Thatcher’s Legacy – the Empirical Argument

Margaret Thatcher’s legacy has been the subject of considerable debate over the past three weeks, but one claim seems to stand out above all others as particularly intriguing: that Thatcher oversaw a dramatic period of growth and modernisation, revitalising the country after a period of self-imposed stagnation and decline while restoring it to its rightful place of global prominence. Unfortunately, this is rarely substantiated beyond mere matter-of-fact assertions, and thus merits more meaningful analysis. But can it stand up to appropriate critical scrutiny?

Unfortunately for her supporters, it cannot. In fact, an analysis of the relevant data paints a distinctly different picture of her time in office, suggesting that her performance in this regard was mediocre at best and disastrous at worst. There are many ways that this can be demonstrated. Beginning with the most straightforward, Figure 1 illustrates average annual growth during the Thatcher era:

Fig1 (Crop)

According to Thatcher’s supporters, the positive growth figures recorded throughout much of the 1980s demonstrate a dramatic turnaround of the country’s fortunes that can be directly credited to the government’s radical social and economic policies. The flaws of this reasoning are twofold. First, it is worth considering the Thatcher era in the context of the country’s broader post-war history, especially by comparing it to the period that immediately preceded it and that was characterized by everything that Thatcherism stood against: higher levels of taxation and state expenditures, large-scale public ownership of much of the economy, popular and influential trade unions, and a broadly shared Keynesian consensus on sound economic management. Figure 2 does so by adopting a 30 year perspective:


Such a historical scope is quite revealing. Under Thatcher, the economy grew by an average of 2.28% per year; in comparison, annual growth averaged 2.9% between 1960 and 1978. As a whole, annual growth averaged 2.66% between 1960 and 1990, meaning that, by this measure at least, Thatcher’s economic record actually brings down the 30 year average by almost a quarter of a percent. Looking at these figures, claims of economic revitalisation appear to be completely unfounded. And if ‘modernization’ means slower growth, the country seems like it would have been better off without it.

Second, while Thatcher was leading a conservative revolution in the UK, a number of other states in Western Europe were moving in the opposite ideological direction, with France (1981), Sweden (1982), Spain (1982), and Italy (1983) all electing left-wing or centre-left governments that, in many ways, represented the antithesis of Thatcherism. Figure 3 demonstrates how each of these countries, along with the UK, fared in the Thatcher era:


From this data, it is difficult to make the case that the UK out-performed its left-leaning European counterparts. This point is perhaps more clearly illustrated when the figures for France, Sweden, Spain, and Italy are averaged out and measured against the UK:


Again, between 1979 and 1990, the economy of the UK grew at an average rate of 2.28% per year, slightly less than the cumulative average for France, Sweden, Spain, and Italy at 2.35% per year. When one looks at only the years during this period that left-leaning governments were in power in these four countries, the difference is even more pronounced: France grew at an average rate of 2.39% per year, Sweden at 2.47%, Spain at 3.29%, and Italy at 2.65%.

So Thatcher’s economic record is not only unexceptional by the historical standards of the UK, but also when measured against comparable European countries that adopted dramatically different policies. Worse, as Figures 5-7 demonstrate, Thatcher’s time in office was also accompanied by significant increases in unemployment, inequality, and poverty:




And these graphs do not even tell the whole story, as, for example, the government adopted no fewer than 20 changes to the way unemployment figures were calculated in the Thatcher era, effectively distorting the true extent of the problem. At the same time, the government ran persistent budget deficits despite periods of growth, and the country became increasingly reliant on imports while its balance of payments plummeted. The billions of pounds that the state collected from asset sales and oil production played a significant role in covering up the extent of this economic mismanagement, but these were short-term solutions at best that have had serious lasting implications.

The financialisation of the economy played a similar role in masking the economic failures of Thatcherism with artificial growth, while the short-sightedness of this, and the widespread deregulation that it involved, has been tragically demonstrated by the severity of the recent financial crisis and its aftermath. Compounding these problems, Thatcher’s role in the apparent collapse of Keynesianism in this country has led to a completely inadequate—or even non-existent—recovery, with the UK’s GDP taking longer to reach its pre-crisis level than it did during the Great Depression. This, above all else, is her true legacy. The faster this country leaves Thatcherism behind, the better.