Wednesday, April 10, 2013

How Thatcher's radical policies became the norm

By Jeremy Gaunt

LONDON (Reuters) - More than three decades after Margaret Thatcher became Britain's prime minister, her economic legacy - reviled and revered - still ripples across the world.

Whether it is euro zone finance ministers demanding debt-laden countries privatize state-run companies, U.S. politicians seeking spending cuts and curbs on unions, or Britain itself putting its Royal Mail on the auction bloc, the tenets of Thatcherism, for better or worse, are alive.

Thatcher, who died on Monday aged 87, stood for deregulation, a smaller state, free markets and privatization. If that sounds familiar, it is because her playbook has been copied around the world.

None of those policies were common in 1979 when Thatcher became Britain's first woman prime minister with the country reeling in post-war economic decay.

"She shifted the boundaries of what was politically possible," said Steve Davies, a director and economic historian at Britain's Institute of Economic Affairs think tank.

"On the one side policies such as privatization and deregulation came to be taken seriously. On the other, policies that were taken seriously - like the command economy - are no longer taken seriously."

Thatcherism - and its U.S. cousin Reaganomics, after the president, Ronald - were seen as radical departures. The term privatization, for example, was barely known before her tenure. A Google search in 2013 brings up more than 14.5 million hits.

When Thatcher took over Britain, much of its industry like those of other European countries was in the hands of the state.

She sold off steelmakers, carmakers, aerospace firms, oil and gas giants, airlines and the telecoms monopoly - often to strong objections from political opponents and workers within the former state-owned industries. Even public housing was offered for sale, at a discount, to the tenants who lived in it.

There is still opposition. The U.S. public services union ASCME, for example, describes privatization as "driven by wrong-minded public officials and corporate greed".

And not all privatizations were successful. Bold competition has brought down costs and encouraged growth in some areas such as telecommunications. Complex, heavily infrastructured businesses such as railways - privatized by her successor John Major - have arguably done less well.

But the debate now is generally on how far privatization should run, not on whether it should be unwound.

Sell-offs of state-owned businesses are now a de rigeur part of euro zone bailout programs. In Greece, the European Union/International Monetary Fund bailout requires the sale of real estate, more than 20 companies, and dozens of marinas and ports.

Thatcher's economic influence outside of Britain was most visible in Eastern Europe. After the fall of the Communist bloc at the end of her tenure, new leaders there made her a hero and embraced privatization as the express route to capitalism.

In many countries the transfer of state assets to private hands was a success; in others, less so.

In Russia, a privatization scheme designed by self-professed Thatcherites was brazenly run by its own beneficiaries. It awarded the crown jewels of Soviet industry to a handful of politically-connected insiders, creating a caste of overnight billionaires, more than a few of whom would later become Thatcher's neighbors in London's exclusive Belgravia district.

"The emergence of oligarchic structures and dramatic increases in inequality... demonstrate the limitations of applying Baroness Thatcher's legacy too literally," said Erik Berglof, chief economist at the European Bank for Reconstruction and Development.


Thatcher's "big bang" deregulation of British financial markets saw the City of London strut into its role as Europe's banking capital, and helped turn global finance into the swaggering industry it became for the past generation.

Other industries faced the opposite fate on her watch. Her biggest battles were with coal miners, in a state-run sector that was already in rapid decline after Britain discovered cheaper, safer and cleaner offshore natural gas.

When she took power there were nearly a quarter of a million coal miners in Britain, sustaining communities that had known little else since the industrial revolution. When she left there were barely 50,000 people still working in the mines. Today only a few thousand remain.

Her embrace of deregulation would get mixed reviews at the moment, given the excesses that led to the financial crisis of 2008. Indeed, there has been something of a backlash against the relatively unfettered wealth-creation Thatcher espoused.

"Thatcher created a more dynamic and laissez faire society, but the social cost in terms of communities destroyed was immense," said Timothy Ash, a strategist at Standard Bank who remembers long lines of police vans outside his school, which was adjacent to a coal mine that was later closed down.

But free market economics - epitomized by Europe's single market, which Thatcher supported even as she waved her handbag threateningly at much of the rest of the bloc's ideas - has become the dominant economic philosophy in most of the world.

Again, the argument today is on the issue of how much you can protect your economy or control excesses, rather than on the assumption that you should run things from the centre.

"There are still legitimate question about outcomes," said Glenn Hubbard, dean of Columbia University Graduate School of Business in New York. "But she tremendously advanced the case of free markets for goods, capital and labor around the world."

(Additional reporting by Carolyn Cohn and Sujata Rao; Editing by Peter Graff)


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