Chapter 84 Section 2 Britain in the 1980s

During my tenure as Prime Minister from 1979 to 1990, I had the opportunity to implement these beliefs in economic policy.I have been fortunate to have three very able Chancellors of the Exchequer, Geoffrey Howe, Nigel Lawson and John Major, helping me.In the 1980s, we intended to pursue a policy that was fundamentally different from the goals of most of the postwar period.In our view, since employment (in a free society) depends not on the government but on satisfied customers, there is no reason to formulate an indicator of "full" employment.Rather, governments should create the right, sound monetary structures, low taxes, less regulation, and flexible markets (including labor markets) to promote prosperity and increase employment.

As for the government's finances, it has indeed continued to implement some practices before 1979 to a limited extent.Labor minister Dennis Healy cut public spending by £6bn in real terms between 1976/77 and 1977/78, and the December 1976 deal with the IMF.The terms of the accord, which mark the first overt use of monetary indicators to guide policy, are all significant steps toward what I believe to be an approach.But their implementation comes from necessity, not belief, and is therefore abandoned at every opportunity.In fact, the Labor government is already starting to loosen that practice after allowing public spending to rise again in the final year.Moreover, some of the good parts of Labor's policies, guided by the IMF, have not been combined with other crucial supporting measures, such as slashing marginal income tax rates, reforming trade union laws, privatization and deregulation, so, They are only partial remedies, as a vitally important component needed to facilitate business is missing.

I went to Downing Street with a general idea of ​​how to get the UK economy right, not a detailed plan.Because progress in every field depends on economic and political conditions.For example, our first budget priority was to reduce income taxes, partly because marginal tax rates, especially for those on higher incomes, discourage employment and encourage people to emigrate: partly because We have made such strong pledges in our manifesto, but where the political and economic obligations that must be fulfilled conflict with each other, the needs of the economy should take precedence, as we have proposed a direct The key 1-981 budget contained deficits and curbed inflation.

Economic strategy has four basic components that complement each other.In terms of time and importance, the first is to oppose inflation.Inflation was ingrained in the British political and economic system and in the British psyche.In the postwar years it reached successively higher heights.As I said, in 1975 was dangerously close to hyperinflation.As a result, it is more difficult to eliminate inflation.This can only be done with a long-term adherence to policies that reduce money growth and change people's expectations.Therefore, since the 1980s, monetary policy has been adopted in the framework of the medium-term fiscal strategy, supplemented by fiscal policy to reduce government borrowing.Like any real strategy, it must adapt to its surroundings.For example, when there is a problem with a certain monetary aggregate as a measure of monetary policy, it is necessary to think of other ways.Also, like any strategy, it does not by itself eliminate the possibility of error, but it limits the scope for such errors.Having stuck to this strategy over the past few years, it has gained credibility despite the odds, which in itself has boosted confidence in the economy.Between 1981 and 1986, medium-term fiscal strategy remained at the center of our policy, reducing inflation from a peak of 21.9 percent (May 1980) to 2.4 percent (summer 1986).In the mid-1980s it averaged around 5% until the tailing of the exchange rate to the former Bundesmark that I objected to spiked inflation in 1987-1988.It rose rapidly, reaching a peak of 10.9% in October 1990.It started to fall the month I left office, and fell rapidly in 1991, when the high interest rates of 1988-1990 had once again reined in monetary growth.Until my departure) estimates of domestic monetary conditions were the final determinants of inflation policy.

However, a month ago, the pound joined the exchange rate mechanism of the European Monetary System, which fleshed out the medium-term fiscal strategy.This is intended to signal to financial markets that our commitment to low inflation is unwavering.But then maintaining parity within the exchange rate mechanism became an end in itself, as the exchange rate mechanism became a more rigid system, a conveyor belt towards the single currency.This led to a monetary overreaction that was sure to bring inflation down very quickly, but at the cost of subjecting the UK economy to an unusually deep recession.In the end, this policy could not be sustained, and the UK had to leave the exchange rate mechanism.

Since then, the government has pursued a cautious policy of bringing inflation down by returning to some kind of domestic monetarism.This shows that the government is rightly focusing on stabilizing prices.What is needed now is to re-establish a credible framework much like the original medium-term fiscal strategy, which would be a permanent dampener on expected inflation.This should not include the return of the pound to even a reformed exchange rate regime, as the market knows very well that you can once again leave the regime you have left.Nor should it undertake to give the Bank of England new autonomy.Ultimately it is the politicians who must be held accountable for economic policy.But they must learn from past mistakes so they and their successors do not repeat them.

The second priority in the 1980s was to control Britain's finances.In 1975/1976, public sector borrowing reached 9.25% of GDP.It was reined in by the Labor government under the influence of IMF measures, but rose again at the 1979 general election, when the economy was at its worst, to over 5%. The 1981 Budget put a firm grip on public sector borrowing, which was never relaxed during my tenure as Prime Minister.Between 1987/88 and 1990/91 we repaid £27bn of debt, bringing government debt as a share of national income to its lowest level since before World War I.As for public expenditure, although the severe economic recession in 1980/81 caused more people to lose their jobs and reduced government revenue, public expenditure increased, but we have reversed the previous long-term trend.The proportion of public expenditure in GDP continued to decline between 1982/83 and 1988/89, reaching as low as 3-9.25% in 1988/89.Between 1989/90 and 1990/91, this ratio rose by 1% to 40.25%.This is partly due to massive overspending by local authorities (which they know can be blamed on community taxes), partly to facilitate the push for NHS reforms introduced in 1990, and partly because the economy is headed into recession.However, during this entire period, the proportion of public expenditure in GDP dropped from 42.6% in 1979 to 40.25% in 1990.

The reduction in taxes was made possible by tightening controls on public spending over the years.Jeffrey Howe's 1979 budget lowered the base income tax rate from 33 percent to 30 percent, changing the balance of direct and indirect taxes.The top income tax rate has been reduced from 83% to 60%, and investment income has also been reduced from 98% to 75%.Nigel Lawson's 1984 budget made fundamental changes to corporate taxation, introducing capital allowances and reducing corporate tax rates to encourage more efficient use of business investment.Nigel's 1988 budget completed the cuts to income tax, bringing the higher rate down to 40% (whether on savings or wages) and the base rate to 25%.

The goals of the 1980s were fiscal soundness and low marginal tax rates, and these goals have since been achieved.Shortly after I left office, decisions in the government led to substantial increases in spending, notably increased child benefits, increased spending on the NHS, transport and local authorities.Coupled with the fact that the sterling premium in the exchange rate mechanism at the time contributed to the recession, the increase in fiscal spending also led to a series of large budget deficits - peaking at £45 billion in 1993/94 , accounting for more than 7% of GDP - the increase in taxation also accounted for more than 2% of GDP.Obviously, the sooner these two aspects are reversed, the better.This calls for tighter control of public spending, judicious and judicious use of the most useful monosyllable in the prime minister's vocabulary, "no".

Some of the progress made in the 1980s has given way to spending-increasing lobbyists, but the significance of tight fiscal spending controls during that decade has not diminished.Thanks to our effective control of fiscal spending in the 1980s, notably linking basic pensions and other long-term benefits to prices rather than income, and scaling back pension schemes linked to state income, the UK has been better off than it would have been without Other European countries that have taken this action are good, as shown in the table (see table below): Indeed, the potential benefits to the UK will grow even greater over time.In general, demographic trends in other European countries have been far less favorable, with a rapidly growing proportion of older people supported by smaller labor forces.This would require a massive increase in taxes.According to Professor Tim Condon, as a result of these trends, "in the late 1990s, the tax burden in the United Kingdom was probably 15 to 20 percent lower than in the rest of the European Community. Lower taxes, combined with more favorable regulation for businesses atmosphere, which will strengthen the UK's position as the main venue for outside investment into Europe.

Current and planned government spending in GDP 1993199419951996 Germany 49.4% 48.9% 48.6% 47.2% France 54.8% 55.3% 54.3% 53.4% ​​Italy 56.2% 56.0%. o%55.1%54. o% Denmark 63.1% 62.8% 61.9% 60.9% Sweden 71.8% 67.4% 67.3% 66.6% United States 34.5% 33.6% 33.6% 33 .7% Source: OECD Economic Outlook, December 1994 The figures for 1994-96 in the attached table are forecast figures. The third fundamental component of our economic strategy in the 1980s was the promotion of private enterprise and private ownership.For economic and political reasons, I would like to upset the balance of the status quo of the country; in this respect, privatization can play a key role. In 1979, only the aviation and space industry and the shipbuilding industry made explicit guarantees of denationalization, besides the sale of National Trucking's stock.But we got bolder, and we learned by doing.The financial situation of state-owned enterprises has improved one by one, and these enterprises have been prepared to be privatized under the improved economic climate.By the time of the 1983 general election, the list of companies ready to be privatized had grown to include British Telecom, British Airways, Rolls-Royce, parts of British Steel, Britain's Leyland Motors and airports. .After British Telecom, other public utilities such as gas, water and electricity with different structures and different management systems were also privatized.At the time of my departure, the state sector in industry had been reduced by 60%.Mainly the broader shareholding scheme that accompanied the privatization, so that about 1/4 of the people own shares.I am trying to rebuild an economy dominated by free enterprise, encouraging a society with capital.I feel that I have come a long way toward these two goals, even further than I expected. Finally, there is a broad program of structural reforms - part of which, of course, are cuts in marginal tax rates and privatization - to make markets work more efficiently, the so-called "revolution in supply-side economics policy".From 1980 onwards we had a "step-by-step" program of union reform, of which the Employment Act of 1982, which reduced union immunity, was crucial, and the outcome of the miners' strike of 1984-1985 effectively consolidated the new order , that employment depends on satisfied customers rather than using collective power to extort subsidies.Labor relations have improved accordingly.In 1990, my last year as Prime Minister, the number of industrial shutdowns was the lowest since 1935.Norman Fowler's 1988 Social Security reforms complemented union reforms by making work more meaningful by reducing so-called "poverty traps."Wage boards used to set minimum wages, which led to unemployment, especially among young people.Later, such committees were reformed to no longer set minimum wages for young people under the age of 21, and such committees were later abolished.When I started as Leader of the Opposition, in terms of economic policy it was mainly a big debate between those who advocated income policy and those who advocated "free collective bargaining".By the end of my term, the income policy and all its encumbering perversions had been removed.And wage negotiations are far from "collective."The proportion of the labor force that is unionized has dropped from 50 percent to 35 percent, an important reason for the more flexible labor market. (also its label). But the reforms we're making to make markets work better certainly go beyond the labor market, it touches every market.We removed foreign exchange controls, as well as controls on prices, income, and dividends.In financial services, we foster greater competition.We have reduced controls on private rental housing to encourage more housing, giving public sector tenants deep discounts to purchase housing.Further steps have been taken to promote competition in the public sector in education, the NHS and local government, to increase the value of the currency and to provide greater choice. We have achieved, to varying degrees, our monthly targets: lower inflation, fiscal reining and consequent tax cuts, privatization and supply-side economics policy reforms.Moreover, each goal has its own value and also contributes to reducing the role of the State and giving people more control over their own lives.But to what extent can it be said that the economic programs I implemented in the 1980s substantially improved the British economy?There is a lot of persuasive evidence -- and the evidence is still growing -- that this is the case. Productivity is key.Countries where living standards have improved significantly are those where labor and capital have created economic value.Low-productivity countries can and should have some control over their exchange rates, but in the long run these countries will not enjoy a high standard of living.British experience has proved this point.Before World War II, there was a big productivity gap between us and the United States.In the 1950s and 1960s, Europe also quickly caught up and surpassed us.In the 1970s we were the worst performer among the major industrial nations, by a wide margin. But a major shift occurred in the 1980s.Figures from the US Bureau of Labor Statistics on output per hour in manufacturing show that since 1979, UK productivity growth has been faster than that of any other major industrial country, especially since 1985.There are good reasons to think that the outlook for productivity growth is already improving and that we are not just seeing a one-off, "catch-up" effect.While productivity gains have been particularly pronounced in manufacturing, the same is true for services.In the UK's entire non-petroleum economy, output per worker grew by 1.7% per annum between 1979 and 1989 (which outpaced the business cycle), compared with only 0.6% per annum between 1973 and 1979. A range of other evidence also suggests that the policies of the 1980s led to structural reforms in the UK economy.As long as these reforms are not overturned by wrong policies, we will be in good shape by the year 2000.One way to measure an economy's success -- and certainly the most politically sensitive -- is its ability to create new businesses and jobs.While the direct consequence of productivity growth may be to reduce employment, productivity growth is necessary to enable firms to compete and thus provide stable, high-wage employment.Not surprisingly, employment rose by 1.5 million in the 1980s.Significantly, even though long-term unemployment peaked at the end of 1992, it was more than 250,000 fewer than the peak figure of the previous economic cycle. In the UK, because of our long-term commitment to deregulation, we are also less adversely affected than our neighbors by the regulatory disease, high taxes and totalism that is prevalent in Europe - which stifles jobs that would arise Some.However, it would be very harmful if future governments were to uphold the Maastricht Social Charter, let alone go back to minimum wage regulations, which are ineffective when what we need is American-style flexibility. but forces us to accept European sclerosis. International Productivity Growth Output per hour in the manufacturing industry, 1979-1993 (1979 = 100) 1979198519891993 United Kingdom 100.0127.1151.1174.8 United States 100.0112.4126.3141.7 Germany 100.0112.9119.7130.6 Japan 100.0126.1152.3168.5 Italy 100.0134.3147.1175.9 France 100.0120.1139.5146.8 Netherlands 100.0127.8138.3144.0 Denmark 100.0113.0113.7122.6 Norway 100.0118.7128.9138.4 Sweden 100.0119.4129.5156. 0 Canada 100.0115.4115.6126.9 Productivity Growth 1973-1993 1973-791979-851985-891989-93 UK 6.3% 27.1% 8.9% 15.7% US None 12.4% 12.4% 12.2% Germany 28.1% 12.9% 6.0% 9.1% Japan 39.3% 26.1% 20.7% 10.7% Italy 39.7% 34.3% 9.6% 19.6% France 28.9% 20.1% 16.2% 5.3% Netherlands 38.1% 27.8% 8.3% 4.1% Denmark 27.8% 13.0% 0.6% 7.9% Norway 13.1% 18.7% 8.5% 7.4% Sweden 16.9% 19.4% 8.5% 20.4% Canada 12.9% 15.4% 0.2% 9.8% Source: US Department of Labor Bureau of Labor statistics, August 1994. Inflation, industrial efficiency, and job creation are the measures of economic success, but the ultimate measure of economic success is economic growth, and in this regard, the overall picture of an improved economy is affirmed.To make a fair evaluation, people naturally have to consider the effect of the business cycle.When evaluating, we can see that during the period 1973-1979, UK non-oil GDP grew by less than 1% per annum (the EEC average was 2.5%), while in the 1980s it rose 2.25%.This is the opposite of the international trend, as the OECD region as a whole did not improve in the 1980s. It is important to recount these facts of the 1980s, not just to clarify right and wrong.Underestimating what happened at that time may well lead the government to go back and look for other solutions, in fact the disastrous 1970s prescription.This is similar to the United States.In the United States, attempts by leading Republicans to distance themselves from the Reagan-era approach resulted in the Democrats taking center stage in 1992 and their success in winning elections on the theme "It's time for change."It is only now that the Republican Party sees that only by developing instead of departing from the "Reagan Doctrine" can it succeed. The economic conditions in both of our countries in the 1980s—lower inflation, greater growth, more jobs, higher living standards, lower marginal tax rates—showed what worked, whereas the 1970s The circumstances showed equally convincingly what was not working.