Japan Keeps Thatcher’s Flame Alive While Britain Lets It Die Out
Thatcher's legacy appears to be overlooked in her home country, where it is needed the most during these challenging times while Japan’s first female PM has made her a role model.
Thatcher’s specific economic policy approaches regarding free-market reforms, deregulation, and reducing the government’s budget deficit are still a source of inspiration for politicians in the developed world indicates these approaches still have the potential to be followed to address the UK’s economic issues. Both Japan and the UK, are suffering from the same economic concerns: sluggish growth and low productivity.
Growth cannot be conjured out of thin air. Nor can it be achieved through “promising speeches” of government officials. Instead, it requires individuals capable of creating wealth to act on their entrepreneurial innovations, capital accumulations, and economic calculations within market processes.
Regarding productivity, theory teaches us that there exists a cyclical relationship between productivity and economic growth. Productivity is the initial driver of growth, while simultaneously is an effect of growth. Together, they create a virtuous cycle that propels an economy forward.
Identifying opportunities in the market occurs when capital accumulation, combined with competition, creates an incentivising atmosphere for innovation. This process gives the owners of capital a clear picture to analyse how to allocate resources effectively, based on the signals provided by the cost of capital.
One of the most efficient ways to allocate resources is by investing in capital goods such as machinery to be used for producing consumer goods. Investments in better and higher-quality capital goods inherently enhance production performance.
Improved productivity allows businesses to produce more at a lower cost of capital, yielding higher profits that potentially leads to increased wages that boost consumers’ real purchasing power. At this stage, real economic
growth becomes evident, creating ground for additional productivity improvements, and the cycle continues.
Once again, it becomes evident that addressing economic growth and productivity hinges on a well-functioning free-market system, immune to government intervention that distorts market signals and disrupts entrepreneurs' economic calculations. There are no shortcuts to achieve these goals. Only through reliance on these principles can sustainable growth and productivity be accomplished.
The UK’s current economic landscape stands in stark opposition to the principles of a well-functioning free-market system and its benefits. The proliferation of red tape imposed by governments has significantly driven up the cost of capital, leaving firms with diminished or even zero incentives to save, invest, and focus on achieving growth or enhancing productivity.
A striking example is the increase in National Insurance contributions, obliging employer class 1 to pay a rate of 15%, up from the previous rate of 13.8%.
About the economic challenges shared by Japan and the UK, public finance is a remarkable indicator. Over a 20-year period from 2004 to 2024, they experienced the highest increase in government debt-to-GDP ratio amongst the G7 nations, as reported by the IMF. The debt-to-GDP growth rate was 66.6 percentage points for Japan, and 61.4 percentage points for the UK.
The UK’s departure from having prime ministers with mindsets akin to those of Margaret Thatcher may partly explain the absence of policies aimed at addressing the issues of low growth and productivity. The underlying factors driving these problems need to be tackled by the leadership of another Iron Lady or Gentleman.
I recently attended the Adam Smith Institute’s Annual Ayn Rand Lecture, where Lance Forman, businessman and former European MP, had a lecture expressing concerns the current regulatory climate has imposed on businesses. When an audience member asked, “who should we vote to be liberal enough to alleviate these concerns?”
Forman emphasised the need for a Thatcher-style prime minister—a figure who has become increasingly rare, even within the Conservative Party.
Given that Japan’s Prime Minister—another G7 member facing similar challenges to the UK—advocates Margaret Thatcher's legacy to tackle issues related to growth and productivity, why does not the UK show the same determination to do so at home?
Roham Jaberi