution’

Economy Marketplace

I blinked. I rubbed my eyes. I frowned. Was I seeing some devilish apparition — some ghost from the horrors of Britain in the 1970s — before me? 

The spectre was the main story on the front page of The Times on September 11. Prompted by a new report from the Public Accounts Committee of the House of Commons, it was headlined “Growth fund condemned for failing to boost regions”. The first two paragraphs of the story were factual. According to The Times‘s deputy political editor, Sam Coates, the MPs’ message was that “business” had received only a fraction — a mere 5 per cent — of “the £1.4 billion allocated to the Regional Growth Fund since its creation in June 2010”. 

So what, you might ask? What was it that made me blink, rub my eyes and frown? The answer was in the first sentence of Mr Coates’s next paragraph, which read, “The report, which raises questions about Whitehall’s ability to revive the private sector, comes as Vince Cable sets out today the Government’s vision for an industrial strategy.” Two propositions are being advanced here: that “Whitehall is able to revive the private sector” and that “the government should have an industrial strategy”. 

Perhaps I am naive, but I have in the past 20 years lived under the impression that Britain enjoyed something called “the Thatcher revolution”. This revolution was allegedly based on the insights of (among others) Friedrich Hayek, particularly of his celebrated 1944 classic The Road to Serfdom. In matters of economic organisation, its essence was that the government was invariably a problem. Private sector individuals were therefore best left alone to find solutions for themselves. Almost by definition, Whitehall could not revive the private sector and the government should not have an industrial strategy. 

Mr Coates, like Mr Cable, may believe that the setbacks of the last few years are proof of the failure of free-market capitalism and indeed of the Thatcher revolution. But let us check the facts, and remember that the Thatcher reforms began in the early 1980s and have been reversed over the last decade. Let us take it that the benefits of the Thatcher revolution started to take effect in, say, 1985 and had been played out by the start of the Great Recession in 2007. How in that period did the UK’s growth record compare with its neighbours? The average annual growth rate of UK output in the 22 years was 2.9 per cent, clearly above that in France (2.2 per cent), Germany (2.1 per cent) and Italy (1.9 per cent).  On the face of it, the Thatcher revolution’s repudiation of “industrial” policy worked quite well. 

Indeed, that 22-year period saw a healthy rebalancing of the economy away from manufacturing industries towards service industries, with the UK achieving strong market shares in global trade in high-value-added international business services (such as finance, accounting, law and advertising). 

Was the boom in exports of financial services in that period attributable to Whitehall’s attempts “to revive the private sector”? Did the success of our accountants, lawyers and advertising executives in advising foreign companies owe anything to a government “industrial strategy”? Of course not. Yet it was exactly the dynamism of these business service exports — unforeseen and unplanned by anyone, and certainly not foreseen or planned by Whitehall — that was responsible for the UK’s growth leadership in Europe. 

Also on September 11 the Centre for Policy Studies, the think tank sometimes said to have been the intellectual launching pad for the Thatcher revolution, held an evening seminar, at which Nicholas Wapshott introduced the paperback version of his best-selling book, Keynes Hayek (W.W. Norton, £12.99). Wapshott had done a nice job in arguing that a theoretical spat between Keynes and Hayek in 1931 was, as the book’s subtitle has it, “the clash that defined modern economics”, and was paid respectful attention.

Except that the spat between those two figures, however fascinating it may have been, is not the clash that now matters. A fair proportion of the seminar’s attendees must have read The Times that day. Could they not see that the main story on its front page was screaming at them, loud and clear, that the Thatcher revolution is history? Sixty-eight years after the publication of The Road to Serfdom a senior journalist on The Times could write twaddle about “Whitehall reviving the private sector”. Of course The Times can no longer pretend to be “the top people’s paper”, but it is representative of current political trends and is widely read. 

The contemporary intellectual challenge remains, as when Hayek was writing his best-known book, to refute the socialists of all parties.