Margaret Thatcher knew what she wanted to do when she came to power in 1979. She planned to tackle inflation, cut taxes, roll back the state, and give employers the right to manage by reducing the power of trade unions.

By the time Thatcher left office in 1990 inflation was still a headache for the government and there had been no real change in the size of the state. But by the mid-1980s, a combination of mass unemployment, the defeat of the miners in their year-long strike and a raft of tougher labour laws had fundamentally changed the balance of power in the workplace.

This was not unique to Britain. Indeed, one of the starkest changes in political economy over the past 40 years has been the victory across the developed world of capital in its struggle with labour for a share of the spoils.

At its simplest, the annual economic output of a country can be divided into two parts: the slice that goes to workers in the form of wages and salaries, and the bit that goes to the owners of capital in the shape of profits and dividends.

Back in 1980, labour’s share of the pie in developed countries stood at more than 61%, but it has been pretty much downhill all the way ever since. Income from employment as a share of gross domestic product is now below 55%.

The free-market thinkers that inspired Thatcher said that raising the share of national income going to capital was long overdue. By the 1970s, it was said, decades of full employment had allowed trade unions to get an excessive share of national output, leaving too little left over for firms to spend on new plant and machinery. The theory was that a rising profit share would lead to higher investment, faster productivity and more well-paid jobs.

Suffice it to say, this has not happened. In countries such as the US and the UK, the stock of fixed capital is lower than it was in the mid-1980s, according to last week’s report by the UN conference on trade and development (Unctad).

Facebook Twitter Pinterest Margaret Thatcher on the campaign trail in 1983. By the mid-1980s balance of power in the workplace had changed due to her policies. Photograph: Peter Jordan/Time & Life Pictures/Getty Image

Labour’s falling income share is correlated with declining trade union membership and a much smaller proportion of the workforce covered by collective bargaining agreements. But it has certainly not been correlated with rising investment.

Why has labour’s share been falling? As the Unctad report notes, “the proximate cause has been wage repression, which has prevented wages from keeping pace with the cost of living and increases in productivity.

“The deeper, more fundamental factors have included decreasing unionisation rates, the erosion of social security, growing market concentration and the spread of outsourcing through global value chains.”

Life has become more difficult for workers, who have been faced with a loss of bargaining power and the proliferation of precarious jobs, but a lot easier for employers. In practice, the much-vaunted flexible labour market means that only when unemployment falls to exceptionally low levels does it become possible for workers to seize the whip hand. For the rest of the time, the economic model of the past four decades means a growing share of household income is financed by borrowing, while the increase in the profit share has either been saved or channelled into buying assets.

John McDonnell’s speech to last week’s Labour conference posed a challenge to this flawed model, although its impact was drowned out by the party’s debate on its Brexit stance happening on the same day. To the extent that there was any commentary, it was that Labour was intent on turning the clock back to the 1970s.

To the extent that McDonnell wants to make it a more even fight between capital and labour so that workers earn a bigger share of what they produce, this is true. But there was nothing revolutionary about either of the two big economic themes of his speech.

The first was that the state must be prepared to invest if the private sector is unable or reluctant to do so. Capital is plentiful, interest rates are at historic lows, Britain’s infrastructure is badly in need of modernisation. Yet, businesses would rather sit on piles of cash or use profits to buy back shares rather than seize the plentiful investment opportunities. The fact that this tendency long predates Brexit suggests a need for the state to take the initiative in the hope that public investment will encourage private investment.

McDonnell’s second theme was the need to raise labour’s share of national income in a variety of ways: by raising the national living wage to a minimum of £10 an hour, a shorter working week with no loss of pay, and by rolling back the trade union legislation introduced by the Conservatives since Margaret Thatcher’s election in 1979.

At root, the Conservative changes were all about making it harder for unions to take effective strike action. That was because Thatcher and her ministers recognised that the right to strike was easily the most potent weapon at labour’s disposal. Unions don’t really like strikes, especially long ones that make it harder for their members to pay the mortgage and feed their families. But they know that often the only way to get a deal out of an intransigent employer is to threaten to walk out.

Boris Johnson has no intention of reversing Thatcher’s employment labour laws, although when it comes to Brexit, the prime minister is the one saying he wants to keep no deal – the equivalent of strike action – on the table. Labour’s approach is like that of a trade unionist who reassures the employer from the outset of negotiations that there is no possibility of a strike. Truly, these are weird times.