Last week saw the funeral of one of the most divisive and controversial figures in modern British history.  Her family should take comfort from the strength of the opposition to her, which is surely an indication of her strength as a leader. Meanwhile many of you have been asking me what I think of her economics or suggesting that we are ‘pro –market’, kindred spirits. So I will try to touch on her legacy and set forth my views below. If you can’t read the whole thing I will sum it up thus: Thatcher was a reckless gambler who knew no economics.

Above all else, Mrs. Thatcher sod for free enterprise and individualism. Her model was Hayek’s The Road to Serfdom and she believed in rolling back the state (State with a capital S) and reducing the share of GDP taken by the state in taxes.

While this was a commendable objective, her abandonment of Keynesian economics and misplaced faith in Hayek and the Monetarist School (via Sir Keith Joseph her intellectual mentor) proved disastrous for the UK economy, initially.   Her experiment in fiscal austerity has parallels with the general enthusiasm today, not least by her heirs in the UK Coalition Government for the benefits of fiscal austerity.  This enthusiasm is based on shaky theoretical underpinnings and its supposed benefits have no empirical support. Recently the most often cited statistical work in support of austerity, Kenneth Rogoff’s and Carmen Reinhart’s study purporting to show a negative correlation between growth rates and debt levels, was shown up by a Ph.D student to have elementary statistical errors. Mrs. Thatcher had in any case scant knowledge of macroeconomics to which she added her own homespun common sense. Not altogether successfully.

Her father was a grocer and she used to help out in his shop so it is perhaps not surprising that her grasp of economics did not rise above the level of elementary bookkeeping. Indeed she treated the British pubic to endless lectures about the virtues of thrift and the importance of not spending more than you earn often accompanied by a Micawberish exposition on the dangers of going into debt.

When I was studying at Cambridge the economic fallacies of her Medium Term Financial Strategy of cutting public spending and tightening monetary policy and the disastrous effects it was having on the UK economy were the most discussed topics in my tutorials. This culminated in 364 economists, including the Head of Cambridge Economics, Frank Hahn, otherwise a vocal critic of woolly left-wing thinking, signing a letter urging her to change course, in 1981.  Of course Thatcher was not one to change course. ‘This Lady is not for turning’ and all that.

She would undoubtedly have lost the 1983 election, ending the experiment with free enterprise and privatization but for a reckless gamble on the Falklands war. By winning that war she instead won a landslide in the 1983 election. With a new Chancellor, Nigel Lawson, at the helm she embarked on a loosening of fiscal and monetary policy that created a housing boom and let the Tories win another term comfortably in 1987.

Ultimately her success went to her head.  She became increasingly overconfident in her abilities and inclined to ride roughshod over her Cabinet colleagues and public sentiment. In a small, newly independent island Nation where the leader is always able to invoke the threat of racial conflict or invasion and economic meltdown to justify repression this may work but not in the UK. Worried about losing the upcoming election the Tory party ditched her in 1991 in truly unsentimental fashion.

I cannot help but respect Mrs. Thatcher’s views on the Soviet Union.  She proved prescient about the collapse of the Soviet Union and foresaw better than most left-wing economists that the system was founded merely on adding more inputs without any fundamental rise in productivity.  To show how unfashionable this view was at the time, I can still remember a BBC programme in which my Economics Professor at Cambridge urged the UK to adopt the Soviet model and leave the EU.  In the same way those who criticize the Singapore model as sharing many of the features of the Soviet one are still very much in a minority here.

In fact in the last years of the Soviet Union their economy imploded and productivity growth went into reverse.  Mrs. Thatcher must get some credit for having hastened this collapse though the main spur was higher US defence spending spearheaded by Reagan, which the Soviet Union had to match but could not afford to.  Reagan was Thatcher’s staunchest foreign ally and they were indeed kindred spirits though Reagan was much too pragmatic to be hung up on the supposed evils of debt!

It is a pity that while Mrs. Thatcher was so prescient about the Soviet Union, she seems to have been blind to the real nature of Singapore’s success.  Like many English people of her generation, she felt that the diverse ( i.e. darker skinned)  peoples of Britain’s former colonies needed a firm hand. Who better to give it to them than rulers like Harry Lee, whom the former British foreign secretary George Brown is supposed to have described as “the best bloody Englishman east of Suez”.  Her boundless admiration for LKY manifested itself in such stunning displays of ignorance as her comment  here that “Her ( Singapore’s)  leaders knew that in a free society it is the people who own the Government, not the Government who own the people.”  Most of her other speeches abound with such fulsome praise for our dear leader’s achievements.

To be fair her sentiments were probably driven more by diplomatic convention rather than by deep-seated conviction. The greatest irony is that many of Thatcher’s policies of privatization and creating a property-owning democracy from the 80’s have yet to be adopted in Singapore.

In Singapore in the intervening years, the degree of state control over every sphere of our economy has increased, as has the size of the surplus extracted from the people. It is difficult to see how an economy where the state owns 80% of the land and 90% of the population live in leasehold public housing can be squared with the Thatcherite vision of a free enterprise economy where share ownership is diffused throughout the population.

Mrs. Thatcher was moulded by the Conservative government’s humiliation at the hands of the miners in 1973 and fixated on reducing overweening trade union bargaining power, which she did through both legislation forcing the unions to adopt a greater degree of democracy and through privatizing and reducing state support for the traditional mining and heavy manufacturing industries. However the direct control exercised by the PAP government here over trade unions through their control of NTUC and through the unions over mush of the workforce would have been seen by her as a violation of fundamental rights to freedom of association and more akin to the Communist model.

As we approach the inevitable end of a similarly controversial and divisive  home-grown  figure we might wonder how history will reassess his legacy once he is no longer there.  I have said before that it will be similar to Tito’s death in Yugoslavia. The iron fist in a velvet glove  who, according to his own spin,  held the country together by a ruthless but necessary suppression of  minority rights and dilution of political power through measures such as the Ethnic Integration Act. Unlike Tito he has been able or willing to use immigration as a tool to maintain what he sees as a favourable racial and religious balance. However , in another echo of the policies of our former colonial masters and something Mrs. Thatcher would have been familiar with, he has also shamelessly made use of and exaggerated racial and religious divisions in order to maintain and extend his hold on power.

About the only thing we can be sure of is that there are unlikely to be any protests or similar marks of disrespect at his passing, though perhaps more out of the customary apathy and fear than from deep-seated affection. Not to mention that in Singapore, protest is illegal.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam