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Margaret Thatcher was the most important peacetime prime minister of the U.K. since the late 19th century. She transformed the Conservative party and British politics, by overturning the ruling assumptions about the relationship between the state and the market. She also was a towering figure on the global stage. Her close ideological connection with U.S. president Ronald Reagan helped give her a role in the world unlikely ever again to be occupied by a British politician.

True believers view her as a Saint Joan of free markets, dedicated to rolling back the state in all its dimensions. In reality, however, she was a pragmatic politician who showed little interest in embarking on politically suicidal attempts to demolish pillars of the welfare state, such as the National Health Service. Under her governments, public spending never fell below 39 per cent of gross domestic product.

Nevertheless, hers was a transformational premiership. The legacies of her governments include liberalization of exchange controls, a huge cut in top income tax rates, liberalization of labour markets, transformation of the legal position of trade unions and defeat of militant organized labour, notably in the miners' strike of 1984-85, sale of a large part of the council housing stock, privatization of most nationalized industries and the liberalization of finance, including by the "big bang" of 1986, which transformed the City into the world's biggest international financial entrepôt.

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In macroeconomic policy, her governments started with monetarism and ended with a row over the role of exchange rates in monetary policy. But the rejection of Keynesian fiscal policy and the shift to relying on monetary policy, in its place, were cemented during her period in power. It was left to the incoming Labour government to take the logical step of making the Bank of England independent, in 1997.

She played a large role in Europe, as well, contributing to launching the single market program and the concomitant Single European Act, in 1986. This she saw as an attempt to export liberal economics to the rest of the European Community. But she became anxious about the dirigiste consequences and was staunchly opposed to the single currency. Her speech to the College of Europe in Bruges, in September, 1988, in which she stated "We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level," marked a turning point for her and her party.

On the world stage, Lady Thatcher's influence rested on both her outspoken defence of free markets and her close relationship with the U.S. On privatization, she persuaded many around the world that even countries with socialist legacies could roll back state ownership radically. Much of the world ultimately followed this powerful example.

How is one to assess Lady Thatcher's legacy, then, more than two decades after she was unceremoniously evicted from power?

For the U.K., the 1980s, 1990s and 2000s did mark the first sustained period when GDP per head rose more than in the other large European economies, since the 19th century. Unfortunately, the post-crisis economic malaise, the high inequality, the persistent regional imbalances and the overreliance on an unstable financial sector mar this success.

Nevertheless, even though Lady Thatcher was – and remains to this day – an intensely divisive figure, U.K. politics remain in her thrall. Even Ed Miliband's Labour party has not dared to suggest a return to the policies of the 1970s. At home and abroad, the ideas with which she was most strongly associated – above all privatization – remain influential.

On Europe, Lady Thatcher's worries about the obstacles to running a single currency for such different countries have proved prescient. Yet the project is still in place, while the U.K. creeps towards the edges of the European Union.

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Globally, the end of Lady Thatcher's period in office coincided with the collapse of the Soviet Union, a triumph for the roll-back of socialism she proclaimed. After the Tiananmen protests, China's reform seemed to have been aborted. Yet if one asks today which political leader did most to transform the world through a shift towards markets the answer would be Deng Xiaoping, not Ronald Reagan or Margaret Thatcher. The transformation of China is the great economic and political event of our era.

Lady Thatcher was a political giant, albeit within a declining nation. She stood for a revival of free markets and a declining role of the state. Today, however, it is not the West, but emerging economies, which are the flag bearers of relatively free markets. This was far from her doing. But she could well have regarded this outcome as a great success.

Her appreciation would have surely been marred by disappointment over the state of her own country. History has not been kind to confidence in a durable British economic resurgence. Today, alas, the post-Thatcher renaissance looks as much illusion as reality.

Financial Times

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