Thatcher's economic reforms influenced the world, but the next big changes won't come from Britain

So where will the next economic revolution come from? Under Margaret Thatcher Britain introduced a set of economic reforms that have become pretty much the norm for the developed world. The most obvious of those was privatisation, which swept around the world, and labour market reforms.

There are not many state-owned airlines left in developed countries, and Germany’s success in the past decade in cutting its unemployment from one of the highest in Europe to one of the lowest is a result of the Hartz reforms, which brought its labour practices much closer to those of the UK.

But if you stand back and set what the UK did in the 1980s in a global context, we were part of a tidal wave of economic liberalisation that swept around the world. If we reformed more swiftly and more violently than the others, it was because we were in more of a mess to start with. Actually the first sniff of reform came under the previous Labour government: it was Denis Healey who privatised the state holding in BP, and if Labour failed to sustain its trade union reforms, at least it was aware of the need to do so. Further, it was Labour that first introduced monetary targets.

To say this is not to downplay the significance of Margaret Thatcher. It was she who had the drive to push through the reforms that most people accepted as necessary and which became a model for other countries. It is to make a different point: that economic policies in the developed world move roughly in step with each other. After the dismal decade of the 1970s, when we all lost control of inflation and the entire market model was under threat, the West had to pull itself together.

It is quite hard now to remember the sense of despair on both sides of the Atlantic that permeated our societies. The sense of despair now does not feel anything like as dire as it was then, at least in the UK. But there is certainly a widespread concern the West is somehow losing out to the emerging world and that with every year that passes we do indeed lose relative economic power.

Those concerns vary from region to region. In the US much of the focus is on the loss of global leadership to China: that China will pass the US as the largest economy within the next 10 to 15 years. In Europe the concerns inevitably centre on the euro. Will it survive? What happens if it doesn’t? In Japan, home to the world’s oldest population, the question is how to stop relative decline becoming absolute decline.

Beyond all this there is the fundamental worry that we in the West are not good enough; not good enough, that is, to justify our still-nice standard of living in an increasingly competitive world. Other people in the emerging world are harder-working, save more, and are becoming as well-educated. As Lord Heseltine, that associate and then foe of Margaret Thatcher, pondered a few days ago, do we still have that drive to succeed?

How will the West fight back? I don’t think it is possible to see either the detail of what is needed or which countries will be pioneers, but one can see some elements of the next sea-change in economic policies.

It is pretty clear that there will have to be fiscal discipline, and of all the major economies, only Germany is delivering that. So we will all have to be more German. In terms of labour flexibility, the UK is proving a decent enough model in the way we are encouraging older workers to stay in or re-enter the workforce, but carry a scar of failure in educating and training our young people. The US has been rather poor at job creation but retains an innovative and flexible business start-up culture. It will also benefit from access to oil and gas from shale, which will help hold down industrial costs and underpin the present movement to bring manufacturing back from the emerging world – the process dubbed “on-shoring”.

But perhaps the most interesting examples of competent policymaking in the West come from the smaller economies, such as New Zealand, the Scandinavian countries, and eastern Europe. New Zealand leads in running small but effective government. Finland leads in education. Sweden leads in macro-economic management and efficient public services; the Baltic states in their tough and vigorous response to fiscal austerity. And so on.

As for Britain, maybe the Coalition’s educational reforms will be important. Maybe we will be able to downsize the state effectively, and maybe we will be successful in fostering small and medium-sized businesses. Realistically, though, I suspect most innovation will come from elsewhere.

It may be that the next set of reforms of our system will not emerge from the West, but will be driven by the emerging economies. Once upon a time we exported Thatcherism; in the near future, we will find ourselves reimporting an Indian and Chinese version of it.

h.mcrae@independent.co.uk