Margaret Thatcher: A moderniser who helped to put the Square Mile on top – This is Money

By
Alex Brummer

PUBLISHED:

15:55 EST, 8 April 2013

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UPDATED:

15:55 EST, 8 April 2013

As someone who spent almost the entire Thatcher era as a Washington correspondent I might appear ill-equipped to comment on her economic and political contribution.

However, the late Prime Minister was no stranger to the American capital and she and her soulmate President Ronald Reagan were both driven by the same laissez-faire principles.

Both set about breaking the power of the trade unions, lowering taxes and shrinking the power of government, opening up capitalism and embracing monetarism as the best means of taming the runaway inflation of the 1970s.

My first meeting with her as Prime
Minister took place over a light breakfast at the Blair House – the
presidential guest residence opposite the White House. She used the
occasion to extol the Chicago School free market economics of Milton
Friedman and the virtues of controlling the money supply to deal with
the menace of surging price.

Two
oil price shocks in 1967 and 1973 had delivered a ‘great inflation’ and
there was a steely determination to snuff it out by cutting back the
creation of credit.

That
willpower and sense of what was right brought her to Washington in
Reagan’s darkest hour – the Iran-Contra crisis of 1986 – when she flew
into a media frenzy, not seen since Watergate, with a mission to show
support and settle the president’s nerves. Something she duly achieved.
He survived and went on to follow the Thatcher lead in talking to
Mikhail Gorbachev, bringing about the end of the Cold War and the
opening up of Eastern Europe to free markets.

The scale of the transformation in Britain was really evident on my return to Blighty in 1989.

The
country I left behind was that of the ‘Winter of Discontent’ with
rubbish piling up in the streets, the docks silenced by constant
strikes, a newspaper industry being economically strangled by the unions
and public utilities who cared even less about the customer than the
present grasping bunch. Getting a telephone installed required an
all-out campaign.

As for
the City of London, successive sterling crises had seen it overtaken by
New York and Tokyo. The bizarre early 20th century arrangements in the
money markets, where top-hatted gents carried bills of exchange from the
‘accepting houses’ (the inner circle of merchant banks) to the discount
houses – with their direct relationship with the Bank of England – was
archaic in the extreme.

The
London Stock Exchange was a closed shop in which commission structures
were centrally set and stockbrokers had to funnel transactions through
stock-jobbers adding a layer of bureaucracy and cost. It made for an
extraordinarily cumbersome process that could barely be accessed by
foreign investors.

With
the Thatcher government’s first budget an extraordinary change was
signalled. The cumbersome system of exchange controls, put in place down
the decades to protect sterling from speculators, was abolished. This
signalled Britain was open for business and paved the way for the
arrival of the US and European investment bankers to London.

Reform
in the City picked up momentum and in 1986 the phalanx of regulations
surrounding the rules for trading on the London Stock Exchange were
abolished as ‘Big Bang’ opened the City up to foreign competition.

A
more modern stock exchange, the end of the old arrangements in the
money markets and freedom from exchange restrictions paved the way for
the privatisation revolution that saw BA, BT, British Gas and the other
utilities sold off. No longer was obtaining a new phone system an
impossible task.

Critically,
Thatcher, learning lessons from Reagan and the Americans, plugged into
supply side economics. High tax rates, at a level that would make even
Francois Hollande of France blush today, were scrapped and the City was
again able to suck in capital, people and expertise from overseas to
become Europe and the world’s entrepot.

The
trend rate of output in the economy picked up and de-industrialisation
sped up as state support was swept into the sea. Paradoxically, however,
despite the shrinkage of the coalmines, the end of shipbuilding and the
dismantling of the horror of the car giant British Leyland, later
Labour administrations would preside over a bigger decline in
manufacturing.

On a
personal level Mrs Thatcher’s embrace of the idea that ordinary people
should take control of their own finances changed the way everyone felt
about money. It was in her era that council houses were put up for sale
and mortgage finance became more readily available to every citizen.
People were given new choices in savings (instead of the old fashioned
endowments) in the shape of personal pension plans, and Personal Equity
Plans, which were broadened to become ISAs.

Most
impressively of all the City was reborn, becoming the world’s biggest
centre for foreign exchange trading, bond financing and the home of
Europe equity trading.

The
arrival of Goldman Sachs and JP Morgan and the repatriation of the
Hongkong & Shanghai Bank from Hong Kong transformed the City
landscape and forced its eastern expansion to Canary Wharf – Manhattan
on the Thames.

After more than a century of discussion and delay the Channel Tunnel became a reality.

Critics will of course see the seeds of the ‘Great Panic’ and ‘Great Recession’ of 2007-2009 in her embrace of free markets.

But her Labour successors who embraced the City as a cash cow they could not afford to turn off must take the blame for that.

Had
Baroness Thatcher not freed the Square Mile from its history the City
of London – like Frankfurt and Paris – would still be a commercial and
financial sideshow.