It’s the economy, stupid

Just a few short weeks before Margaret Thatcher died, I asked Nigel Lawson to sum up her bitterly contested legacy. He told me, “This country was in a dismal state, and Thatcher single-handedly turned it around; I think she will go down in history for that, both here and around the world.” By a curious twist of fate I happened to write this interview up in Glasgow just after the death of Britain’s most controversial modern Prime Minister, where popular sentiment towards her death was anything but Lawson’s ringing endorsement. The Scottish Daily Mail’s front page headline spoke of the “Flames of Hatred” as “30 years of Left Wing Loathing exploded” while the Scottish Daily Record asked if Thatcher’s gravestone should read “RIP 250,000 lost jobs in Scotland.”

I met Lawson for coffee in the Lords, a symbol of the inequality so inherent in British society. Lord Lawson of Blaby is a striking figure, a man of cool demeanour and keen intellect. Following his education at Westminster and Christ Church, he started out as a financial journalist, so I asked him of his time as a financial journalist, and what a journalist should do to operate successfully. “One of the roles of the press is to be in permanent opposition, whichever party is in power. There is a fundamental difference between the role of ministers and the role of the press, and I switched to the other side of the fence in a sense.

“One of the major problems is that economics is often full of obscurantism. Economics nowadays has become very mathematical, and that is a mistake. It means most economics is a pretty useless activity nowadays, and economics is a study of a particular kind of human behaviour. Now mathematics is a tremendously important discipline, but it has nothing of any use to say about human behaviour, and to try and derive human behaviour from mathematics is a fools’ errand, and the economists who do that are very little use to anyone. As for how the journalist should convey economics – they should try to convey it on the basis of an accurate understanding, and they need to make it in clear plain English, not in economic or mathematical jargon. If they can’t do that, it probably means they are incapable of thinking very clearly themselves.”

But what of the purpose of economic policy itself, of which Lawson had control over during seven of the British economy’s most crucial years, from 1983-1989? Thatcher herself said in a Sunday Times interview that “economics is the method, the object is to change the human soul.”

“If she said that then I disagree with her;” he answers, “I don’t think you can change the human soul, and if anyone can, it’s not going to be politicians. Most people like to improve their material conditions and they will do that by exercise of their own hard work, industry, ingenuity, enterprise and so on. But what the only purpose of the government’s economic policy should be is to create the conditions to let individuals, whether together or in companies, to give it their best by working hard and creating technological breakthroughs and so on. The governments only role is to create the conditions to enable people to do so.”

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In a follow up email, he told me “the Sunday Times headline is wholly misleading, as she was not talking about the soul at all. She was explicitly referring to ‘the heart and soul of the nation’, which is a metaphor for what might otherwise be described as either the essence or identity of the nation.”

He speaks of Thatcher’s legacy, noting, “The people recognised that the country was in a very bad way, and that unpopular policies might well be necessary.” He referred me to his memoirs, in which he said, “But we did not seek (the people’s) assent in advance – nor, rightly, did they expect us to. We would be judged by results. Democracy is nowadays
a greatly over-hyped
blessing, particularly by Americans,
 who have no pre-
democratic his
tory to provide 
perspective.”

He goes on to completely rubbish the idea that there is any kind of link at all between the economic liberalization of the 1980s and today, saying,

“I don’t think that idea is in the slightest bit fair. I introduced the Banking Act of 1987 which inter alia created a high-powered Board of Banking Supervision; this was subsequently abolished by Gordon Brown, to be replaced by a largely dysfunctional system, and this can scarcely be laid at the door of Thatcher’s government… And if you look at the history say of the last hundred years, you see there have been periodic banking crises and they all have a number of features in common. The idea is somehow, that most crises are somehow the fault of the bankers, but the regulators at this point were useless. There were, I think, failures of government policy at the time that made it worse, particularly in the United States. The idea that the events of the 1980s had anything to do with it is complete rubbish.”

Considering his status as one of the country’s most influential elder statesmen, I quizzed him on the banking crisis under the Labour government, one that he blames for the worst excesses of the crash. “I think that they were absolutely right in that when the largest banks were on the verge of the collapse, bailing them out was definitely the right decision. The damage to the economy would have been catastrophic; it would have been even greater than the damage caused as it was. But the terms on which they rescued the banks were not nearly tough enough; they paid far too much for too little. They made a big mistake of not having a complete stake, not just a controlling stake; they needed to get rid of a lot of people who caused us a whole lot of trouble.”

“They were right to step in,” he continued, “but they did so on terms that were far from ideal.”

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But he has also been one of George Osborne’s greatest supporters. Considering all the recent ill omens for the Chancellor, such as the recent credit rating downgrade, I ask him what it would take for him to retract his support from the Chancellor’s current economic policy? “If they think that the only way that I would withdraw my support from the current government is if they changed their policies. The US and France don’t have a triple-A rating, and it is nothing to do with the policy; it is to do with the overall strength of the economy. I don’t have any respect for the ratings agencies regardless, as they were the ones who endorsed explicitly the policies that got us into this mess.

“From my own experience – from what we did in the early 1980’s – this is the right policy. We’re in a very difficult context, it takes time. First of all, under the Brown chancellorship, there was an enormous pileup of debt, household debt, government debt, which got too much to handle. The government has to put its own household in order. Then again there was, mainly as a consequence of greed and folly, a banking meltdown, this disaster; that is, where the banks were not able to fulfil their proper economic function of financing small and medium size enterprises like they should be able to do.”

In a drastic step, Lawson has recently advocated Britain’s withdrawal from the EU. Of Europe, he says to me “So long as the single currency persists, and they are determined for it to, then the European economy is likely to underperform. This has a big impact on the UK, because it’s our biggest export market. There is a remedy for British businesses and industry, which is to be seeking export markets and exporting opportunities in the developing world. China is growing fast; India, Korea and a number of other countries are developing fast, while the Eurozone staggers from crisis to crisis. I think they could be looking to the former Commonwealth, and there are many countries in Latin America which are starting to get their act together. We live in a globalized world, in which it is perfectly clear that the greatest growth prospects lie outside it. Britain should be able to benefit from its oft neglected historical ties.”

Finally, I ask for his advice to those considering a career in politics, to which he has a fairly surprising reply. “I think it’s a big mistake for any youngster to go straight into politics. I think a politician would be able to make a much greater contribution if they have had a previous career being something else; and by that I mean something else. I don’t mean the scurrilous things that happen now, where they were in a research department for a political party and worm their way into being an MP. I mean something that gives you an outside perspective. By all means have an ambition. But first you need to widen your horizons as far as you can.”