The passing of Baroness Thatcher reminds us that the UK was in a terrible state in the 1970s and how far it had fallen from the peak of its powers hundred years before. What made Britain the global superpower in the 19th century was its entrepreneurial, market based values that embraced technology and innovation.
Unless technology and efficiency is embraced by competitiveness, an economy becomes stuck in a Malthus styled decreasing-returns-to-scale model. Thatcher broke this unproductive model by driving through much needed supply side structural reforms and investment in technology which generate higher productivity and increasing returns to scale; more being produced by fewer people, freeing up others to do more productive jobs.
Breaking the unions created massive social division and perhaps Thatcher’s mistake which has plagued the Conservative Party ever since, is that the regeneration of docklands and Canary Wharf which has proved so important in London wasn’t repeated around the country in the former industrial towns and cities. This, perhaps, is one area that the present Tory party can aim to set free the wealth building powers of the market in the poorer regions of the country by introducing economic zones to incubate businesses and research in high tech industries.
From 1980 to 2013, the UK grew more quickly than its major trading partners, as Figure 1 shows, on a per capita basis, even outpacing the US. However, the UK started from a much lower level of real GDP per capita (Figure 2).
Figure 1 Source: Oxford Economics