Mrs Thatcher has been in the news lately, because of the Meryl Streep movie. I’m looking forward to seeing it. She is polarising opinion once again, just like the 1980’s.
As did most twenty somethings at the time, I used to loathe Maggie. The way she seemed to be completely indifferent to condemning people to unemployment I found repellent then, and still does now.
Yet now I am older, I can see things are rarely so simple, and there were things to admire about Maggie. As a woman leader, she did a lot for female emancipation. And here are three other ways I admire her.
First, she challenged the establishment. Just like now, there was a consensus at the time, with the civil service running the show and little difference between the political parties. She refused to accept that, and challenged the orthodoxy of the day. Many of her solutions were poor, but she had the guts to rattle things about. We do not have enough courageous politicians, which is why people become apathetic about politics and sometimes look to extremes. Ed Miliband could take note. So could almost all leaders of the EU.
Second, she made clear decisions. I remember the week of the Falklands crisis in 1982, it was the week of my job interviews at Shell and other things in my personal life, and it all played out against this dramatic backdrop of the nation going to war. Maggie may have mismanaged the lead up to the crisis, but once Argentina invaded, there were only two choices. These were to accept the new situation, or fight without compromise. Maggie chose to fight, and did not flinch in the weeks that followed. Most politicians and advisors would have tried to triangulate, to compromise, keep options open, fudge things between the two choices. They would have failed. There are times when a firm choice is the only way. I’m not saying I defend the UK occupation of the islands, which seems to me like a historical anomaly. But I admire that choice.
Similarly, she showed the same decisiveness when taking on the miners. Again, most politicians would have wavered. She saw it through for better or worse.
My last admiration is of something she said when she first came to power, and which was widely scorned. She compared the UK economy to a grocery shop, saying that over time expenditure had to match income. Simple, homely economics, and at the time everyone thought she was naïve, including me. But perhaps instead she was brilliant.
We are in the middle of a global economic crisis. There are many excuses, explanations, accusations and solutions banded about, but possibly at its heart it comes down to Maggie’s grocery and to debt.
Debt can be marvellous, actually one of the most important engines to progress. It is a sort of multiplier, something which can speed things up, a sort of double or quits option which gives benefits when plans are good. Nearly all of us use debt, most notably when we take out a mortgage. We are taking a reasonable gamble with our future, believing that the asset value and our future earnings will enable us to achieve a triple benefit – to enjoy progress quicker in the form of a nicer place to live, to be able to eventually clear the debt, and potentially also to secure profit from the appreciating asset. Companies do the same thing all the time. It is the engine of a sound economy.
But the key word is reasonable. As an individual or a household, we have to assess the odds on our gamble. Will our income really rise? Will we able to afford the interest even in bad times? In short, do we have a credible plan to repay our debt, a plan which takes account likely negative contingencies?
If an individual or family overstretches, it ends up in the hell of negative equity and shot credit ratings, from whence there seems no escape, only loan sharks feeding off your carcass. If a firm overstretches, the shareholders eventually notice and lose confidence and bankruptcy beckons.
We can blame the banks. I love blaming banks. They are so greedy and stupid. It is shameless to lure less numerate people into the hell of debt, yet that seems to be their business model. I blogged before about the American bank that refused most Shell customers a credit card because their credit risk was not high enough. Evil. But still as individuals and families we get greedy and foolish too, and have to take our share of fault. For companies there is even less excuse.
But what about countries? The same basic logic applies. Use debt, but only for a value creating reason and with a credible plan to pay it back.
A credible plan comes in many forms. Maybe there is a demographic dividend coming to the nation, with a higher share of working age people expected. Maybe there are smart reforms, in education, or infrastructure, or employment law in the pipeline. Maybe there are natural resources to exploit. Or a competitiveness agenda.
Now look at the USA and Europe. No credible plan is in place. In fact, most trends make things worse. Yet the French have not run a balanced budget for seventeen years. The Italians let debt mount while competitiveness is only worsened by Zimbabwe and Haiti. The Americans have political gridlock. Nearly all these nations, except Germany, run a trade deficit year after year after year. No one really invests in education or infrastructure, only increasingly in pensions. It was pensions that killed Detroit and other corporate giants – it will slowly strangle our rich countries too.
The crisis should have been no surprise. We can, and should, blame the banks, but not only the banks. The whole system has got too far out of balance, with no credible plan to rebalance it.
Indeed, current plans make it worse. Austerity might balance the budget within a country for a while, but it will only make competitiveness weaker. Within the euro, devaluation is off the table.
What can be done? Well, we could reverse logic and look at countries running a habitual surplus. Trade, unlike personal debt, is a zero sum game. The post-war consensus (with largely fixed exchange rates, note) only started breaking down when Japan and then the Arab starts started building up structural surpluses, condemning the rest to structural deficits. Now the same thing is happening with China. At least the Chinese are ploughing their surpluses back in, though the West are fighting it, and even with that move the music has to stop sometime. It may seem a paradox, but structural surpluses in the end condemn us to instability.
Revaluation can help, and the Chinese would do well to let that happen. If this were individuals or companies, taxation policy would provide an equaliser – maybe surplus countries should pay some sort of levy to the IMF? Currently, countries are not even subject to any competition law – OPEC would never be permitted if the players were companies not states. In the end, this is one more argument against countries – if we were able to take a global approach, transfers and taxes could balance things out.
But, today, the only thing on the table is austerity. That will not work. By a strange irony, austerity was Maggie’s remedy too. She understood about the peril of debt with no plan, from her grocery analogy. She escaped, but that was less to do with austerity and more to do with the windfall of North Sea oil. Even so, some Maggie style challenging of the flawed establishment would be valuable today around the corridors of the G20.
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