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Thatcherism Economic Policies Essay

3203 words - 13 pages

INTRODUCTION

John Major as a successor to Margaret Thatcher was always going to find life difficult. He says himself he rejected any talk of his creating 'Majorism' as Margaret created 'Thatcherism', claiming instead that "The Conservative Party does not belong to any one individual" . His priorities (at least initially) as he saw them were clear; inflation, inflation, inflation. Further to that, he aimed to reduce unemployment, although not through artificial job creation, but by preserving a climate of low inflation in which growth would be encouraged. He aimed to privatise that which was feasible and had not already been done.

But the climate in which John Major became Prime ...view middle of the document...

MACROECONOMIC POLICY

The Thatcher Legacy

Where Thatcher had come in on a ticket of revolutionary policy, the general feeling when Major assumed office in 1990 was that, whilst the voters had taken as much as perhaps they could in terms of state retrenchment, there was no strong call for a radical new agenda. To this end, Major's leadership was always going to be one of consolidation and conciliation. In this respect we can draw a strong comparison with George Bush's succession of Ronald Reagan in 1989; the situations, personalities and policies of the four leaders were broadly similar. Reagan and Thatcher were conviction politicians; Major and Bush guardians.

John Major faced the problem that, without any real supporting evidence, the wider community believed Thatcher's policies to have 'transformed' the economy, rather than just seeing the late 80s boom as the natural counterpart to the severe recession that preceded it. He was thus expected to reap the fruits of this imagined miracle, and was instead seen as failing to manage them properly on coming to office at the peak of an unsustainable boom with similarly unsustainable growth in outputs.

Inflation

Previous to 1992, the recession experienced can reasonably be considered the result of the Lawson inflationary boom of the late 1980s. A year and a half of stagnation were followed by a year in which inflationary pressure dropped. Nevertheless there was a real and widespread conviction that inflation targeting was necessary not only for stability but also for general economic superiority and long run growth. In this way there was continuity between Thatcher and Major; her Medium Term Financial Strategy was devised with the primary aim of reducing inflation and, although targets were almost never achieved, they had the desired effect of altering expectations thus bringing inflation gradually down, albeit in a fashion very painful for the wider economy.

Major was determined in setting price stability targets, and talked of the pound eventually replacing the German Mark as the strongest currency in the EMS . He as widely criticised for his fundamentalist stance on inflation and refusing to devalue and, following the Black Wednesday ERM crisis, was forced to abandon inflation as the cornerstone of macroeconomic policy (to the relief of those who wanted more focus on issues such as employment and education). Nevertheless it is the case that inflation stood at 9.7% in November 1990; by the time Major left office it was 2.6%; he states proudly in his memoirs that "we had broken the inflationary psychology that so bedevilled our economy" which he describes as almost an invisible regressive tax on the poorest in society.

Unemployment

From the beginning of 1990, unemployment rose mercilessly to overtake the European average in 1991. Here the evidence of Thatcher's legacy in Conservative policy (and indeed in the wider electorate) is clear; she was willing to tolerate unemployment in...

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