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Introduction
In this article I provide an outline of Margaret Thatcher's economic legacy. I first met her in opposition to discuss future Conservative economic policy together with Sir Keith Joseph and her main economic allies Sir Geoffrey Howe and Nigel Lawson. As she wanted to test her ideas against a wide range of opinion and not simply rely on her civil servants, she liked to have outside advisers, mostly academics like me; and so I was fortunate to be able to help her with advice on and off during the rest of her political life, both at No. 10 and after. Margaret Thatcher had an impact on many areas of British life; she was a social revolutionary, a cultural icon, Falklands and cold war warrior and much else. But for reasons of space and my own competence I focus here solely on her impact on the UK economy.
The British Economy in the 1970s and the New Economic Thinking
In the 1970s Britain's economy was in serious trouble. Growth slowed because of industrial inefficiency, due to outdated technology and over-manning. Unemployment was rising as these same industries lost market share at home and abroad. To generate more growth and employment first the Heath and then the Labour governments resorted to fiscal and monetary stimulus, which only produced high inflation; this even reached 25 per cent in 1975 and was pushing up again towards 20 per cent at the end of the decade.
As a member of the Heath government Mrs Thatcher watched in helpless frustration as the policies failed. She and Sir Keith Joseph decided in opposition to fight for new ones. But as Prime Minister she faced overwhelming odds against the success of what in the end turned out to be the greatest economic reform programme of British history.
It is hard now to recreate the thinking of that time among those who shaped British economic policy. To them policy consisted of using stimulative demand policies to obtain growth while deploying wage and price controls to contain inflation. It never occurred to them that what the economy produces is because of what resources it has and how well it uses them, namely the 'supply side' forces we now all accept are the key factors;...