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Britain's Self-Inflicted Woes
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17553 |
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Section : |
CURRENT ISSUES
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| Issue
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7 / 1990 |
1,162 Words |
| Author
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Alan Reynolds
Alan Reynolds is director of economic research at the Hudson
Institute, Indianapolis, Indiana. |
Margaret Thatcher is currently facing the worst crisis of her career. Most of the problem arises from the government handling of economic issues such as inflation and the new poll tax. This is somewhat unfair or, at least, lacking in perspective, because, in fact, Britain has been enjoying its longest and strongest economic expansion in the postwar era. Before Thatcher, the anemic British economy was the object of international ridicule, with the phrase "British disease" symbolizing a society that was unduly generous about rewarding indolence and harshly punitive toward economic achievement.
But the British economy began to show surprising vigor after the nation's highest tax rates were slashed from 83 percent to 40 percent between 1984 and 1987 and many subsidized state-owned enterprises were returned to the discipline of private competition. In the past six years, economic growth averaged 3.4 percent per year in the United Kingdom. That is almost twice as fast as the pace of British economic growth from 1971 to 1983, a full percentage point faster than in West Germany, and not far behind the equally unappreciated 4 percent growth rate of the U.S. economy.
Economic growth did not produce Britain's current inflation - the country had higher inflation before Thatcher, with very little growth. Unless the inflation is properly understood and dealt with, it threatens to undermine the very impressive achievements that Britain has made in tax reform, deregulation, and privatization.
A 10 percent inflation rate is what pushed Thatcher into office in 1979. With inflation back up to nearly 8 percent today, the same problem may be what eventually pulls her out of office as well. Thatcher's record low national approval rating of 25 percent is also blamed for many other seemingly unrelated issues: riots over the new poll tax, supposedly obsessive frugality regarding basic government expenditures, an unfashionable anxiety about national security, and a nationalistic inclination to keep Britain distant from the efforts to bring European economies into a common free trade and unified currency bloc by 1992. Despite the apparent diversity of these complaints, they actually share a common economic theme. Yet it is inflation that poses the greatest problem. Inflation is the excuse for keeping the budget in surplus, rather than spending more on schools and hospitals. Inflation is the reason that Britain would have trouble fitting into the currency and trade of the European Community. And inflation is connected to the poll tax in ways that are not commonly
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