British Prime Minister Maragret Thatcher's highly touted conservative economic policies, focusing on monetarist and supply-side theory, have resulted in "the worst recession since World War II," according to a staff report released yesterday by the Joint Economic Committee.
The report acknowledged that inflation in Britain has slowed, "but at a large cost in terms of increased umemployment." The jobless rate is now 11 percent, with 2.5 million unemployed, and the total is likely to reach 3 million, according to British sources.
"It is not clear, therefore, that the government's monetary and supply-side policies have found a new, less costly solution to inflation than older Keynesian demand-management policies," the report said.
These critical comments on the Thatcher policy were part of a study of anti-inflation anti-recession policies of the past decade in Britain, Germany, France and Sweden. It was directed by James K. Galbraith of the JEC staff.
The central conclusion of the study is that monetarism -- main reliance on the growth of the money supply to control inflation -- is a "waning force" in Europe.
Another main theme is that selective credit policies are playing an increasingly decisive role in strategies for long-term industiral adjustment, even in France and Germany which, according to conventional views, are successful because they are free-market-oriented.
A JEC press release said 140 individuals in the four countries were interviewed, including senior Treasury officials, Central Bank officials, and leading businessmen, bankers and others in the private sector.
The report says monetarist techinques have been widely applied, but that "in pure form," they have not proved practical in any of the four countries. In Britain, the monetarist experiment "has proved difficult -- if not impossible -- to put into effect, although the consequences of trying have been severe." German authorities, according to the JEC report, recently have deemphasized use of monetary goals.
Countries such as France and Germany that have had the most success with long-term industrial strategies have depended heavily on selective credit policies, according to the report. Even the former Valery Giscard d'Estaing government, touted as free market and monetarist, "strenthened its system of credit controls, applied monetarism in only a half-hearted way, and pursued an agressive, government-supported industrial policy," the report says. It predicts that the Socialist government of Francois Mitterrand will pursue different, "but equally aggressive industrial policies."
West Germany "is, in fact, far from" an unregulated free-market economy, the report says. The German Central Bank pursues its monetary targets as part of a coordinated strategy that involves government guidance on wages and prices. Beyond that, cooperation rather than confrontation between German labor and management has helped productivity growth, the report says.