April 9 (Bloomberg) -- Margaret Thatcher was hated -- widely and passionately -- when she was U.K. prime minister, a fact that has gone largely unsaid in the encomiums that followed her death. Her polarizing nature needs to be remembered, because it defines what set her apart as a leader.
Thatcher was unusual among politicians because she wasn’t first of all tactical. She didn’t shape her policies to secure the next election or to keep people happy. She didn’t triangulate. Voters accepted her not because they liked her, but because they believed she was necessary.
Sometimes Thatcher’s policies were bad and she failed. Her attempt to crush the Irish Republican Army by isolating it and supressing free speech was counterproductive. Her insistence on a poll tax -- which crucially was not necessary -- triggered her downfall. Yet her all-or-nothing approach saved the British economy; her steadfastness in this realm carries lessons for Europe’s leaders as they struggle to address the financial crisis.
The Britain that Thatcher took over in 1979 seemed an impossible challenge -- it looked surprisingly like Europe’s peripheral economies, such as Spain and Greece, today. As recently as 1976, the U.K. had been forced to go to the International Monetary Fund for help. Mass strikes and power cuts became so bad that 1978-1979 became known as “the winter of discontent.” Garbage went uncollected and bodies unburied. Growth stagnated and inflation was 13 percent and rising.
At the time, the U.K. economy wasn’t recognizable as the hybrid U.S.-European, financial sector-dominated affair that it is today. Post-World War II Britain was solidly social-market European. The public sector in 1979 accounted for almost 30 percent of the work force, compared with 20 percent today. The top income-tax rate was 83 percent, compared with 45 percent now. The state-owned steelmakers, coal mines and most of the car industry, and ran them badly. Much of it was heavily subsidized by the taxpayer, because it was fundamentally unprofitable.
Thatcher remade the U.K.’s business model. She crushed the labor unions that had held her predecessors to ransom, in a carefully planned, almost military-style campaign. She shuttered subsidized mines and steel plants, leaving whole towns with no source of jobs. Unemployment soared to 3 million, or about 12 percent of the workforce. People had to move and retrain.
All of this caused real pain and made Thatcher despised by large segments of the population. So dire were the effects of the creative destruction she unleashed that many in her own party wanted her to turn back. Had she lost the 1982 Falklands War, she would not have secured a second term.
U.K. Prime Minister David Cameron has been invoking the memory of the Thatcher of the early 1980s. He echoed her “there is no alternative” response to critics in countering opponents of his own economic austerity program. German Chancellor Angela Merkel might say the same as she sticks to her austerity guns in the euro-area crisis. Yet there is a critical difference.
Cameron’s fiscal policies were designed for a set of forecasts that were woefully wrong. They have proved inadequate, either to shrink the deficit down through sufficiently deep cuts in spending or through stimulating growth and thus tax revenues. For Cameron and his government, sticking to these policies seems less like steel than tactical concern over the political fallout from changing course. Similarly, Merkel’s approach to the euro crisis has been to do just enough to keep the currency area from imploding, without putting in place the policies (such as a true banking union, or common euro-area bonds) that could, if carried through, fix the problem. Merkel’s eyes are on German elections in September, and Germans don’t like those policies.
There is no guarantee that Thatcher would be picking the right policies for Europe’s troubles today. Given her extreme views on Europe in her later years, she probably wouldn’t. Yet the steel that the Iron Lady showed in identifying policies bold enough for the challenge and driving them through is sorely missed.
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