The Verdict on Thatcherism Is Clear

Simply compare how her UK squandered its oil wealth compared to Norway

Nothing says free market capitalism like Margaret Thatcher. The Iron Lady once proclaimed, “Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

Thirty-five years after she swept to power as British prime minister, it is ironic that socialist Norway now has $830 billion in the bank and enjoys fully funded social programs that most of us can only dream of. Meanwhile the U.K. is enduring another round of wrenching austerity and owes over £1.3 trillion — about US$2.2 trillion. That massive debt grows by about $3.8 billion each week, while every seven days Norway adds another billion dollars to their bank account.

What happened? Both countries were in dire economic straights in early 1970s. Both countries came into the financial windfall of North Sea oil around the same time, exploiting the same resource — sometimes from the same drill rig. How could they have ended up in such vastly different places?

Rarely in history has there been such a clear-cut opportunity to explore the real world success or failure of competing world-views. Thatcherism has gone on to become an economic school of thought with true believers in positions of power around the world. The doctrine of cutting taxes, privatizing government assets and embracing deregulation continues apace around the globe to this day. But does it work?

First let’s agree on some fundamentals. Wealth flows from resources and oil is a particularly lucrative bounty. The 75 billion barrels of light sweet crude discovered in the North Sea was worth over $8 trillion at 2014 prices. With that much money on the table and the resource roughly evenly split between the U.K. and Norway, let’s see how socialism and Thatcherism fared in this economic cage match.

For starters, Norway isn’t precisely “socialist.” Like other Scandinavian countries, they have a mixed-market economy with relatively high levels of taxation and comprehensive social programs. The main difference was that Norwegians did not have an allergic aversion to public participation in their economy.

One of the first things the Norwegian government did was to incorporate a state owned oil company — Statoil — to ensure they had an equity stake in their own oil production and to act as a repository for oil expertise. Since Norway knew essentially nothing about the oil business, they had to learn fast and having a player on the field helped them do that.

Oil is also a good investment and the Norwegian taxpayer has enjoyed over $23 billion in Statoil dividends from their government’s stake in the company since it was founded in 1972. The equity value of those shares is worth another $64 billion.

Lady Thatcher on the other hand embraced the conservative ideal of minimizing government presence in the marketplace, virtually inventing the process of privatization. One of her first acts on election was to sell 80 million shares of British Petroleum, ending the majority stake the U.K. government had held in the company since 1913 on the advice of Winston Churchill. Thatcher sold the U.K.’s remaining 1.7 billion shares in BP immediately after the stock market crash of 1987. While this raised $20 billion at the time, adjusted for inflation, those same shares would be worth over $87 billion today.

Taxation is of course another yawning philosophical divide between Thatcherism and the Norwegian model. While Norway needed outside expertise and capital to develop offshore drilling operations, they also wanted to tax foreign companies to limits of tolerance — to “squeeze the lemon to the maximum” as one historian told me. An unspoken role of Statoil was to pass on informed intelligence from within the oil industry on costs, prices and players so the Norwegian government could better prevail at the negotiating table.

This was no garden party. With literally trillions of dollars at stake, Norway was playing to win. At one iconic meeting in 1974 the Norwegian government announced to a delegation of oil companies that they were raising the level of taxation on petroleum profits to 90 per cent from 50. After the shouting had died down, the minister expressed disappointment that some of them did not walk away from their offshore leases. “We should have taken more,” he admonished his bureaucrats in full view of the enraged oil executives.

Thatcher on the other hand seemed more enamoured with ideology than money. She told a Conservative conference in 1977, “Our aim is to make tax collecting a declining industry.” She and successive governments succeeded in that dubious goal. Even though the U.K. extracted nine per cent more oil and gas by 2011, they collected $156 billion less in petroleum taxes and royalties than the Norwegians.

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– Research thanks to Kierin M.

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