Thatcherism is based on the following:
the private sector supplies virtually all goods and services, under ‘light-touch’ regulation;
a tight fiscal policy curbs inflation; and
a deregulated financial sector lubricates the real economy.
It replaced a public-sector driven economy with administered prices; high levels of personal income tax to fund welfare obligations; and a focus on government spending to keep unemployment rates low.
AFTER 2008
A crucial brick in the Thatcherite edifice, a deregulated financial sector, fell out after the 2008 financial meltdown, nearly bringing down all the rest of it. After Northern Rock and the LIBOR manipulation scandal in the UK, even the most ardent Thatcherite is unlikely to espouse fewer curbs on finance. The rise of the UK’s financial sector vis-à-vis the real economy in the two decades till 2008 widened inequalities and social schisms. Clearly, the market cannot be trusted, the way the Thatcher-Reagan duo had told us to.
REGULATORY CAPTURE
In India, after four decades of a state-driven economy and two decades of a market-driven one, it is pretty clear that the problems of the first cannot be addressed by the second.
Without mature institutions, a rapid transition from a state-led model to a market-led one can backfire. This is borne out by the rise of mafias in the erstwhile Communist states, and in the property, health, finance, education and mining sectors in India. Where is the ‘regulator’?
Instead, we have dizzying levels of corruption, with every conceivable law being flouted. We are faced with both state and market failure – a situation of regulatory capture, with government and business working hand in hand.
Indeed, some industries may be better-off if nationalised – for example, iron ore mining, after the excesses in Karnataka and Goa. If this seems like an extreme position, ‘light-touch’ regulation sounds laughable.
AUSTERITY IS OUT
The ideology of austerity is on the retreat the world over. India, too, with its poor social indicators and safety nets, cannot take a tight-fisted view of government spending. There are better ways to fight inflation than curbing government spending and raising interest rates. Why not increase direct taxes and curb monopoly pricing power?
However, there are quite a few Thatcherites in India’s corridors of power, stuck in the pre-2008 mould. They contest outlays on welfare as well as the slightest suggestion of an increase in direct taxes. Fortunately, they do not always have their way with the political class.
Thatcher’s model gained pre-eminence when the socialist order was in decline. This was also the broader context in which India embarked on reforms.
Now, the boot is in the other foot. A post-Lehman world recognises that markets are very imperfect. Why should India continue to be in a time warp?
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