Our struggling economy needs another dose of Thatcher’s shock treatment

Yet the problem of poor private sector performance goes deeper. What’s at the root? All the usual suspects will be rushing to blame Brexit. But that’s really not going to wash away, not least because the fundamental problem predates our exit from the EU.

A better candidate is the progressive drag of regulation, which has worsened year on year, combined with the recent and widespread adoption of jiggery-wokery businesses which has diverted attention from the true underlying business and profit generation.

The prolonged period of very low interest rates and easy money may have played a subsidiary role, as it helped to keep alive some companies that probably should have gone bankrupt, thus allowing the transfer of resources to parties more efficient in the economy.

But there is something more important than that, namely an extremely low investment. This has been a problem for many years. The government may try to solve this problem with the kind of tax incentives introduced by Rishi Sunak when he was Chancellor, but these alone are unlikely to bear much fruit.

There is a deeper problem that has been highlighted by economist Andrew Smithers. He attributes the weakness of fixed investment in the UK and the US in large part to the corporate bonus culture, which encourages managers to focus on improving short-term stock price performance. actions of their companies, rather than long-term health and efficiency. of the company.

Overhauling this incentive structure would be a daunting challenge for any government, but I suspect that if we are to dramatically increase investment levels, something will have to be done.

Lord Lawson said that to deal with the problems besetting the country in 1979, it was vital that the new government got down to business immediately and that required shock treatment. We can wonder if the Thatcher government of 1979 got it right and if the shock treatment was too intense. But for the most part, I think his point is valid.

Today, both households and businesses will suffer a profound shock of an equivalent or even greater magnitude. But what about the treatment?

What makes the current situation more difficult is that, while Mrs Thatcher had a period of up to five years before having to face the electorate, the successor to number 10 is only around two years away. . It will therefore require both vision and determination, as well as an ability to get to work immediately, show some early results and give reason to hope for serious progress in the years to come.

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