It is more than a decade since Ronald Reagan passed away in 2004, and nearly two years since the death of Margaret Thatcher in 2013. Both were towering figures who transformed their countries and the world for the better. The Iron Lady and the Gipper were united in a firm belief that decline was not inevitable, and that economic freedom and individual liberty were the driving forces of prosperity. They were ideological soul mates who shared a common vision for the West, and a faith in the power of markets over the heavy hand of big government. Reagan and Thatcher were also outsiders, genuine grassroots politicians who were treated with mistrust by the ruling political elites of the Republican and Conservative Parties.
The Thatcher-Reagan revolution of the 1980s demonstrated that taxes can be cut, government spending reined in, and the frontiers of the welfare state rolled back, while strengthening national defence and projecting power and strength on the world stage. They showed it was possible to reduce the size of the state and challenge the devastating culture of dependency that had ballooned in the 1960s and 1970s. Thatcher and Reagan restored faith in capitalism at a time when it was being challenged all over the globe.
It is hard to imagine today that just a generation ago Britain was mocked as ‘the sick man of Europe,’ a basket case practically on its death bed after years of Socialist misrule. A great nation that had once held sway over a quarter of the globe was forced to go cap in hand to the IMF for a loan. Britain’s reputation was so humiliating that it was officially classified by the European Council in 1979 as “a less prosperous” country, the equivalent of modern-day Greece. Britain’s GDP per capita ranked 7th out of the nine members of the European Economic Community. Output per head was 50 percent lower in Britain than it was in Germany and France.
The economic turnaround under Margaret Thatcher from 1979 to 1990 was simply stunning, with Britain enjoying its longest period of sustained economic growth since the Second World War. In her first four years in office, 10,000 small businesses were created, and 750,000 new jobs added between 1983 and 1991. Government bureaucracy was dramatically reduced, with the civil service cut by more than a fifth. As Thatcher put it in an interview with Newsweek soon after leaving office, “I set out to destroy socialism because I felt it was at odds with the character of the people. We were the first country in the world to roll back the frontiers of socialism, then roll forward the frontiers of freedom.”
Britain’s rate of growth had already outpaced that of her European competitors by the mid-1980s, and had risen faster than that of Japan, the economic powerhouse of the Far East. Inflation fell from more than 20 percent in the late 1970s to just four percent by 1983. Millions of new shareholders were created in a wave of privatization, the biggest and most ambitious of its kind in the history of the world, resulting in a huge transfer of employees from the public to the private sector – equivalent to the population of a medium-size country in Europe. Between 1979 and 1988, no less than eighteen state-run enterprises were handed back to the British people.
Thatcher also succeeded in reining in government spending, resulting in a budget surplus in the final four years of her time in office. The fact that the City of London today is the world’s largest financial center is no coincidence. The financial reforms introduced by the Thatcher government freed the City from the tentacles of big government, and allowed the Square Mile once again to shine as a beacon of capitalism.
The influence of the Thatcher reforms on the policies of the Reagan Administration was enormous. As former Speaker of the House of Representatives Newt Gingrich noted, “Margaret Thatcher was the forerunner who made Reagan possible.” Without Thatcher there may never have been a Reagan revolution. Under Reagan the economic turnaround was a dramatic reversal of the malaise of the Carter years, with the creation of 20 million jobs, a steep drop in inflation, reduced unemployment, and a significant rise in net worth for American families. The Reagan tax cuts succeeded in raising living standards and boosting economic productivity, while allowing for cuts in federal spending by the late 1980s.
Why do the Reagan and Thatcher achievements matter today? Because the challenges both leaders faced in the 1970s and 1980s are not hugely different than those that exist in 2015. America’s position as the world’s superpower is increasingly being called into question, saddled by massive public debts (now greater than $17 trillion), the largest budget deficits since World War Two, and the rise of a bloated and rapidly expanding entitlements system. More than two in five Americans now live on government programs (more than 128 million people in 2011), and nearly 47 million people subsidized by food stamps. Everywhere there is talk of American decline and fears of a growing isolationism on the world stage. As it was in the 1970s, American leadership is now on the wane.
Across the Atlantic, the Conservative-led government has been far more aggressive in addressing the debt problem, and implementing welfare reforms. But government spending remains at near historic highs, the tax burden weighs heavily on British business, and the dependency culture remains largely intact. And on Britain’s doorstep, the spectre of massive public debts, heavy unemployment, and huge unfunded pension liabilities looms large, from France and Italy to Spain and Greece.
The United States, Great Britain, and Europe, could all do with a good dose of Thatcher-Reagan style reform. Simply put, the West needs greater economic freedom, the engine of prosperity. Lower taxes, smaller government, a shrinking welfare state, entitlement reform, free trade, and greatly reduced government regulation are all antidotes to economic decay, and Margaret Thatcher and Ronald Reagan showed they could succeed. Thatcherism and Reaganism demonstrated that capitalism and free markets work. In the words of the Iron Lady, “individuals have a right to liberty that no state can take away… government is the servant of the people not its master.”
