Saturday, 13 April 2013

What's the counter-Thatchual?

The world needs more Margaret Thatcher policy punditry and by God I will provide it!

My colleague Tom Scotto asked a simple question, that I think has not got enough attention in many of the very thoughtful comments from economists and others: "What's the counterfactual?"

In other words: although it is interesting to consider whether
  • it was a mistake not to start a Norwegian-style sovereign wealth fund for North Sea oil,
  • the monetarist policy of the early 1980s made the recession unnecessarily hard,
  • supply-side changes weakened the unions and modernized our economy, or
  • her European policy was foresighted, or counter-productive,
a more fundamental question is: what would have happened if Margaret Thatcher had not won power?

There are two natural ways to cut this. If Thatcher had not won power in 1979, then Callaghan would have stayed on. Or, you could look at 1983, where a random shock (named Galtieri) kept her in power. I'm too young to remember this stuff, but I'll make some guesses.

Surely the result in 1979 is easy to call. Callaghan was a failure; he would have continued to be a failure. Evidence from the 1979 Labour manifesto shows that these guys planned to continue down the failed path of the 'seventies.
Now we set ourselves the task of bringing inflation down to 5 per cent in three years. It is an ambitious target. We need the assistance of everyone. 
three-way talks between ministers, management and unions to consider the best way forward for our country's economy...
Industrial democracy - giving working men and women a voice in the decisions which affect their jobs - is an idea whose time has come...
Labour will strengthen the Price Commission, giving it greater powers to initiate investigations and reduce prices ....
We reaffirm the policy that we have pursued that wherever we give direct aid to a company out of public funds, we shall reserve the right to take a proportionate share of the ownership of the company....
1983 on the face of it seems just as easy. Labour ran under a manifesto which has been called "the longest suicide note in history", including withdrawal from the EEC, unilateral nuclear disarmament, renationalisation....

But then Labour was not the only game in town. What if the SDP/Liberal alliance had won? Might we then have had a moderate, responsible centre-Left government, making some necessary reforms but without engendering the division and bitterness that Thatcher left?

I doubt it. My feeling is that politics like those of Schroeder, Blair, even Lula were only possible after Thatcher. The centre-Left had to swallow the bitter pill of accepting (some) New Right ideas. Even the 1983 SDP counterfactual would have been something like France at the same period (or now): half-hearted acceptance that you cannot actually get more Left-wing; but no real reforms.

In any case, the main point is: Thatcherism is best evaluated against real alternatives that might have come about, rather than against the analyst's ideal policy.