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Britain's Self-Inflicted Woes
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# : |
17553 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
7 / 1990 |
1,162 Words |
| Author
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Alan Reynolds
Alan Reynolds is director of economic research at the Hudson
Institute, Indianapolis, Indiana. |
Margaret Thatcher is currently facing the worst crisis of her career. Most of the problem arises from the government handling of economic issues such as inflation and the new poll tax. This is somewhat unfair or, at least, lacking in perspective, because, in fact, Britain has been enjoying its longest and strongest economic expansion in the postwar era. Before Thatcher, the anemic British economy was the object of international ridicule, with the phrase "British disease" symbolizing a society that was unduly generous about rewarding indolence and harshly punitive toward economic achievement.
But the British economy began to show surprising vigor after the nation's highest tax rates were slashed from 83 percent to 40 percent between 1984 and 1987 and many subsidized state-owned enterprises were returned to the discipline of private competition. In the past six years, economic growth averaged 3.4 percent per year in the United Kingdom. That is almost twice as fast as the pace of British economic growth from 1971 to 1983, a full percentage point faster than in West Germany, and not far behind the equally unappreciated 4 percent growth rate of the U.S. economy.
Economic growth did not produce Britain's current inflation - the country had higher inflation before Thatcher, with very little growth. Unless the inflation is properly understood and dealt with, it threatens to undermine the very impressive achievements that Britain has made in tax reform, deregulation, and privatization.
A 10 percent inflation rate is what pushed Thatcher into office in 1979. With inflation back up to nearly 8 percent today, the same problem may be what
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