|Her vision of a property-owning democracy, based on mass share and home ownership, helped align the interests of bosses and workers, destroying the traditional rationale of the conflict-obsessed Labour Party and trade union movements. Perhaps more than any of her other reforms, that is the one we should be reflecting upon as she is finally laid to rest on Wednesday, and as we remember the greatest peace-time prime minister of the past 100 years.
Yet Britain’s transformation into an asset-owning society is gradually being undone, in a hugely damaging development. Share ownership by individuals is in decline, partly as a result of the market’s poor performance since the dotcom bubble in the late 1990s and then the financial crisis. UK individuals directly own just 11.5pc of UK stocks, down from 16.7pc in 1998. British pension funds have also sold out of equities, egged on by accounting rules that penalise volatility, and bought corporate and government debt instead, thus slashing people’s indirect shareholdings. As to home ownership, it peaked in 2003 and is now back to levels last seen in 1987, with many younger buyers priced out, fuelling disillusionment and generational strife.
Fewer people feel that they own a stake in our economic system. It is no surprise, therefore, that old-fashioned class war is returning; one of the most pernicious threats to capitalism today is the widespread feeling that the wages of workers, including much of the middle classes, are falling behind while corporate profits keep going up.
This is not just a cyclical issue, caused by stagnant growth and high inflation, but a more profound problem which began during the boom and which has seen many private sector workers struggle to maintain real-terms pay. Highly skilled workers in those industries that have harnessed globalisation and the technological revolution are doing fine, as are those in senior managerial positions, but median earnings are under severe pressure.
The answer is to reignite popular capitalism. We need far more people to own shares again, to recreate a mass investment culture and to halt the decline in home ownership (without resorting to sub-prime lending, of course). We need to move speedily to a fully-funded retirement system, with more people indirectly owning a stake in the corporate sector. That way, if the owners of capital do well, so will the workers. Burying the old Marxist divide is the best way of ensuring that we are genuinely all in this together.
Over very long periods of time, wages grow by productivity plus inflation, an amount roughly equivalent to real GDP. Cash savings, however, tend to do badly, with inflation gobbling up interest rates, bad news for workers who don’t own any property or equities. With the retail price index rising by 3.3pc a year, bank accounts and even cash Isas are being clobbered; the wealth of ordinary savers is being slowly destroyed, with catastrophic long-term implications for the electorate’s acceptance of capitalism.
Houses do better than cash, though not as well as many people imagine, and are currently overvalued: in his brilliant book Safe as Houses, Neil Monnery estimates that real house prices (after inflation) grew by 1.3pc a year between 1900 and 2010 (but just 0.8pc a year until 1995, before the bubble). To that should be added the net yield from rent. But the real long-term gains have historically come from equities: over the last 113 years, the real value of UK equities, with dividends reinvested, rose by 5.2pc per year, according to Credit Suisse.
That is why it is so important for as many people as possible to be exposed to the stock market, albeit in a sensible fashion, not at all times, and with the crucial caveat that very few individual investors can beat the market. It is the only way that the aspiring, ambitious folk who backed the Thatcher revolution will not be left behind if the squeeze on real wages continues even when the economy returns to growth.
But spreading share ownership needs to be done with savvy and in a financially literate manner: stock markets can go down for years, and those with short horizons need to be extremely careful. The rush of enthusiasm in the 1980s was accompanied by an absurd view that investing was a guarantee of immediate riches and left a lot of people with shattered dreams. More realistic expectations are required this time around; stock markets can be extraordinarily risky. On balance, however, the cultural gains from building a society where owning shares is common ought to outweigh these concerns. Thousands of companies offer approved employee share plans, with more than 2m employees involved. While a very welcome trend, it is important that workers don’t put all of their eggs in the same basket, and only invest in the shares of the companies they work for.
So what should be done? The best way to kick-start the process is to give away the Government’s shares in RBS and Lloyds Banking Group to the public, rather than to reprivatise these banks in the traditional way. The Centre for Policy Studies and Portman Capital have shown how such a plan could work. The Government would distribute an equal number of shares to everybody for free, but charge a fixed amount for each when sold on, to create a “floor price” to ensure that the public finances didn’t suffer too much; this could be done in a simple way with almost zero bureaucracy.
The public would gain if the share price were to increase above a certain amount, a great incentive for them to support the rebuilding of these firms, rather than continuing to indulge in endless, facile banker-bashing. Crucially, it would be taxpayers – those who bore the risk from the scandalous bail-outs – who would benefit from any upside in the share price.
Other state assets should also be sold to the public at massive discounts, including Royal Mail. Rather than trying to raise as much money as possible for the Exchequer, the Government’s priority ought to be to use its privatisation this year as a unique opportunity to recreate mass share ownership, and not just for the staff. Channel 4 and other government-owned companies should also be sold off in this way.
Another sensible reform would be immediately to double the amount of money that savers can put into stocks and shares Isas, leaving the threshold for cash accounts unchanged. Inheritance tax, and other obstacles to the cascading down of assets from generation to generation, should also be removed, though that may be too much to ask for right now.
Thatcher understood that the best way to get the public to accept the free market economy was to ensure that everybody had a stake in its success. That is a lesson today’s generation of politicians must urgently relearn.