At the age of seven, Liz Truss played the role of Margaret Thatcher in her school’s mock general election. It did not end well. “I jumped at the chance and gave a heartfelt speech at the hustings, but ended up with zero votes,” Truss recalled. “I didn’t even vote for myself.”
It’s easy to laugh off young Truss’s failure to emulate Thatcher at the height of Thatcherism as the first in a long line of speeches gone wrong. The fact that Britain’s next prime minister is still trying to emulate the Iron Lady 40 years on, however, is no laughing matter — not least because her free-market economic agenda, “Trussonomics”, seems to be based on a caricature of what Thatcherism actually was.
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In an article in The Sun, Truss described herself as “as a freedom-loving, tax-cutting Conservative”, and explained that she would help Britain “get through these tough times by going for growth… through bold action such as tax cuts, decisive reforms and slashing senseless red tape”. This includes “harness[ing] the power of free enterprise… by creating new low-tax and low-regulation investment zones”; reversing the corporation tax hikes; scrapping the new National Insurance levy; and introducing a temporary freeze on green levies to help with energy bills.
These measures will no doubt benefit the wealthiest households and largest companies, but do little or nothing for those who face the direst consequences of the current crisis: low and middle-income households and SMEs. Unless, that is, one believes in the fantasy of supply-side, or trickle-down, economics — the idea that economic growth can be created most effectively by the lowering of high-income and corporate taxes, the deregulation of business, and the lowering of trade barriers. This, supposedly, will benefit society as a whole, since the increased gains of the wealthy will then “trickle down” to the poorer members of society.
It was one of the pillars of Thatcherism. It was also a myth. Wealth doesn’t trickle down — it floods upwards, and then offshore. Far from growing the economic pie, these policies have widened social inequality in all high-income countries at an unprecedented rate. As Cambridge economist Ha-Joon Chang puts it: “making rich people richer doesn’t make the rest of us richer”. Even the IMF, the bastion of economic orthodoxy, now recognises this.
Truss’s claim that she would tackle the cost-of-living crisis by “lowering the tax burden, not giving out handouts” is therefore not only brutally cynical — especially considering that the tax cuts would mostly benefit the big energy companies — but also economically illiterate. Perhaps realising that this was a recipe for mass civil unrest, as she now seems to have diluted her plans, promising some form of direct support which is almost certainly bound to fall very short of what is needed.
Trickle-down economics, however, isn’t the only Thatcherite zombie that looms on the horizon. Thatcher is also credited with launching the “privatisation revolution”, which has led to thousands of state-owned businesses and utilities around the world being transferred to the private sector, from state banks and airlines to public hospitals and postal services. In the UK, Thatcher oversaw the sale of several major public companies, including British Airways, British Telecom, British Steel and British Gas, as well as the electricity, water and rail industries.
Privatisation promised to deliver lower costs and prices, improved services and better working conditions. It was supposed to seamlessly shift workers from the public to the private sector and thus avoid an overall loss of jobs. Some 40 years later, none of these claims has been realised: on the contrary, there is a litany of evidence to show that the privatisation experiment has been marked by underinvestment, lack of financial transparency, poor service quality and higher prices. Meanwhile, private shareholders have raked in huge profits. All in all, the evidence suggests that none of these transfers to private ownership has resulted in improvements to societies’ well-being — quite the opposite.
Furthermore, over the years, many of these privatised companies have had to be bailed out, demonstrating that private ownership amounts to little more than the privatisation of the profits and socialisation of the losses. Nowhere is this more evident than in the energy sector. It’s commonly thought that skyrocketing energy prices are caused by Putin ramping up the bills in retaliation for Western support for Ukraine. But European import gas prices — what Western energy importers actually pay for the gas — haven’t increased that much over the past year, since in many cases these are still based on long-term contracts. Meanwhile, supply to Europe has decreased but not enough to justify the current price hikes.
The real reason for the spike in energy prices is that the latter are linked to the price at which gas is traded on virtual trading markets such as the TTF in Amsterdam or the NBP in the UK — which has increased by a staggering 1,000% over the past year, as energy traders, most of whom work for the world’s largest oil companies, saw the conflict in Ukraine as a perfect opportunity to hike up prices. This is why, as more and more people struggle to make ends meet, global energy giants such as Exxon Mobil, Shell, BP and Chevron have raked in record profits in the first quarter of 2022, far exceeding their revenue during the same quarter in 2021 — all because they are passing on ridiculous mark-up prices to consumers. So when politicians like Truss wax lyrical about the virtues of the “free market”, this is what they’re talking about — a system where millions of people are about to be plunged into poverty so that some of the richest corporations on the planet can get even richer.
To make matters worse, in response, the Government is not only allowing energy companies to engage in obscene price gouging; but realising that most households can’t possibly afford the projected price rises, it will now even step in to cover a part of the cost increase itself — in effect bailing out the privatised utility companies that would otherwise go bust, while subsidising the big energy companies with freshly created money. It’s hard to imagine a more catastrophic failure of Thatcher’s agenda, which has turned into a system of socialism for the rich and Hunger Games for everyone else. The last thing Britain needs is Thatcherism 2.0.
Guaranteeing the country’s energy security, providing well-paying jobs, maintaining an efficient infrastructure, reaching a certain degree of national self-sufficiency, caring for an ageing population, and solving the numerous environmental crises that we are facing — all these things require an expansion of the state’s role in the economy, not its downsizing, as well as a greater degree of collective democratic control over matters of investment and production, including through the renationalisation and re-regulation of several sectors. The energy sector would be a good place to start.
Perhaps the greatest tragedy, however, is that, out of sheer pragmatism, Johnson and Sunak had begun to shift the Tories away from radical Thatcherism and towards an acknowledgement of a more interventionist role of the state. Truss’s revisionism is now likely to squander that.
None of this is to say that Sunak would have been much of an improvement. Despite allowing the deficit to rise significantly during the pandemic — which was a good thing — he soon started saying that, as a result, the UK’s public finances were now “exposed’ and facing “enormous strains”, and warned that higher taxes would be required to “fix the UK’s public finances”.
Sunak was reiterating some long-standing economic myths. But the reality is that the UK, as a currency-issuing government, doesn’t face the same financial constraints of a household or business — it simply creates the money it needs out of thin air, and has no need to raise taxes or cut spending to “pay back” the public debt (especially if it owes that debt to itself). At least Truss’s people, for all their faults, understand this.
When asked recently about how the Government was going to tackle the growing debt, Julian Jessop, one of Truss’s economic advisors, explained that it’s not the debt that needs tackling but rather a failed orthodoxy. “The Treasury has been too quick to believe you need to start paying the debt down by raising taxes, both personal and corporate taxes,” he said. “Far better to let the deficit take the strain. If tax cuts do mean more borrowing in the short term, I’m completely relaxed about that”.
In that respect, he’s right to be relaxed — faced with the prospect of people not being able to heat their homes, a rising public deficit is the last thing Britain has to worry about. And yet one can’t help but wonder how people will react when they realise that Truss is using the power of the state’s purse to help the rich get richer rather than to help ordinary Brits. Henry Ford once said that “if citizens understood how the monetary system works, there would be a revolution before tomorrow morning”. With Britain’s economic crisis unlikely to improve anytime soon, Truss would do well to keep that in mind.