U.K.’s economy takes shine off praise for the Iron Lady

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If you were listening to the gushing tributes to Margaret Thatcher after her death, at 87, on Monday, you could be forgiven for thinking that God herself had expired.

Lady Thatcher's supporters agreed she was greatest prime minister of the past century, with the possible exception of the war-winning Winston Churchill. Her Labour and Liberal Democrat critics agreed that she commanded their respect and gave her grudging credit for utterly transforming Britain's society and economy. When she became prime minister in 1979, she inherited a sclerotic, neo-socialist economy that was on the verge of failure; only three years earlier, Great Britain had been bailed out by the International Monetary Fund. When she left in 1990, Britain was a marvel of free-market economics and deregulation and Europe's greatest turnaround story.

Successive governments, whether Conservative, Labour or a Conservative-Liberal Democrat coalition, did essentially nothing to unravel her economic legacy – Labour's Tony Blair praised her reforms in his 1997 election campaign. The question is whether the Thatcher influence endured too long, to the point it did more harm than good. Britain may not be the sick man of Europe, but its economy is in rough shape, to the point it has resorted to recruiting a colonial – Canada's Mark Carney – to run the Bank of England in an effort to reverse its sorry fortunes.

Two of Ms. Thatcher's landmark policies – financial deregulation and a relentless attack on the unions – may be in good part responsible for Britain's current economic woes. Britain is waning industrial force. Mining, shipbuilding, heavy manufacturing and other businesses that once made the country the world's workshop, are dying or dead. In their place came financial services, that deregulated wonder that made London the world's premier banking centre.

The deregulation model worked miracles until the financial crisis landed like a nuclear bomb in 2008, threatening to destroy the country as bank after bank had to be rescued. Northern Rock is gone and Royal Bank of Scotland, briefly the world's biggest bank, is still a ward of the state. The bank rescue has cost the British taxpayer hundreds of billions of pounds.

Many commentators said Ms. Thatcher was the right leader for the right time. When she was elected, British inflation was out of control, the jobless rate was soaring and the cost of doing business – excessively high wages and red tape – was painful. Taxes were too high, or so she said. So she launched austerity, to use a word that has become fashionable again.

She cuts billions of pounds in spending, back when a billion was worth something. Her victory over Arthur Scargill, leader of the National Union of Mineworkers, essentially eradicated British union power, at the cost of the closing of hundreds of mines. Ms. Thatcher embarked on a wholesale privatization campaign. State-owned companies, from airlines and steelmakers to public-council housing and water utilities, were sold off, with taxpayers making small fortunes from deeply discounted shares. In 1986, she used the so-called Big Bang to deregulate the financial markets.

The opposition urged her to slow down. They warned that privatizing council flats would leave Britain with a desperate shortage of cheap public housing, and they were right. They warned that the gutting Britain's industrial base by gutting the union power could have dire repercussions as the country embraced white-collar jobs. They were right about that, too, though they wouldn't know just how right they were until 2008 financial crisis.

But they lost the argument at the time because the numbers looked so good. The privatization effort, for example, raised almost £50-billion, restoring Britain's financial health and making British gilts respectable bits of sovereign paper once again. By the time Ms. Thatcher was ousted 11 years later, inflation had dropped to about 5 per cent, from 20 per cent, and real gross domestic product was 23 per cent higher. The jobless rate went from one of the highest in Europe to one of the lowest.

Britain was an economic star. Its years of economic despondency were apparently over and it became the economic model for the rest of Europe. Mr. Blair's Cool Britannia would not have been possible without the Thatcher revolution.

Ms. Thatcher remains a highly divisive figure almost a quarter-century after she rolled out of No. 10 Downing Street for the last time. For many, she restored Britain's competitiveness, even if it came as a social cost. For others, she launched an era of unbridled capitalism, a winner-take-all mentality that was very American in character (no surprise there, given that she and Ronald Reagan adored one another). Her critics say the sense of collective good vanished because of her – she once famously said "there is no such thing as society."

Given the implosion of Britain's financial services industry, the lack of economic diversity, the painfully expensive housing, and the ailing health care system, Maggie Thatcher's critics should not be dismissed.

"The lady's not for turning," Ms. Thatcher said at a Conservative conference in 1980. Indeed, she was not, but her successors would have served their country well by turning back her policies a little bit.