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Tuesday, 9 May 2017

The Inevitable Collapse of the Thatcher Legacy

Margaret Thatcher was a forceful woman; but I have heard or read no suggestion that she was an especially intelligent person. She gained an Oxford degree, in Chemistry, when most men in her age-group were on active service; so there were plenty of places for girls from provincial grammar schools to read for degrees. Margaret Roberts - as she then was - was guided to her modest achievement in the examinations by a postgraduate tutor whose war-work was the important search for inert gasses that could be used to fill fuel tanks on aircraft after the fuel was used, thus reducing the very high risk of the tanks catching fire and taking the 'plane down. Forty years on, Margaret Thatcher rewarded him with a peerage. He was a man of the highest non-religious integrity, and I was privileged to know him modestly well.

I begin with that reminiscence because I think it important to recognise that the concepts that Thatcher espoused in her mature political career were not hers. The came from others who were prepared to share her political agenda: and, indeed, to push it further than she would naturally have been inclined to take it. Prominent among these were the several economic advisers who progressively led her into the set of ideas that are still characterised as 'Thatcherism'. The core of all the thinking that she accepted was the idea that markets are 'rational': the notion that the economy is a natural system that operates according to its own natural laws [just like the material universe is subject to Newton's laws - except where it is not]. Those who advocated this principle, of whom the first in Mrs Thatcher's environment was Keith Joseph, argued that the manifest weaknesses that had engulfed the British economy in the nineteen seventies were the inevitable outcome of decades of the 'mixed economy' in which both Labour and Conservative governments had been prepared to over-rule market forces in order to achieve social and political priority objectives. Thus when Mrs T became the Prime Minister the economy was completely disoriented from what would be achieved if it was working 'properly'.

It was inconceivable that half a century of state direction could all be removed at once, so a progressive pattern of removal of the state from the economy was initiated. A major component of this project was privatisation of the major utilities. Water, gas, electricity, airlines, railways, telecommunications, radio and TV and a huge range of other supplies and services were predominantly controlled [and owned] by the state. The clever new idea was that they should be sold to the people, who would become active shareholders who would hold the boards of the privatised companies to account, thus ensuring that they competed openly and fairly in an efficient market. That didn't happen; large swathes of the shares were bought by financial institutions when they were first offered for sale; and the hundreds of thousands of citizens who did buy such shares happily sold them on to institutions at prices higher than they had paid for them: so in a short time institutions owned virtually all the shares. In many cases the utilities were then sold on to foreign investors.

Later, particularly under the Cameron governments, it became clear that the supposed 'markets' were not functioning at all well. Customers of the gas and electricity retailers did not spend many hours every year deciding which company to use for the coming period, as the Economists' market model demanded. Very recently, the May government has indicated that it will 'cap' prices - because competition has failed to keep retail prices 'competitive' or affordable.

Behind this retail market failure is an even more fundamental failure of the market in supplying 'wholesale' electricity. In total defiance of market Economics, successive governments have opted to subsidise 'green' energy, notably windmills, in order to meet arbitrarily assessed targets for the reduction of emissions of the gasses that are said to cause global warming. In principle, that can only be a 'good thing'; but when the cost of it is laden on the customers' bills, the pretence of creating a 'market' in energy is exposed as mere rhetoric. When customers are additionally laden with the forward costs of the 'most expensive structure in the world' - the Hinckley Point nuclear power station [that may never work] - the whole myth of rational markets is destroyed.

Point-by-point, the Thatcher legacy has unwound; and as relief  from the current election rhetoric, I will extend the point of today's message over other sectors of the economy.

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