News | Friday, 27th September 2019

Modern economic policies are ineffective in promoting growth, new research argues

Free-market policies produced lower growth, regardless of political party

Conservative or Labour? Modern economic policies are not broken down by party lines
Conservative or Labour? Modern economic policies are not broken down by party lines

A traditional view that the economic policies of the UK’s Conservative Party are more effective than those of the Labour Party in promoting economic growth is incorrect, according to new research.

The ongoing legacy of seven decades of economic policies shows that there are two distinct political approaches, but they are not broken down by party lines, say researchers from Manchester Metropolitan University and Tampere University, Finland.

Instead, they argue that the policies adopted by both the UK’s two main political parties before the 1980s were more effective in supporting growth than the globalised free-market policies adopted by both parties since.

A new article, published in the Cambridge Journal of Economics, presents evidence to show that from the end of the Second World War to the 1970s, both Labour and Conservative parties believed in policies they saw as being in the national interest and the social and economic interests of the British people.

The research explains that since the 1980s, when in power, the main political parties have endorsed policies broadly promoting globalisation and free markets, under which economic growth has been lower.

While the change in the 1980s policy stance has commonly being attributed to the UK’s perceived relatively poor economic performance of the 1970s, researchers argue that this perception resulted more from the impact of global forces, such as the oil shocks of the early and late 1970s, than the UK’s policies of the time.  

Professor Kevin Albertson, Professor of Economics at Manchester Metropolitan, said “The application of free-market policies in the 1980s was justified from a misdiagnosis of the problems the UK faced. Because they did not address the underlying issues, free-market policies appear to have exacerbated the problem.”

In reaching their conclusion, researchers broke down the UK’s rate of growth per capita into the period before and after the step-change in economic policy under Margaret Thatcher. Their evidence shows that real growth per capita was lower after the adoption of free-market policies than before, irrespective of which party was in power.

Professor Albertson adds: “There are two schools of economic thought – one better for the economy than the other – but they are not classified ‘Labour’ or ‘Conservative’. Our national prosperity depends not on stereotyping particular political parties, but rather on whether our government’s engagement with globalised liberal markets is on beneficial terms for the people of the UK.

“With hindsight and economic analysis, we may acknowledge the data indicates that the 1970s were the time when Britons ‘never had it so good’ and, on average, have not since.”

The new research has been published in the build-up to this year’s Conservative Party Conference in Manchester, where a focus on the government’s economic plans is set to take centre stage. The findings imply that a substantial reassessment of global economic policy is overdue.

The full article “1979 and all that: a 40-year reassessment of Margaret Thatcher’s legacy on her own terms” can be viewed online in the Cambridge Journal of Economics.

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