What Remains of Thatcherism?

Mrs. Thatcher came to power in 1979 with a mission - to reverse years of economic decline in Britain. This, it was argued, required major reforms in microeconomic policy and a reduction in the role and size of the state. Macroeconomic policy was seen as playing a facilitating rather than a direct role. Above all a fundamental change in the attitudes of the British people was required. In this Viewpoint we examine the record of the Thatcher government and ask how much of this philosophy is likely to survive under the government of John Major. Our verdict is that, in key areas such as the community charge, health and education, Mrs. Thatcher failed to wean the British people off the welfare state - we prefer public provision out of general taxation to a direct charge for services consumed. It is already evident that Mr. Major's government acknowledges this and is backing away from the harshest aspects of Mrs. Thatcher's social policies. In macroeconomics the primacy of the battle against inflation has generally been accepted, though the chosen policy - the EMS rather than independent monetary policy - is not Mrs. Thatcher's. We believe that the present approach offers the greater hope for a lasting reduction in inflation, but it is an irony that this was the area which ultimately brought Mrs. Thatcher down - Britain accepted her end but not her means. On industrial policy there are fears, which were first raised by Sir James Ball in his Viewpoint of October 1989 and which were expressed forcibly when Mi. Heseltine first challenged Mrs. Thatcher, that the new government will revert to a more interventionist approach. It is too early to know whether these fears are justified, though it is clear that any backsliding in this area will be the test of how much of Thatcherism survives into the 1990s.     

Prospects for the world economy in the 1980's

Judged by the conventional measures of the growth of output and trade, of inflation and unemployment, the economic performance of the industrial countries has undergone a marked deterioration in recent years. It is now feared that a further deterioration could take place over the next decade leading to ever greater pressures within and between countries. In this Briefing Paper we attempt to measure the changes that have taken place, to identify their timing and the proximate causes. On the basis of recent developments and a historical perspective we try to judge the prospects for the 1980's.     

FORECASTING SOUTH AFRICAN INFLATION

This paper looks at what variables are useful for forecasting inflation starting in 1990. I show that the output gap, a measure of real economic conditions, does seem to provide useful information for forecasting inflation. This is good news for the Reserve Bank, since the primary way that the Reserve Bank tries to affect future inflation is through real economic conditions. In addition, short‐term interest rates and import price inflation also seem to provide useful information. The most accurate of these forecasts suggests a root mean square forecast error of 1–2 per cent for 1‐year ahead inflation, which is within the Reserve Bank's current target range.     

SUBSIDY TO NUCLEAR POWER THROUGH PRICE-ANDERSON LIABILITY LIMIT

Between 1959 and 1982, the Price-Anderson Act placed a limit of $560 million on the liability of nuclear power plant operators for accidental damages. This limit grew to $7 billion due to the 1988 amendments to the act. This paper using insurance premiums charged for the first $160 million of coverage and the Nuclear Regulatory Commission's estimate of the probability of a worst-case loss, models the distribution of damages with a log-logistic density function. The study finds that the value of the Price-Anderson subsidy was $60 million per reactor year before 1982 but then dropped to $22 million per reactor year following the 1988 amendments.     

Domestic fuel expenditure and payment of fuel allowances

The allocation of additional requirements for heating to households on supplementary benefit (SB) has been challenged recently. Some households receiving an addition spend less on fuel than others which do not. The fuel expenditure of any household on SB is likely to be constrained by income and may reflect ability to pay rather than need. A group of households with zero or close to zero income elasticity for fuel expenditure is identified. The expenditure on fuel of these households can be considered not to be constrained by income and to reflect the real costs of maintaining a warm home in given circumstances. Their expenditure is then used to indicate how fuel allowances might be better targeted.