The legacy of Margaret Thatcher will be debated for generations to come. Her ground breaking term as Prime Minister (as the first female to fill the role as well as the longest term in history) will likely be remembered for the major overhaul of economic policy that Thatcher spearheaded.
When Thatcher took office in 1979 Britain, like much of the western world, was experiencing extremely tough economic challenges. High unemployment and stagnant economic growth threatened to take down the once proud Empire. Instead, Thatcher and her administration stepped in and made wide-spread changes to address the problems.
Big Government is Bad
Even worse than in the USA, Britain had an enormous and cumbersome federal government. The bureaucracy was immense, with many bloated programs and redundant positions supporting the socialist idealism of the country. Thatcher led the way in slashing programs and eliminating departments in an attempt to streamline government into a more efficient entity with little to no waste.
Many of those eliminated programs and departments were replaced by privatization. Thatcher sold off state-owned factories and companies making them into for-profit enterprises. Private ownership discouraged waste and encouraged economic growth. Coupled with this was reform of and elimination of many regulations and regulating agencies that limited expansion and innovation.
Balance the Budget
As the recent credit crunch has proved around the world, governments can’t spend more money than they bring in without amassing huge amounts of debt that they can never hope to repay. In the 1980s, Margaret Thatcher slashed spending in government assistance programs, cutting off many from extended unemployment and other benefits. She also reduced subsidies to various industries, forcing them to stand on their own. Combined with the reduction in the size of government, these spending cuts allowed Britain to move towards a balanced budget.
Economic Recovery is Painful
With World War II still fresh in their memories, many British citizens understood that recovery would be painful and austerity would have to be the norm for a while. In the immediate aftermath of new policies, unemployment skyrocketed and wages fell. Trade unions lost the power to bargain in many industries which hurt their members, but the disruptive strikes in those industries ended. In time, unemployment recovered, wages rebounded, and the economy was stimulated into an era of growth and expansion.
Some argue that the Thatcher-Reagan era of supply-side economic changes are at the root of the current economic crisis and that the income disparity that separates the 1% from the rest is a direct result of tax changes made at that time. However, there have been 30 years of administrations, new policies, and reversals and reforms of those initial changes. It may take another 30 years or more until the true impact of 1980s economic policies are understood.