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Pitied abroad, where Britain had been largely written off by other governments and the financial markets alike as the terminally sick man of Europe, we were mired in an all-pervasive defeatism at home. It was, to say the least, a daunting inheritance.

Yet under Margaret’s inspired leadership we were able to put in place the most radical change in economic policy since the war, and to save the nation both politically and economically, a success recognised throughout the world. It became known as Thatcherism.

Essentially, Thatcherism consisted of three interconnected principles, each of them a reversal of the post-war conventional wisdom. The first principle was that the recipe for economic success is the greatest practicable market freedom within an overall framework of financial discipline. By contrast, the approach that culminated in the disaster of the 1970s had in practice consisted in an ever-increasing erosion of market freedom, accompanied by the progressive abandonment of financial discipline.

The second principle was that, instead of seeking to use macro-economic policy — that is, monetary and fiscal policy — to promote growth and employment, and micro-economic policy (notably at that time prices and incomes policy) to suppress inflation, we should do precisely the reverse. That is to say, the government should direct macro-economic policy, pre-eminently monetary policy, to suppress inflation, and micro-economic (or supply-side) policy, such as tax reform, deregulation, labour market reform, privatisation and the promotion of competition, to provide the conditions most favourable to jobs and to growth.

In passing, some may have noticed the absence here of any reference to the negotiation of trade agreements. As a member of the European Community, as the European Union was then known, we were not free to do this. But that mattered very little indeed. What is essential on the trade front is the absence of global protectionism; and that is ensured by the WTO (formerly GATT) system. This has relevance to the road to Brexit, to which I will turn later.

So to the third principle, which was to set all this explicitly within a medium term context. The most obvious formal expression of this was the Medium Term Financial Strategy.

Note, incidentally, financial and not industrial strategy. Monetary and fiscal policy is the inescapable responsibility of government. By contrast, in a free economy, it is for business and industry to work out their strategic goals. The business of government is not the government of business.

But behind the MTFS lay a more profound reversal of the old post-war consensus, according to which the essence of economic policy was a largely vain quasi-Keynesian attempt to eradicate the vagaries of the business cycle (more vulgarly, boom and bust), about which policymakers can in reality do very little, and to focus instead on the conditions for improved economic performance over the longer term, about which history teaches us that a great deal can be done, even though it can take a while for the results to become apparent.
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FRANK TAYLOR
February 7th, 2018
3:02 PM
Since Nigel Lawson quotes Adam Smith it may be pertinent to say that, to work properly, the Smithean Free Market model requires that all participants in a market be small in relation to one another. In a situation where, for example, 70% of retail trade in this country is dominated by four companies and 80% of vehicle manufacturing internationally by five, and 95% of internet services by two, the model breaks down. Instead, we have oligopoly. The number of major corporate scandals in the past 15 years demonstrates the enormity of such power and the manner in which it has become arrogant, corrupt and greedy beyond words. If the result of the free trade agenda has been (as in the USA) the wholesale off-shoring of our productive capacity, then something has been fundamentally wrong. Trade is fine, providing we trade at a profit. We don't, nor have done for decades.

amcdonald
February 5th, 2018
2:02 PM
The Tories have the worst `delusions of adequacy`. And express them. Just like Prince Charles. Every council house built is a vote for Labour so Thatcher gave tenants the right to buy and sell them to corrupt landlords who then triple the rent or resell at ten tines the price. And the Grenfell Towers tenants haven`t even been rehoused yet. The Chinese Communist Party are the best at` managing` capitalism so far, And #MeToo and #TimesUp have reached Islam. It`s popular culture and science that`s educating the world. The Labour Party is now part of popular culture.

Miklos Legrady
February 2nd, 2018
8:02 AM
it does sound like sovereign nation state are passé.

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