In 1979, Margaret Thatcher became the first only woman prime minister of Britain taking over from James Callaghan. After becoming the prime minister, she won three consecutive incredible general elections. The word Thatcherism was driven from the style and policies that she introduced. There are a considerable number of aspects of Thatcherism that helped the government of Britain under the control of Margaret Thatcher to stay longer for approximately eleven years.
The following policies were introduced by the prime minister in 1979,the first one was the opposing of the trade union and the introduction of the legislation, Redistribution of wealth, Privatisation of state owned industries, low direct taxation, higher indirect taxation, the reduction of the size of the welfare state, free market economy and monetarist economy policy. This essay will deal with how she introduced the policies and the impact of Thatcherism on the world of economics and whether it will be suitable in the developing world.
Inflation. Margaret Thatcher had several strategies that made the back on it feet's after 1979. In this period Britain had high levels of inflation, according to the figures in the graph below it is shown clearly that in 1975 before the Thatcher government the inflation was more than twenty percent. According to the Thatcher government the domestic production in the UK in 1978, it only grew by one percent while the consumer spending went up by five percent. As a result, Britain had high levels of inflation.
Commitment was one the strategies that the Thatcher government had when they became in power and the aim was to reduce the money supply and increase various indirect tax to subdue inflation. The most important policy that controlled inflation was called monetarist, it was a guiding principle that was believed by Thatcher that differentiate her government from the last one. According to the graph below it is shown that the British economy was recovering from recession in 1983 when the inflation rate plummeted from twenty to four percent.
That was the lowest ever level of inflation in 13 years, mainly because of monetarist policies that Margaret Thatcher introduced. The way the policy worked was that she thought reducing the inflation rate by controlling monetary growth through high interest rates. According to Mackintosh, M and Brown. V (2006), they believe that " in accordance with this anti-inflationary stratagem, sterling was allowed to appreciate against the deutschmark was interrupted only briefly by the strategy, adopted by chancellor of the Exchequer Lawson, of pegging the exchange rate to the deutschmark.
" In simply words, the result of that was also because of the policies that were introduced in 1979, below is a graph showing UK bilateral exchange rate, from before the Thatcher government and after 1976. It is shown that the same period that she was in power the exchange rate for deutschmark and the dollar were falling against the sterling. Figures 1. 2 and 1. 3 shows the remarkable change that occurred during the period of 1974 and 1993, but that changed on the 16 September 1992 for the British politics and economics, the Black Wednesday.
This was the time the conservative government was forced to withdraw the pound from currency fix because they were unable to keep sterling above its agreed lower limit when currency market believed that the policies were unsustainable. After Margaret Thatcher was out of power that's when problems started, according to the figures below because she managed to keep the currency to it lowest limits. Mackintosh, M and Brown.V (2006), Suggest that there are two significant reasons for the appreciating of the sterling in the 1980s.
The first been the degree of sterling appreciation, and its subsequent reversal after 1981, is evidence of exchange rate overshooting. Secondly, the incident might be regarded as a good example of the two sets of disinflation effects that an exchange rate appreciation can pass on. The reduction of relative import cost and demand pressures by reducing export demand. Those were the reason why inflation fell in the 1980s.