When people talk about the economic legacy of Margaret Thatcher, there seem to be two schools of thought. Some see her as the UK’s saviour, others point to North Sea oil and say she was lucky. They say she only managed what she did thanks to the vast stream of revenue flowing in from our right hand side, from that cold sea. They then go a step further and say we wasted the money.
Now PricewaterhouseCoopers has joined the debate. According to John Hawksworth, PWC’s chief economist, if, instead of blowing the money from the North Sea we had saved it, then right now the UK would be sitting on a sovereign wealth fund worth £450bn, bigger than the funds in Russia, Kuwait and Qatar combined.
The Guardian reported Mr Hawksworth as saying, “Since oil revenues were greatest in the first half of the 1980s, this was also when this potential effect was greatest. In practice, had the oil revenues not been there, it seems most likely that some combination of higher taxes and lower current spending would have taken the strain, although we can never know for sure.”
Apparently, in Norway much of the money was put away, and today the country is sitting on an impressive sovereign wealth fund. Mr Hawksworth added, “Without such a fund, it is hard to dispel the suspicion that, in 30 or 40 years time, many of us may be sitting around looking enviously at the Norwegians and others and wondering: where did our oil money go?”
There is no doubt we are not saving enough. The economic boom of recent years has been funded in part at least by consumer and government borrowing.
But equally, we have to ask the question: what would have happened to the UK without Thatcher’s reforms?
It is a contentious point, and for every person who believes Mrs T transformed Britain for the better, there is someone else who talks about the enormous hardship she brought.
But, it seems to us that before her time, the UK was in a sorry state indeed. Decades of Keynesian economics had created an attitude that jobs were all that mattered – regardless of whether those jobs were productive.
Mrs T heralded what the Austrian economist Joseph Schumpeter once called “gales of creative destruction,” as the UK re-defined itself as a dynamic economy, where the entrepreneur was suddenly given an opportunity that had previously not existed.
Making profits ceased to be a bad thing to do, and ironically, in the longer-term, by putting less emphasis on protecting jobs, Mrs T created employment.
And while we can criticise her for squandering billions when we should have been setting money aside for a rainy day, don’t forget that the pension industry was enjoying massive surpluses a few years ago.
And remember, her arch critics at the time were not saying Mrs T should have saved North Sea’s revenue – instead they wanted her to use it to protect inefficient industries. Surely that would have extracted an even-bigger toll on the longer-term strength of the economy.
It was in a post-Thatcher world where the UK economy boomed, but we suffered from a live-for-today and hang-the-future frenzy, which would still be in full swing if it wasn’t for the credit crunch.
There is another lesson from North Sea oil, however. North Sea oil did have the effect of pushing the currency possibly too high – making it harder for manufacturing to compete.
It was similar in Holland, which has led economists to christen the problem the Dutch disease.
Looking forward, the UK faces a similar challenge, this time with the City of London.
If the City can continue to maintain its position as arguably the world’s premier financial centre, then, as the global economy expands, the wealth this will bring will be even greater.
This in turn will mean the money made in the City will dwarf the amounts made elsewhere in the UK. It could force the pound up again, and make the UK’s other industries uncompetitive.
If we are to learn any lessons from North Sea oil, then that is the lesson we should learn, and then apply moving forward.
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