Thirty years ago this week, Margaret Thatcher led her Conservative Party to victory and set the scene for a wave of privatisation and deregulation across the Anglosphere. From the Keynesian mindset that delivered economic stagflation and turmoil in the 1970s, the U.K. as well as the U.S. and the Antipodes moved to an era of sounder policy and more durable prosperity. Today, as the cause for small government and free markets appears quixotic, it is easy to forget how depressing things looked three decades ago and how the economic reforms unleashed by the Thatcher Revolution led to a golden age.
In 1979, inflation, unemployment and recession were endemic. The Soviets had invaded Afghanistan, Islamist fundamentalists had overthrown the Shah in Iran, oil prices had more than doubled, and the West appeared in retreat almost everywhere. Britain was regarded as the sick man of Europe (think Arthur Scargill's union militancy), the U.S. was suffering a crisis of confidence (think Jimmy Carter's "national malaise" sermon), and Australia and New Zealand were overregulated and overprotected nations, weighed down by chronic inflation (think banana republic).
But things started to change -- even before the Iron Lady's historic election. In 1976, she met a former California governor for what was scheduled as a routine 20-minute session between two right-of-center politicians from opposite sides of the Atlantic. The conversation between Lady Thatcher and Reagan instead lasted more than two hours and, as the Gipper later put it, they immediately identified each other as "soul mates" in promoting the cause of small government and economic freedom.
Although John Howard, Australia's conservative treasurer from 1977 to 1983 and later prime minister from 1996 to 2007, never met Reagan, he has confided with Mrs. Thatcher on numerous occasions since 1976. A leading proponent of free market reforms down under, Mr. Howard played a key role in transforming Australia from a heavily protected closed shop three decades ago into the envy of the industrialised world that could very well be immune to the global recession (as yesterday's new low jobless rate of 5% shows). Through a combination of circumstance, conviction and competence, these three patron saints of the conservative cause put into practice the classical liberal ideals of Milton Friedman, Friedrich Hayek and Keith Joseph that defined an epoch.
Whereas in the 1970s excessive government regulation and bloated bureaucracies created a crisis of stagflation, the next 30 years witnessed, save a few quarters of negative growth in the early 1990s, uninterrupted economic expansion. True, there were some policy reversals and setbacks; even the Iron Lady had no stomach to reform the socialistic National Health System. But by almost any economic criteria, this free-market agenda of privatisation, deregulation, tax cuts, fiscal prudence and flexible labor relations -- or, as what Mr. Howard's successor Kevin Rudd derisively calls "neo-liberalism" -- has dramatically raised living standards in the Anglosphere and elsewhere. "Individuals" London's Tory Mayor Boris Johnson put it this week, "were able to take control of their destiny in a new way."
Mrs. Thatcher, Reagan and Mr. Howard reshaped not only their own erstwhile paternalistic parties but the opposition center-left as well. Tony Blair's New Labour, remember, was the offspring of Thatcherism.
But has the age of Thatcher, Reagan and Howard been consigned to the dustbin of history? With today's global financial turmoil, U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and Mr. Rudd champion the politics of envy and the discredited economics of the Keynesian welfare state and demand management.
Today's Anglosphere leaders, with the notable exception of New Zealand's John Key, are interpreting this crisis as a mandate for a renewed activist state. And if that means runaway debts and deficits, so be it. After all, as John Maynard Keynes put it, in the long run we're all dead. The specter of big government has returned to haunt the Anglosphere. Never mind that today's economic ills have more to do with muddled government intervention and poor regulatory oversight of the financial sector than any unfettered global market forces.
The big spending, let-government-solve-it agenda is thus far playing big political dividends, at least in Australia and the U.S., with both Messrs. Rudd and Obama in the polling stratosphere. Still, they could do no worse than heed Mr. Howard's recent message:
"The notion, gaining traction because of the world's financial turmoil, that in some way markets need extensive re-regulation is based on a false reading of what has happened to the world economy in the past year and also ignores the reasons for the remarkable growth of the middle class in the Asia Pacific region and the consequent reduction in levels of poverty, which have occurred during the past 30 years." The Gipper and the Iron Lady would say Amen to that.
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