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On Industrial Policy Political Parties Should Turn Back to Thatcher

Time for Turning?
Political parties needn’t reinvent the wheel –
on industrial policy they should turn back to Thatcher

Today’s political leaders have a strong inclination to resist ‘interfering’ in the economy, but in the latest Civitas Review, David Merlin-Jones argues that whoever wins the next election, ‘would do well to follow in the footsteps of their Thatcherite predecessors and get involved in industry’. (‘Time for Turning’ p.1)

Thatcherite industrial policy – not laissez faire

Britain is in dire need of a sound industrial policy and in ‘Time for Turning’ David Merlin-Jones looks back through the history of British manufacturing, extracting crucial lessons for tomorrow’s industrial policymaking. He picks out the Thatcherite era as exemplary: following a decade of failed policy from both Conservative and Labour Governments, ‘the 1980s demonstrated a stimulating balance between intervention and non-intervention that could act as a template for today’. (p.2)

David Merlin-Jones dispels a common misconception by asserting that Thatcher and her ministers were not in fact laissez-faire in their industrial policy: ‘free market doctrine and aid for industry were not mutually exclusive concepts for Thatcher’s government and the two could work hand-in-hand’. (p.6)

Subsidising foreign investment

During the Thatcher years great effort was expended to encourage foreign companies to establish factories in Britain. Nissan was attracted to Sunderland in 1984 partly by subsidising the cost of land, which was provided at agricultural prices. Nissan was one of many. By 1989 about 100 Japanese firms were employing 30,000 Britons.

Mrs Thatcher recognised that governments were in an economic contest and acted accordingly, as her remarks to Parliament in 1981 testify:

‘We have gained considerable contracts. The Government have operated behind private companies when we have been negotiating contracts overseas. We have achieved a very great measure of success.’

Every other country was helping companies so why not the British Government? She said with some pride that:

‘Foreign Governments stand behind their companies when contracts are negotiated. On occasion, they add aid to those contracts; so do we. We are operating on a similar basis and winning contracts in the teeth of international competition.’

Bailing out lame ducks – but only to restore them to fitness

British Steel was competing with foreign companies, some that were nationalised and some subsidised. If the Government had acted as if it were in a free market it would have had to let British Steel go under. Instead it restored the firm to fighting fitness and privatised it when it was ready to stand alone. British Steel was given £450 million in state aid in 1980 and Mrs Thatcher made her motives clear: ‘We want the British Steel Corporation to be able to compete with any company in the world, on price, on quality, on delivery’. We know, she said ‘there is a lot more money to be earned, because other steel companies are managing to have the output with very, very, far fewer people’. Her government, she said, was investing in the long term ability of British Steel to compete internationally. Once the company was restored to good health the default position of private ownership would be restored.

British Steel was not alone. When the computer firm ICL got into difficulties in 1980 it too was helped, not in this case with government grants but by giving a government guarantee for any private loans.

Even British Leyland received £450 million but this aid was not a crutch to lean on. It was a reward for having revived its fortunes and increased productivity. Thatcher herself told Parliament in 1981 that the grant was ‘not to enable them to carry on as they were but to help them to carry out the necessary radical restructuring, so that they, too, can contribute eventually to the recovery.’

Lessons from Thatcher

Policies were intended to encourage competition. The Government did not remove itself from the economy, as some free marketeers assume. Thatcherite policies produced a hybrid landscape where pragmatism trumped ideology. Three policies stand out:

Government grants, loans and subsidies were used to ‘buy time’ so that companies could restructure and become fit enough to face international competition. But the default position was free enterprise and when companies were ready to compete, private ownership was restored.

The recruitment of foreign manufacturers, sometimes entirely as a result of government intervention. It was a ‘revolutionary’ approach that ‘risked public outcry’, but the ultimate aim was British-based firms that could produce world-class products for export. (p.3)

‘Golden shares’ were used to restrict foreign ownership of strategic industries. Thatcher would never have allowed a foreign owner to shut the Redcar steel plant, recently ‘mothballed’ by Tata Steel.

For more information ring:

Claire Daley 020 7799 6677

David Green 020 7799 6677

Notes for Editors

‘Time for Turning? Why the Conservatives need to rethink their industrial policy (if they have one)’ by David Merlin-Jones can be downloaded at this link.

Civitas is an independent social policy think-tank. It receives no state funding and has no links to any political party.


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