The Legacy of Thatcherism

Did Thatcher's economics work?

Six steps, about nine minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.

Module 12 of 13
9 min
6 steps
5 questions
1 decision

Step 1 of 6

The question

The 1970s brought power cuts and a loan from the International Monetary Fund, which lends to governments that cannot borrow elsewhere. The decade grew at 2.7 per cent a year, and the 1980s are remembered as the recovery.

Eleven modules of this series have followed the policies one at a time. This one asks whether the decade as a whole worked.

Why it matters and what it covers

The arguments that Thatcher's policies worked include the surge in factory productivity and the end of decades of losing ground to France and Germany. The arguments against include the level unemployment kept returning to, which rose and stayed higher through the decade, and income inequality, which rose further than in any modern decade and never came back down.

Six steps cover the growth shock, two arguments for, two arguments against, and a verdict step that is not scored, because the economists and institutes it draws on do not agree with each other. After you rule, the module shows how the economist Nicholas Crafts and the Resolution Foundation, an institute that studies living standards, split on the same figures.

What this module covers

Growth: the two decades, side by side
For: the productivity surge, and why it is argued over
For: Britain stopped falling behind France and Germany
Against: unemployment settling higher
Against: the inequality reset that never reversed
Your verdict, and the sources' split

Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.

Step 1 · the two decades, compared

What the growth figures show

People argue about that decade the way they argue about a match they watched from opposite ends of the ground. The figures are the one thing both sides have to share.

The 1980s are remembered as the decade when the economy grew faster than it had in the 1970s, and is where that memory can be tested.

The 1970s brought power cuts, strikes, prices rising over 20 per cent a year, and a government loan from the in 1976. Growth is averaged over each decade, so the two decades can be compared directly.

The 1970s average was 2.7 per cent a year, and the 1980s average can be set against it.

economic growth: The increase in what a country produces from one year to the next. It is what makes average incomes rise over time, and it is the thing a recession interrupts.
International Monetary Fund: A body funded by its member governments that lends to countries which cannot borrow enough elsewhere.

Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.

The 1970s averaged 2.7 per cent growth a year. Was the 1980s average higher or lower?

A tie counts as correct either way.

For scaleThe shape inside the average: the economy shrank 2.0 per cent in 1980, then grew 5.5 per cent in 1987.

Step 2 · exhibit one, for

The factories worked faster

The strongest number for the argument that the policies worked is , and in the factories it surged.

Factory output per hour rose nearly 8.5 per cent during 1981. The jump came in the middle of a deep , while factories were closing across the country.

Economists still argue over what the 1981 jump was. The economist Nicholas Crafts reads it as real change inside the surviving factories. The Resolution Foundation reads part of it as the effect of the closures.

Factories that make more for every hour worked need fewer hours, so the same years can show output rising and jobs going.

productivity: How much is produced for each hour worked. It is what allows pay to rise over time without prices rising to match, which is why economists watch it more closely than almost anything else.
recession: A period in which the economy shrinks rather than grows, usually counted as two or more three-month periods of falling output in a row. Firms sell less, so they employ fewer people, so households spend less again.

When the weakest factories close, what happens to the average output per hour of the factories that remain?

For scaleAcross the whole economy, output per hour rose about 27 per cent between 1979 and 1990 on the official measure.

Step 3 · exhibit two, for

The gap stopped growing

Britain's oldest economic complaint was the gap with France and Germany: for decades they had produced more for each hour worked, and the gap had grown.

The gap is measured in for each hour worked, with Britain set at 100. In 1979 France stood at 112 and Germany at 157: a French hour of work produced 12 per cent more than a British one.

Economists have run the same comparison again for the decades since 1979.

output: How much an economy actually produces, in goods and in services. It is the thing growth measures the change in, and the thing a recession is a fall in.

What happened to the gap with France and Germany after 1979?

For scaleThe narrowing took decades: France was still ahead in 2007, but by 9 per cent instead of 12.

Step 4 of 6

What happened next Next module Next: Disinflation in Britain and France1979 to 1990. Inflation fell across the rich world in these years. France tried the opposite policy and reversed it. What was actually Britain's to claim.

Module 12 of 13 in Thatcher's Economic Policy