Business | Opinion
Crisis could mean return of pre-Thatcher controls
Most countries, including those of Europe and the United States, followed the economic theory of John Keynes, which signified the government's role in economy, until the late 1970s.
- By Dr Mohammad Al Asoomi, Special to Gulf News
- Published: 00:07 October 2, 2008
Most countries, including those of Europe and the United States, followed the economic theory of John Keynes, which signified the government's role in economy, until the late 1970s.
With the rise of Baroness Margaret Thatcher as Britain's prime minister in 1979, she embraced a new economic theory, based on absolute freedom of markets and giving major companies a dominating role in economy management, while the government's sole role was general organisation.
That was a major turning point in economy management, which eventually led to privatisation of important sectors, especially after former US president Ronald Regan took up Thatcher's theory.
In 1984, we got a chance to watch this change in the British economy during a training course in London. The sudden 4-month-long strike of mineworkers was a bone-breaking battle between Thatcher and the labour unions, who demanded that the government abandon its plans to end state ownership of mines.
The baroness won at the end of the strike, despite widespread support.
The transformation that Thatcher aimed for started taking place from then.
Big corporations swelled in size and became a state within the state, often ignoring the rules and marginalising the government. All issues became subject to absolute market factors without controls, and chief executive officers had the upper hand in economy management.
Even after Thatcher's resignation, no one tried to rectify the situation, especially after the neo-conservative US government adopted this method till the current crisis erupted.
Now US President George W. Bush's government, in its last few weeks, is trying to restore the state's economic role to stop a financial collapse.
Fortunately, most countries did not embrace the Thatcher doctrine, especially the Scandinavian countries, Germany, France, the GCC countries, China and India. This has shielded them to some extent from the crisis strangling the US and British economies.
As a result German Foreign Minister Frank-Walter Steinmeier described the financial crisis as "Anglo-Saxon", while German Finance Minister Peer Steinbrueck pointed out that the current financial crisis would change the world.
Apart from the expected changes in global economic relations, the crisis will also mean the collapse of the economic theory of Baroness Thatcher.
The former British PM had a degree in chemistry and failed to realise that chemical equations do not apply to economics, which have significant social and human effects on the whole society. Harmony in the roles of public and private sectors is important. They each have inseparable roles and missions, which compliment each other in addition to the government role of control and intervention at the right time.
The government must also possess the tools to stop violations and extend support during difficult situations.
The Baroness had to resign under pressure from her party. Reagan was affected by Alzheimer's disease in his last years and could not even remember that he had been the president of the world's super-power. He would often wonder why people were greeting him when he appeared in public, and used to ask his wife: "Do all these people know me?"
The measures being taken now to restore the use of state's tools to combat financial deterioration in the US and Britain mark a return to the theory of Keynes. As French President Nicolas Sarkozy pointed out, the crisis has put an end to the absolute freedom of market.
Dr Mohammad Al Asoomi is a UAE economic expert.
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