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It's A Gray Area: Lessons from Thatcherism remain relevant

April 26, 2013|By James P. Gray

As you know, Margaret Thatcher died April 8 at the age of 87 after serving as Britain's prime minister from 1979 until 1990. We owe her a debt for at least two reasons, one of them principled, the other cautionary.

First and foremost, Thatcher took office at a time when Britain's economy had become stagnant and inflation was rampant. This owes in large part to the government having introduced the welfare state and nationalized a number of businesses, including railroads, telephone services, airlines and gas companies. In addition, labor unions were then so strong that they were in many ways dictating how companies could manage their businesses.

A story from Winston Churchill illustrates the two approaches. After one of his speeches, Churchill happened to be in a men's room at a urinal when Clement Attlee, one of his longtime political nemeses, came in and walked up to a urinal right next to him.

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Now most men know that it is an unwritten rule that when the urinals are not crowded, you leave a space between your and someone else. So when Attlee moved next to him, Churchill stopped his business and moved one urinal over.

Attlee noticed this and said, "You're getting a bit modest in your old age aren't you, Winston?" To which Churchill responded, "I know you, Clement, and whenever you see something that is big, private and works well, you always try to nationalize it."

Thatcher reversed much of the government's intrusion into the marketplace. In so doing, she often quoted the words of Abraham Lincoln, "You cannot strengthen the weak by weakening the strong; you cannot bring about prosperity by discouraging thrift; you cannot help the wage-earner by pulling down the wage-payer." That is the principled lesson she exemplified for us.

Thatcher did this by privatizing nationalized companies, cutting government subsidies to businesses, reaffirming the right of businesses to manage themselves and seriously reducing government spending. In other words, she put into practice the teachings of economists like Friedrich Hayek in his book "The Road to Serfdom," and Milton Friedman in his book "Free to Choose."

This approach directly served to balance the government's books, reduce inflation and bring back economic strength to Britain. And it reversed what had become known as "the ratchet effect," in which the state is rewarded for its failures with even more power.

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