There is no European female politician of the last century that I admire more than Margaret Thatcher. When she became Prime Minister, the United Kingdom was on the brink of bankruptcy. The unions were omnipotent and were doing much harm to the British economy with their incessant striking; sovereign debt was exploding, while inflation and unemployment were skyrocketing. When Thatcher stepped down in 1990, she left an economically sound and stable country.
Thatcher was a disciple of Friedrich A. von Hayek, for me the greatest mind of the previous century. Hayek was always a decided critic of the welfare state because he believed that a free market economy would ultimately brings the greatest measure of prosperity to all. Hayek watched the fateful development of market-economy systems in the direction of a quasi-socialist welfare state with concern and diagnosed it as the greatest threat both to liberty and to prosperity.
Throughout history, the number of politicians led by liberal theories that make a case for curbing government influence is low. Among the few politicians who subscribed to this theory during the second half of the twentieth century were Ludwig Erhard in Germany and Ronald Reagan in the United States. In all three of these cases where politicians consistently pursued market-economy approaches, the citizens of the respective countries benefitted: the post-war Germany of Erhard, the US of the Reagan administration, and the UK during the Thatcher era.
A policy along the lines of Margaret Thatcher would be the best recovery program I can think of for countries like France, Italy, Spain, but Germany, too.
- Limiting government expenditure by cutting current consumer spending. When Thatcher came to power, the deficit was 4.4 percent of the GDP, ten years later it was down to 1.6 percent. The sovereign debt ratio was lowered from nearly 55 percent to 40 percent in less than a decade; the public sector’s share of the domestic product dropped considerably.
- Cutting taxes: Under Thatcher, the top tax rate dropped from 83 to 40 percent, while the net worth tax was lowered at the same time. Hollande is doing the very opposite in France at the moment.
- Privatising: Take British Telecom, British Airways, or other companies – Thatcher sold quite a number of state-owned businesses. For many people, this opened a window of opportunity for equity investments – by the end of her time in office, the number of shareholders in the UK was six times as high as before.
- Deregulating the labour market: Thatcher had the courage to take on the mighty trade unions. She consistently deregulated the labour market, until it had the lowest regulatory density of any OECD country by the end of her term.
In stark contrast to the conciliatory policy of Angel Merkel whose principal purpose is the preservation of her power, Thatcher was ready to fight whenever she deemed it necessary – as she did in the case of the unions. Unlike Merkel, she did not adjust to the prevailing zeitgeist, but remade the zeitgeist in her own image.
Thatcher’s success demonstrated in practice the superiority of the market economy over a planned economy. Sad to say, the insight that the market is smarter than civil servants has been all but forgotten since. Today, the European Union firmly believes in the superiority of planning and government regulation. And this even though the collapse of socialism / communism at the end of the 1980s showed that the market economy is clearly superior to a centrally planned economy.
Market-economic reforms have always had a healing effect on national economies. Even in places where they were tentatively tackled, as under Gerhard Schröder in Germany, they achieved an amazing recovery of the economy. Nothing compares to the “miracle,” though, that Margaret Thatcher worked in the UK. From the perspective of Europe’s policymakers in power today, Thatcher was a bad “market radical.” If you ask me, she was the greatest female politician of the last century.