As the sole owner, the government controlled the company’s activities. When ordinary citizens own a company together, they are inclined to adjust the company’s activities based on changes in the economic climate. But when the government owns and controls a company, it does not have to respond to economic conditions. Government ownership means that a business will make its decisions without regard to realities like the price of energy or interest rates. As the British government owned more and more industries, its decision-making was more and more removed from reality.
When the government’s poor management of these companies caused them to lose money, instead of making money, the government simply taxed the citizens and took more money from them to make up the difference. Historian William Duiker writes:
The establishment of the British welfare state began with the nationalization of the Bank of England, the coal and steel industries, public transportation, and public utilities such as electricity and gas. In the area of social welfare, the new government enacted the National Insurance Act and the National Health Service Act, both in 1946. The insurance act established a comprehensive social security program and nationalized medical insurance, thereby enabling the state to subsidize the unemployed, the sick, and aged. The health act created a system of socialized medicine that forced doctors and dentists to work with state hospitals, although private practices could be maintained. This measure was especially costly for the state, but within a few years, 90 percent of the medical profession was participating. The British welfare state became the model for most European countries after the war.
Thus began the slow decline which would drive the British ever deeper into economic failure. Having been nationalized, the banks, the steel companies, the coal companies, the electrical utilities and the gas utilities manifested ever-shrinking profits, and then ever-growing losses. The nationalization of both medical insurance and health care was massively expensive, but the industries, because they were nationalized, could generate no wealth to pay for the medical health system. Taxes were raised steadily, driving family incomes down. The government also began to borrow money and thereby created a national debt. The quality of healthcare also steeply declined. Only the very wealthy could afford to leave the government system and seek adequate health care in private practices. The nationalized health system began with the goal of providing quality healthcare to all, but ended instead by limiting the poor and middle-class citizens to substandard government hospitals. This outcome was inevitable, despite the good intentions of the Parliament.
By May 1979, the British economy was a mess. In that month, Margaret Thatcher took office as the nation’s first female prime minister. But to her mind, it was far more important that she was the first prime minister to have a degree in science. She had studied chemistry at Oxford, and had worked in the private sector for years. She brought a scientific perspective to economic policy. Her logic was rigorous. So it was, then, that common sense
returned to power under Margaret Thatcher (b. 1925), the first woman prime minister in British history. Thatcher pledged to lower taxes, reduce government bureaucracy, limit social welfare, restrict union power, and end inflation. The “Iron Lady,” as she was called, did break the power of the labor unions. Although she did not eliminate the basic components of the social welfare system, she did use austerity measures to control inflation. “Thatcherism,” as her economic policy was termed, improved the British economic situation.
Prosperity did not return immediately to England after Thatcher’s introduction of economic freedom. It was a type of “shock therapy” which at first caused the economy to stall. Thatcher understood, like a physical therapist, that short-term pain brings long-term gain. After a brief uptick in problems like unemployment, Thatcher’s policies brought solid prosperity to England.
Thatcher had rescued Britain from policies which would have destroyed it, but she endured tremendous opposition. Those employed by the governments to oversee nationalized industries had well-paid comfortable jobs, even if their companies lost money year after year. Political groups had arisen over the years to elect representatives to Parliament to keep the money-losing nationalization schemes in place. The hatred directed toward Thatcher was bitter. It took not only her logical understanding of economics, but also her character and courage to implement her policies in the fact of such intolerant opposition. Charles Moore writes:
The Iron Lady is the name of the new film in which Meryl Streep stars as Margaret Thatcher. You have only to consider the title itself to understand the impact of the person portrayed. It helps explain why, in these hard times, she and her legacy arouse even more interest than they did in the boom era at the end of the 20th century.
Thatcher not only changed the British economy; she changed the presuppositions of economic and political leaders in many countries. By the time she left office, even the political party which opposed her had embraced many of her policies. Tony Blair, not a member of her party, carried Thatcherism forward when he was elected to office by the party which had opposed Thatcher. In Europe, leaders began to rethink nationalization of industries and socialized medicine. Several European nations avoided economy decline by embracing Thatcherism. Those nations which did not follow Thatcher’s lead paid the price, like Greece, as they endured painful economic collapses.
Margaret Thatcher showed the way toward economic sanity in the 1980’s, and for those who are willing to think carefully, her policies continue to show the way today.
