Tuesday, 30 April 2013

The disquieting implications of Margaret Thatcher's distinctly ropey economic performance

Margaret Thatcher, said former trade minister David (Lord) Young, reversed a sixty year decline in the British economy. She bequeathed a “generation of growth” gushed the Confederation of British Industry. She “breathed life into free enterprise,” evinced the former boss of British Petroleum.

But for her, Britain, culturally and economically, would resemble Bucharest circa 1978, minus the exciting nightlife.

So goes the official interpretation of Margaret Thatcher. But reality, says the Left, paints a profoundly different picture. Economic growth was actually no better in the 1980s than the benighted 1970s – both record an unremarkable average of 2.2%.

Between 1990 and 2009, after Margaret Thatcher was deposed, but when her economic tenets were unquestionable, Britain had a growth rate of 1.7%. And that is obviously before the current stagnation.

Far from releasing the forces of enterprise, Margaret Thatcher released the forces of inertia.


It might seem, on the surface, that this battle of GDP figures is about as fascinating as algebra. But it has significant implications. For if, say the Keynesians, the economic boasts of conservatives are hollow, then a kind of ‘Back to the Future’ logic is validated. The post-war era, with its strong trade unions, state ownership, much greater equality and regulation, suddenly appears, not only more appealing socially, but more economically persuasive as well.

But there is a fly in the Keynesian soup. Scroll down one Red Pepper Thatcher article and you’ll find a comment by “Geroge”, an unabashed (and hurried) fan of the blessed Margaret. But he makes an interesting point. You would expect, he says, growth figures in the 1950s, coming just after the huge destruction of World War Two, to be high. Emergent war economies have high growth. Thatcher’s performance three decades later, although comparatively rather shoddy, was not half bad in the circumstances.

All of Europe experienced an economic boom in the post-war decades. It was in the post-war years, writes Thomas Frank in Pity the Billionaire, that France, Italy, Belgium and Sweden, “embarked on their greatest boom periods in modern times”. You could add West Germany, Spain, Austria and, to some extent, Britain, to that list. This, despite frequent corruption and political favouritism; malaises the Right now dubs “crony capitalism”. These apparent impediments to growth made no discernable difference.

Outside Europe, the US, though physically virtually untouched by war, received a massive economic shot in the arm by other countries’ need to recover.

If that boom period was, in large measure, a result of post-war reconstruction, the implications are damning to both Keynesians and austerians/conservatives. The left-wing but anti-Keynesian economist Harry Shutt has argued that the much vaunted three decade long, post-World War Two boom, was due as much to pent up demand after the Great Depression and total war, as it was to wise economic policies.

Revolutionary Road

Seen in historical perspective, the 1950s and 1960s were the only time that capitalism worked for everyone. Growth was high, living standards rose and full employment was a reality. Unemployment in Britain, between 1950 and 1973, stood at an average 1.6%.

The disquieting insight is this – that the good times were dependent on the bad times that preceded them. The growth and economic contentment of the 1950s and ‘60s were a direct result of both the economic devastation of the Great Depression and the physical, near-apocalyptic destruction, of World War Two

In other words, capitalism is a system that relies on periodic bouts of mass destruction to prosper. If the prior destruction doesn’t happen, capitalism eventually stagnates.

Hence Thatcherism, which regards itself as the apogee of economic dynamism, turned out to be such a busted flush economically.

As Shutt has pointed out, government policies in Europe since the Second World War have been about preventing mass destruction from happening again – either economically through the business cycle, or physically, through war. Private businesses have been propped up and bailed-out, stock markets manipulated and consumers artificially created through the spreading of mass debt.

Bluntly put, because nobody, for obvious reasons, wants the initial orgy of destruction to happen, we can’t have the benefits of ensuing healthy economic growth and abundant jobs. So we have had fake, as opposed to organic, growth. And now the mask has slipped.

Thus we are locked into a cycle of diminishing returns, no matter what economic strategy, under capitalism, is pursued.

Don’t mistake this analysis as some kind of right-wing mea culpa. It matters a lot that the austerians are stopped in inflicting any more unnecessary suffering on people who had no part in causing the economic crisis. It matters a lot that the work capability scandal in Britain is exposed and stopped. It matters a lot that the sadistic economy-destroying, life-shredding experiment in Greece, Spain and Portugal, is ended.

But the obverse argument of many opponents of austerity (let’s call them Left Keynesians for short) that increased government spending will lead, in time, to the sunlit economic uplands, needs to be seen through. Because, frankly, it won’t. You can reverse austerity, you can re-balance the economy in favour of manufacturing, you can, theoretically, have a new ‘contract with labour’, as Stewart Lansley wants. And you won’t restore growth to anything like the levels of the mid-twentieth century.

I’ve seen the future and it doesn’t work

A week or so ago the Guardian ran an interesting article by the chief economist for HSBC. Once you have stopped laughing after reading someone working for HSBC telling you to “live within your means,” the article is worth pursuing. The author argues that neither Keynesianism nor austerity work as economic salvations and we had better get used to a low growth world.

The conclusion though, coming from someone who wants to preserve the current economic order, is necessarily weird. “Living within our means is hardly easy but the alternative is worse: false hope leads ultimately to financial crisis, political upheaval and social turmoil”.

Financial crisis, political upheaval and social turmoil are precisely what will happen. It is not the result of a choice. Capitalism does not do low growth well. Japan, which entered economic stagnation two decades before the US and Europe, illustrates the point. The country has suffered from dramatically declining living standards and a labour market barred to women and young people. Carbon emissions, meanwhile, which you might expect to fall in a low growth environment, have actually increased

Conscious de-growth is one thing, but capitalism and low growth is a poisonous cocktail.

The revelation that the conviction that high government debt kills off economic growth was actually based on a spreadsheet error, has convinced many that the Keynesian moment has come again. Actually, the post-capitalist moment has come, though few seem to have noticed.

For if capitalism no longer delivers the goods, and doesn’t do so on a long-term basis, the game is most definitely on again.

PS The second part of ‘In Praise of Idleness’  will appear shortly, hopefully

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