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Depending on who you ask, Margaret Thatcher was either Britain's most unfortunate development since the Norman Conquests or its greatest 20th century leader, not named Churchill. Mitterrand said that she had the mouth of Marilyn Monroe and the eyes of Caligula. And certainly if you met her, those two features were extremely striking. What Mitterrand was really describing was Thatcher's signature combination of personal charm and ruthless political instinct.
The lady's not for turning. Between 1979 and 1990 - she remade a Britain battered by strikes, inflation, high interest rates, and weak growth. By demolishing unions, privatizing institutions, and giving the City of London free reign to exchange industrial soot for stock options. And by and large, most of what she did is still with us. Fast-forward 35 years and the challenges are different. A surge in UK borrowing costs has halved Labor's fiscal headroom. It's the bond market that has now taken over as the anchor, the great limitation.
We're living today in a world where growth is much weaker and the demands on the state are growing. Most of the public would probably agree they want better public services, but they're not necessarily prepared to fund them. Prime Minister Andy Burnham now argues that Britain must break with four decades of free-market orthodoxy. The repeal of Margaret Thatcher's ideological ban on public ownership of water companies. But what would such a break with the past even look like? And can the country actually afford to try it?
To understand how four decades of Thatcherism could end, you need to understand why it began in the first place. The general perception before Thatcher came to power was that Britain was a bit of a basket case. Britain really had gone into decline, had deteriorated, had become a bit of a laughing stock, particularly when we had to go to the IMF to get a bailout. This was a British economy with high inflation, with very powerful trade unions. The number of working days lost to industrial disputes in 1979 was almost 30 million, the highest since the general strike of 1926.
We'd had succession of governments. It seemed like no one could manage the situation in Britain at the time. There was a sort of sense that Britain had become ungovernable in the 1970s. Sounds familiar. Before he became prime minister, Andy Burnham talked about Britain being too in hoc to the bond markets. Thatcher meanwhile believed Britain was in hock to the unions, amongst other things.
I'm not declaring war on the unions or their leaders, but I am challenging their illusion that government can be a universal provider. So, once inside Downing Street, she spent 11 years executing an economic overhaul that polarized the nation. Thatcher was hated to some degree after she came to power. You'll never starve us into submission. The establishment couldn't believe what she was doing. Unemployment rocketed to about 11%. Three million people were out of work. The actions that she were taking were making a lot of people across the country very angry.
Her radical blueprint was branded Thatcherism, an assault on traditional British economics on several fronts. The first was monetarism, which was the idea that you could control inflation by bringing down the money supply. She reduced the top rate of taxes. She increased the power of central government. She emasculated local government, local decision making. As a rough generalization, it's probably true to say that those in the Southeast did better than many other parts of the UK where there was rapid de-industrialization. The Northern manufacturing belt collapsed, regular main street businesses collapsed and the economy shifted massively in favor of the city and finance.
Fat cats got fatter, they made more money, companies ran themselves as global operations. And central to Thatcher's vision was the large-scale privatization of Britain's public sector, which when she took office was extensive. Nationalized industries accounted for up to 10% of the British economy and employed almost two million people. The public sector employed 7.9 million people. The privatization of the utilities was essentially a privatization of monopolies. BT, British gas famously, the electricity networks. And the pitch was simple, turn everyday citizens into micro-capitalists so a new generation could inherit a neat
portfolio of shares one day. When British gas was privatized, there was a big advertising campaign to get people to buy stakes. British gas shares. They come out in November. If you see Sid, tell him. Privatization did work for a while. It raised a lot of money for the treasury and it did seem also to inject private sector money into what were really quite run down public services. The companies that she privatized are by and large still private companies. Trade unions have never regained the powers they had. But over time, the public has ended up facing higher bills, so higher prices, and the investment certainly has not been
keeping up with what's required. They see that private sector managers in the utilities making lots of money. We've seen an enormous backlash against privatized water industries, whereas the sewage has been spilling into rivers and into the seas. Today, the UK also faces severe fiscal headwinds. The cost of long-term UK government borrowing had been falling. Now it's risen to the highest level since 1998. This shows up clearly when compared to other major economies. These are 10-year yields for the US, France, Italy, and Germany.
They're all elevated, but it's only when you add the UK that you begin to see the increasingly costly premium investors are demanding to lend Britain what it needs, partly because it's already borrowed so much. UK national debt as a share of GDP when Margaret Thatcher took over in '79 was around 44%. Now national debt is between about 94 and 96%. And debt interest alone is costing roughly one and a half times the entire defense budget. Supporting the country through COVID is a big reason why this happened, and Britain ended up spending so much on interest every year. And the bottom line is, there are tens of billions of pounds a year being spent servicing debt rather than
paying for trains or transplants. If Thatcher had a fiscal runway, Burnham's got a helipad. Andy Burnham was the most committed anti-Thatcherite that we have seen coming to power. Water is a symbol of what has gone wrong with Britain. He has made himself really a household name because of his stewardship of Manchester, where he was mayor for nine years. During his tenure, the region's economy grew at twice the national rate. He sees politics about being outside of London and about being a more normal human presence. That's how he's built his brand.
His political strategy is rooted in local control of essential services, like Manchester's bus network, which he overhauled and took back into public control. Andy Burnham talked about a series of wrong turns that the country had taken. Political power was centralized, economic power privatized, the country de-industrialized, and austerity weakened local government. His argument is Britain will never be a country that's at peace with itself until we devolve more power. Particularly to Number 10 of the north, headquartered in his favorite city, Manchester.
I think he's in tune with a lot of global trends towards the state having more power, towards a re-industrialization of certain parts of the economy, and towards a more activist role of government. The changes he's made have been given a name 'Manchesterism'. What is Manchesterism? Manchesterism. Which is something that he wants to make relevant to the national stage. His diagnosis is that we need to devolve power to the local leaders who know what's best for their areas so they are able to take the decisions directly without having to defer to the judgment of Westminster at the center of government.
And if he pushes that localism agenda through, and that's quite a big if, that will be a very substantial change from Thatcherism. If you can get your second-tier cities almost to the same productivity level as the top tier, such as London, then automatically there should be faster growth, better outcomes, better living standards. He wants to invest in utilities. He talks about more public control of certain utilities such as water. Where these kind of services are delivered at cost and the profits and the savings are recycled back for the public in lower prices and in higher investment.
Exactly what public control means is important, but we'll get to that in just a minute. I feel like a pawn and a big game of chess. Uncover more at bloomberg.com/videos. Greater public control could involve tougher regulation, public stakes in private companies, or in some cases, outright public ownership. It might mean the government having golden shares or controlling the companies through share ownership. There's been potential nationalization of British steel, which is in trouble.
Burnham does seem to want to pursue a domestic industrial strategy, and he has talked about re-industrialization. But think back to Britain's debt level. There just isn't a big pot of money available to him. The scale of the cost is certainly very hard now to imagine any government being able to fund either by taxation, borrowing, or a combination of both. The biggest challenge for Burnham is how he meets his very optimistic, ambitious promises. Nationalizing the water industry and others, if that is the plan, would be extraordinarily expensive.
Even if it got hold of Thames Water, for example, for free, the government would then have to pony up billions of pounds for the necessary investment that is currently being provided by private sector investors. And for that, he may have to borrow money, and if the bond markets get a sense that he's borrowing money irresponsibly, they will charge him more for that borrowing. The nationalization of rail is very simple. It's free effectively because there is no infrastructure to buy. All that the rail operators have is a service contract. When those contracts expire, the government just simply takes over the running of the services.
And so Burnham has to show that he is also a person who can take tough decisions, and those tough decisions have to be bringing our debt levels under control, bringing our spending under control. It's much more likely that Andy Burnham's Britain is about greater control or regulation of some of Britain's utilities and industries such as steel. Alongside his vision for a remade Britain, increased devolution, social care reform, possibly greater taxation for the well-off, and perhaps even a rolling back of Brexit. Where private companies serve the public interest,
we will support them, but the consequences will be clear for those who do not, including taking back control or public ownership. If getting rid of Thatcherism is rolling back to the '70s, it's dead on arrival. If getting rid of Thatcherism is going forward towards a new vision of the state, which allows the state to be more active in some areas than it has been during the neo-liberal period, then that is potentially the basis of a good governing philosophy.
