Boris Johnson learns the wrong lessons from Mrs Thatcher

Fiscal responsibility. Public debt warnings. Supply side reform. Attacks on union power. promises of tax cuts. A recovery plan for the Right to Purchase for tenants of housing associations. In Boris Johnson‘s big stimulus speech last week, there was no doubting his attempt to uplift the spirit of Margaret Thatcher.

For the man who called himself ‘a Brexity Hezza’, and who bragged about ending austerity, it was a surprise to hear Johnson say that ‘sometimes the best way for the government to help is just to get out of the way”, and to refute the suggestion that “the answer to every problem is more government spending”.

Yet that inconsistency — quite glaring — wasn’t the biggest problem with Johnson’s argument in his speech. We are, after all, used to confused dissonance with this government. It raises taxes while talking about lowering them. It abandoned its industrial strategy while promising to intervene. It boasts of immigration control, while issuing a record number of visas. He says his priority is to help lower the cost of living, but his energy policies mean higher bills.

Nor was the problem the inadequacy of the solutions proposed by Johnson. It was bizarre to choose to make a speech focused on housing policy, when it is clear that the housing policies he announced will not solve the housing shortage. Changing staff-to-child ratios in nurseries and ending outdated work practices on the railways make sense enough, but neither will do much for families struggling with a galloping inflation.

No, the most shocking thing about the speech, and the very deliberate invocation of Mrs Thatcher, was the failure to truly understand the lessons of her success.

It is now common to compare the challenges we face today with those of the 1970s, and there is indeed more than a passing resemblance to that dark era. We are facing inflation, even stagflation. We are faced with the threat of strike action and union militancy. We are faced with the consequences of international economic shocks that more than correspond to the oil crisis of 1973: a global pandemic and the war in Ukraine.

But there are also differences with the 1970s. Then the unions defeated the Heath government. The country had gone through the three-day week. The Callaghan government had to turn to the International Monetary Fund for a bailout. The top income tax rate was 83% and the top tax rate on investment income was 98%. The labor market was a mess, nationalized industries were struggling, and industry was not internationally competitive.

Mrs Thatcher did not shatter the post-war consensus by the force of her personality, her political force or her memorable speeches and phrases. She had a serious plan. She followed the ideas of intellectuals like Hayek and Friedman. She had allies around her, like Keith Joseph and Geoffrey Howe in Parliament, and John Hoskyns on her team. She had a political soul mate across the Atlantic in Ronald Reagan. She had a clear diagnosis of what was wrong and a prescription to fix it.

Although his plan had a clear intellectual foundation, it was, especially at first, tempered by pragmatism and practicality. In 1981 his government levied a windfall tax on bankers and in 1982 imposed a special tax on the profits of oil and gas companies in the North Sea. The incentives offered to Nissan to build its factory in Sunderland and the development company that created Canary Wharf were examples of how it was willing to use the state strategically to attract investment.

The challenges we face today are, despite some similarities, still different from those of the 1970s. Indeed, some of our difficulties are the result of decisions made during the Thatcher years: most notably, the sharp drop in production manufacturing and national during the 1980s.

While Britain has done well over the past decade to reduce unemployment, in real terms British workers are earning no more than before the financial crash. Personal debt has continued to grow and now represents 133% of household income. We are addicted to ultra-loose monetary policy, with incredibly low interest rates and quantitative easing driving up asset prices.

We have too many low-skilled, low-paying jobs. We have too many people too poor to consume without credit. And we make and do too little of what the world wants and needs to buy. We run huge trade deficits every year, leading to perverse outcomes in politics as governments are forced to do whatever they can to attract foreign capital to protect the currency. At the height of globalization, we were able to survive thanks to our high-value but limited service exports and the cheap price of imports. Now that globalization is receding and commodity prices are high, we risk finding ourselves horribly exposed.

As Phil Tinline details in his excellent new book, The death of consensus, we are at a turning point. The mainstream political parties seem blissfully unaware, but our entire economic model – which has been largely the subject of consensus between successive governments over the past 40 years or more – is coming under pressure as its limits and failures become more apparent. Unaffordable housing, low productivity, insufficient investment, huge geographic inequalities, low skills, low wages and social disaffection are all consequences of failure. The changes in the global economy that we are experiencing will only make things more pronounced.

So if the Conservatives want to emulate Margaret Thatcher, they are right to do so. They should not copy his policies, because the challenges of today are different from those of 40 years ago. Nor should they be tempted to live by the ideological folk memories of his premiership. But in tumultuous times, when consensus must give way to a new vision of the future, they can learn from its success: a clear and intellectually coherent understanding of where we are wrong, a vision of a different and more dynamic economy, and a plan and a team to deliver it.

It may be too much to expect from Boris Johnson, but that is the task for each of the candidates vying to replace him.

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Edward L. Robinett