¡Descarga Thatcher's Economic Policies: Monetarism, Privatization, and Supply-Side Reforms y más Resúmenes en PDF de Historia solo en Docsity! Thatchers economic policies In 1979, Mrs Thatcher was elected Prime Minister of the UK. At the time, the UK was experiencing double-digit inflation, trades unions were powerful and there were signs British industry was becoming increasingly uncompetitive. Mrs Thatcher introduced revolutionary economic policies which had a deep impact on the UK economy. They were characterised by a belief in free-markets, an effort to reduce state intervention in the economy, reduce the power of trade unions and tackle inflation. Her main policies included Monetarism (mostly 1979-84) • Privatisation of state-owned assets. • Deregulation – increased competition in product markets l • Deregulation in the financial industry. • Reduce power of trade unions. • Reduction in income tax – especially on high incomes but switch to more regressive VAT and Poll Tax The Thatcher Revolution Monetarism In the early years of the 1980s, Mrs Thatcher embarked on a policy of Monetarism. This involved trying to target the money supply to reduce inflation. It involved: • Higher interest rates • Higher taxes and spending cuts. These policies were successful in reducing inflation, but, combined with a strong pound they led to a deep fall in output. Unemployment rose to three million and there was a very significant decline in manufacturing output. Unemployment remained high throughout the 1980s, suggesting a rise in structural unemployment as a result of the decline in traditional manufacturing firms. Unemployment reached its highest rate since the 1930s. In 1981, 365 economists wrote a letter to the Times arguing the monetarist policies were unnecessarily harming economic output, causing unemployment to be higher than necessary and output lower. In particular, the link between the money supply and inflation was much weaker than predicted by monetarist theory. Despite a deep recession, the money supply grew faster than expected. To meet the money supply targets, required persistent tightening. The link between money supply and inflation proved to be unreliable and by 1984, money supply targets had effectively been dropped. See: UK Economy under Mrs Thatcher 1979-1984 Supply Side Policies A key element of Thatcher economics was new market-based supply-side policies. This involved: • Privatisation of key public sector industries. This includes the privatisation of some of Britain’s biggest companies – BP, BT, British Ga, British Airways. Shares were sold to the general public. The shares were often sold below the market price, and when the companies were floated, share-owners received an immediate increase in wealth. Thatcher claimed she had helped to create a ‘share-owning democracy. Critics argued the government undersold nations resources and oversaw an increase in inequality. The Lawson Boom Due to the new supply-side policies, the Conservatives felt they had presided over an ‘economic miracle’ which meant the economy could now grow faster without inflation. In the late 1980s, Nigel Lawson cut interest rates and taxes and allowed an economic boom. In the late 1980s, house prices rose creating a positive wealth effect. There was also a rise in consumer spending. This led to economic growth of over 5% a year. However, it also caused a rise in inflation to over 10%. See: Lawson Boom To reduce this inflation, another recession was caused. 1991-92 Recession It is a good question – how much was Mrs Thatcher responsible for the Lawson boom and the decision to enter the exchange rate mechanism (ERM) in Oct 1990. Nigel Lawson’s policy of unofficially shadowing the D-Mark was not one of Thatcher’s ideas. This was one reason for monetary policy being too loose in the late 1980s. Thatcher was never keen on the European ERM and only reluctantly agree to join in October 1990 (she was forced from office a month later. Economy Under Mrs Thatcher
Quarterly UK economic growth
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-2.5
www.economicshelp.org | Source: ONS IHYQ
See: Economy of the 1980s
