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Yes, Mrs. Thatcher loved the Public Service

Let us never forget this wonderful speech by Mrs. Thatcher (thank you to Giordano). Listen to it first.


I use it since my colleague Fausto Panunzi seems to think that I am (a bit?) crazy saying that Mrs. Thatcher and Mr. Blair greatest joint reform has been – together and complementarily – the one of improving the quality of the public sector away from a bureaucratic bunch (1970s) to a team of workers that supports British firms development and strives more than any other government for the well-being of its citizens.

It is true that Thatcher during her mandate reduced public spending over GDP from 43% to 34% (some of that, almost 2%, was due to lower interest expenditures, due to inflation and debt reduction).  It is also true that public spending is today in the UK at 45% of GDP (most of it due to the crisis and to smart public spending during it). Are we thus back to where we were before? No way. The quality of the British public sector, its productivity, has dramatically improved since the 1970s  (even though official statistics I could find start in end 1990s only).

Mrs. Thatcher herself puts it beautifully in her speech, where she destroyed the concept of public money and shifted to the one of taxpayers’ money, the move that made the concept of accountability in the public sector rise again, after many years of wrong Labor policies:

“How much of your money should be spent by the State, is one of the great debates of our times …”. She set the stage to destroy public waste, as she did, in the bloated public sector of the time when she says that: “prosperity will not come by inventing more and more lavish expenditure programs, by taxing citizens beyond their capacity to pay”.

But Mrs. Thatcher did not think that the public sector was irrelevant. To the contrary. She pretended a lot from it:

 “We have the duty that every penny we raise in taxation is spent wisely and well…. Protecting the taxpayers’ purse. Protecting the public services. These are the two great tasks and their demands have to be reconciled”.

Mrs. Thatcher did not want the public sector destroyed, she wanted it first and foremost functioning. And also smaller. The first goal pertained to her duties of a leader, the second to her beliefs. When Blair came to power, he did not move away from the concept of having a functioning public sector that would fight waste. He simply increased the focus on the size of government (3 or 4 points larger in terms of GDP on average than the Thacher one) because he had different beliefs.

Nothing is more indicative of their differences than the different stance they had in public procurement matters. The first would only do price-only tenders, the second would also reward quality features and pushed less for price competition.

But both of them shared the view that waste was intolerable, whether government was smaller or bigger.

Why do I say that both of them together were the great reformers of the British public sector? Because there would have been no Blair without Thatcher first, with her capacity to fight to death against rents and waste in the public sector not listening to anyone that would try to dissuade her. Blair was able to add greater weight to the public sector in the economy, but only because Thatcher had changed it forever. At that point and only then the excesses of the Thatcher era could be credibly cancelled. Had they planned it, they couldn’t have done it better.

The reductions in the size of Government that are currently asked in the European Union have nothing to do with a vision of discussing and facing as Thatcher said “one of the greatest debates of our times”. They are done to cut numbers for accounting purposes, claiming the existence of an emergency, without any interest in the quality of what is provided.

This kind of reduction of public spending destroys little or no waste and reduces only what Thatcher called the essential “public services”. It is also for this reason, and not only for the obvious recession-motivated needs, that cutting spending in Europe right now should not be allowed, whether you are a left winger or a right winger.

Let Europe allow the rise of leaders that have a vision, and then we will be able to discuss government cuts, their size, their meaning. Or, for that matter,  if taxpayers will agree, for public spending increases.


  1. It’s a pity that in Italy the common feeling about Mrs. Thatcher is that she was “against the poors” and the beginner of the era of the financial vampires.
    But that, I think, the Italian opinion-makers love, because they live of it, public waste.

    • I agree entirely with the point risaed by Costas. Among the two priorities risaed it is the first one that needs the most urgent attention, that of refroming the judiciary. Without an efficiewnt court system all other reforms will become ineffective. The need for growth as a vehicle that would take Greece out of the current crisis is tautological. The debate about whether to remain or not in the euro zone is important, but it will remain academic unless there is a concerted effort (with the help of the EU in this case) to fight corruption. To do that most of the energy and effort has to be spent on reforming the judiciary. The rules of the game are such that whoever “screams the loudest” has better access to the media and the benefit of the judiciary system that is inherently incapable of ensuring a framework on which economic reforms can take place. Without contracts that are enforceable for all the parties involved, it will be futile to introduce reforms. The latter will be unravelled by the inability of the courts to enforce these contracts. For the new reality to become understood as something that requires new bold reforms to open up highly regulated markets and allow for productivity convergence between the public and private sectors, people need to be convinced that the rules of the game apply to all concerned. Until now as we speak, any attempt to bring individuals to justice who have either stolen public funds by not returning huge sums of collected VAT to the government, let alone the known income tax evaders, only results cases that are pushed into the future as these individuals are allowed to walk. The excuse here is that the judiciary is too overburdened to deal with these cases effectively and promptly. I am afraid that unless this government or any government deals with that aspect of the broken system, any reforms will never be implemented. To have any chance of success, let alone any chance to reach a climate for economic growth, there has to be a framework for enforcing contracts that is recognized and respected by all by imposing stiff penalties to all those who violate their side of the contract, whether public officials involved in corruption cases or entrepreneurs not returning the sums of VAT that they have collected on behalf of the government.One may counter, that Greece was growing until 2008 at reasonably healthy rates with the same judiciary and the same lack of contract enforceability system. Yet, even though we all recognize the reasons behind this consumption led growth engineered by easy credit, which led to the current crisis, it is the asymmetry between the upturn and downturn that obscured any need for reform. An expanding economic pie conferred benefits to all, even though these benefits also created “built in” destabilizers that now confront us all. I think, given the state of corruption as the result of lack of contract enforceability, the main reform that at this point that needs to take place, is the reform of the judiciary, for anything else to have any chance of success.

  2. Whatever her politics and economics are, as a woman I think she’s fabulous. I love her voice both feminine and yet totally commanding. And she is such an interesting combination of hardball politician and ‘hit you over the head with her pocketbook’ woman. She even mentions such feminine things all the time — “protecting the taxpayer’s purse” – notice she doesn’t say wallet, and “good house-keeping” and “housewives”. What a truly brilliant politician.

    • I fully agree with most comments made by Mr Megir. The two psriequerites he mentions, rule of law and liberalisation of the employment market are without question in my mind absolutely needed. However, even before them, we-Greece needs measures similar to an electroshock, to bring to life again the economy. Mr Megir argues about the situation bb when an entrepreneur plans . bb . In my view this does not happen at all in Greece now. Entrepreneurs and the private sector in general are frozen. Plans for investment opportunities are not being made. Hirings are not taking place. Companies- mainly small- are closing down. Liquidity, which will enable all the above to begin functioning-slowly is totally absent. This is the key question in my mind, to which I would kindly ask Mr Megir to give his view. How does one practically throw liquidity into the system? The answer as far as I can understand comes – if and when they decide so- only through the European Cental Bank. Together with the measures proposed by Mr Megi, at the local levelr. But we need the electoshock first, otherwise the line in the monitor is straight.


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