“Ding Dong, the Witch is Dead” chanted progressives when Margaret Thatcher died. It was an effective sound bite; but a sound bite is not an idea, and it was an idea that ensured Margaret Thatcher’s place in world history.
In the middle of the twentieth century the experience of the Great Depression, the economics of Keynes, and the seeming success of the Soviet Union led many to question the viability of free market economies. China and the Soviet bloc were already committed to central planning. Developing countries throughout Asia, Africa, and South America shifted toward socialism: important industries were nationalized, and the ones that remained in private hands were closely regulated. Most European countries shifted in the same direction. In Britain the post-war election of a Labour government led to the nationalization of many industries, including coal, steel, railways, telephones, and electricity. While the United States did not nationalize industries, it did multiply the regulation of the private sector.
By the 1970s many of these countries were experiencing tepid growth, along with inflation caused by floundering monetary policy. Government intervention was often at the heart of the problem. The nationalized industries were not exposed to the discipline of the market, because their losses were underwritten by the treasury. Regulated industries found that satisfying bureaucrats could be more important to them than satisfying their customers. The prices of the goods that these industries bought and sold ceased to be meaningful signals of surplus or shortage, and entrepreneurship declined.
Margaret Thatcher, under the influence of the free-market economist Friedrich Hayek, set out to reverse Britain’s socialist policies. Nationalized industries were privatized, and in the coal industry, unprofitable mines were closed. These policies were harsh, but they were ultimately effective in stimulating the economy. On the other side of the Atlantic, Ronald Reagan championed market discipline in his own way, and the United States also began to grow more rapidly.
The success of these two countries in reviving their economies made them models for other countries, and in particular, for Soviet satellite states and for Latin American countries. Then the giants fell: the Soviet Union shifted toward free markets, albeit too late and too slowly to prevent its collapse, and China embarked on a successful liberalization of its economy. Reforms were not easy in any of these countries, but the reforms were deemed to be preferable to the economic collapses that these countries would otherwise be facing.
The shift toward free markets was remarkable, and Margaret Thatcher was arguably its chief instigator.
All of these events are described in a superb PBS documentary based on Daniel Yergin and Joseph Stanislaw’s book The Commanding Heights. The first episode discusses the ideas of two very different economists, John Maynard Keynes and Friedrich Hayek, and shows how Hayek’s views slowly gained acceptance. It also describes Margaret Thatcher’s and Ronald Reagan’s restructuring of their economies. The second episode describes how free-market economics gained acceptance in such countries as India, Bolivia, Chile, Argentina, Poland, the Soviet Union, and China. Many of these countries were on the brink of collapse when they instituted their reforms, and the reforms were very difficult. The documentary shows that many people were impoverished by these reforms. There was simply no easy way to put these economies back on sound foundations.
Here are the links to these two episodes. Each episode is two hours long, but anyone wishing to understand the economic upheavals of the late twentieth century will find them to be invaluable.