Downing Street Years - Margaret Thatcher [420]
The fact that the return of inflation and then recession obscured the benefits of the tax changes Nigel Lawson’s budgets made does not mean that those benefits had evaporated. Inflation distorts; but, once tamed again, it turns out not to have destroyed the improvements in economic performance which lower and simpler taxes bring. Only one thing can undermine these supply side benefits: that is letting public expenditure get out of control, which puts up borrowing and which eventually requires tax increases that destroy incentives. When I left office both public spending and borrowing were under tight control. Indeed, we were still budgeting for a surplus. And during my period of office public spending fell as a share of GDP from 44 per cent in 1979–80 to 40.5 per cent in 1990–91. It has since risen to 45.5 per cent of GDP (1993–4) and public sector borrowing to around £50 billion, some 8 per cent of GDP. These figures bring strange echoes of the past. In politics there are no final victories.
PRIVATIZATION
Privatization, no less than the tax structure, was fundamental to improving Britain’s economic performance. But for me it was also far more than that: it was one of the central means of reversing the corrosive and corrupting effects of socialism. Ownership by the state is just that — ownership by an impersonal legal entity: it amounts to control by politicians and civil servants; and it is a misnomer to describe nationalization, as the Labour Party did, as ‘public ownership’. But through privatization — particularly the kind of privatization which leads to the widest possible share ownership by members of the public — the state’s power is reduced and the power of the people enhanced. Just as nationalization was at the heart of the collectivist programme by which Labour Governments sought to remodel British society, so privatization is at the centre of any programme of reclaiming territory for freedom. Whatever arguments there may — and should — be about means of sale, the competitive structures or the regulatory frameworks adopted in different cases, this fundamental purpose of privatization must not be overlooked. That consideration was of practical relevance. For it meant that in some cases if it was a choice between having the ideal circumstances for privatization, which might take years to achieve, and going for a sale within a particular politically determined timescale, the second was the preferable option.
But, of course, the narrower economic arguments for privatization were also overwhelming. The state should not be in business. State ownership effectively removes — or at least radically reduces — the threat of bankruptcy which is a discipline on privately owned firms. Investment in state-owned industries is regarded as just another call on the Exchequer, competing for money with schools or roads. As a result, decisions about investment are made according to criteria quite different from those which would apply to a business in the private sector. Nor, in spite of valiant attempts to do so (not least under Conservative governments) can one find an even moderately satisfactory framework for making decisions about the future of state-owned industries. Targets can be set; warnings given; performance monitored; new chairmen appointed. These things help. But state-owned businesses can never function as proper businesses. The very fact that the state is ultimately accountable for them to Parliament rather than management to the shareholders means that they cannot be. The spur is just not there.
Privatization itself does not solve every problem; though, as I shall show, it certainly exposed hidden problems which could thus be tackled. Monopolies or quasi-monopolies which are transferred to the private sector need careful regulation to ensure against abuses of market power, whether at the expense of competitors (if there are such) or of customers. But on regulatory grounds there are