Report on ‘Thatcherism’ : Britain--A Hazy Future for Economy

“What are you doing in Britain?” asked John Harvey-Jones, chairman of Imperial Chemical Industries, the nation’s largest manufacturing corporation.

“Looking at the British economy,” his American visitor replied.

Harvey-Jones smiled.

“Looking at it?” he asked. “Or looking for it?”

Gallows humor fills the air in Britain these days.

The ruling Conservative Party boasts that the country on the whole has never lived so well.

The opposition scoffs that at least 11.5% of the work force does not agree--they are jobless.

Both sides acknowledge problems.

Back to Capitalism

Like the United States, Britain is undergoing structural economic change.

It also is experiencing deep and far-reaching adjustments under Prime Minister Margaret Thatcher’s program to lead Britain back from socialism into capitalism.

Through history, Britain has had a hard time with change. And after seven years of reform, the nation that launched the Industrial Revolution and built the British Empire still flounders. It cannot find a proper niche in the global economy.

Traditional industries continue to decay, an average of 14,700 jobs a month are disappearing (unemployment is nearly twice the U.S. rate) and a new class of permanently unemployed people is emerging--a hollow monument, some say, to the welfare state.

Uncertain Economic Future

Even more worrisome, no clear picture has developed of the kind of economy that Britain is building. Under Thatcher’s laissez - faire policies, all that can be discerned is a vague faith that the future Britain will arise as a world citadel of high technology and services.

“We are like a snake losing its coat of skin,” explained Eldon Griffiths, a veteran Conservative Party member of Parliament and a minister in previous Tory governments. “The coat is half off and half on. We are feeling our way into the future.”

As basic industries such as shipbuilding, steel, textiles and heavy machinery have withered under the onslaught of Asian exports, British investment has gone into electronics, services and other lighter sectors that promise more profit. But growth is slow.

“Turning around the British economy is like turning around the Queen Mary,” said Arthur Norman, former president of the Confederation of British Industries and chairman of De La Rue Co., a security printing and electronics company. “You’re halfway across the Atlantic before the job is done.”

And time matters: Britons stand on an economic trapdoor.

Vanishing Safety Margin

All that props up the trapdoor is North Sea oil, a relatively new but rapidly depleting resource. Unlike Americans, Britons do not have vast agriculture or massive high technology or anything else in hand to save them from the economic dark after the oil runs out, which is expected to happen in about 15 years.

So the quest for something on a grand scale--in electronics, telecommunications, financial services or, in fact, anything exportable in one fashion or another that offers employment--is a matter of major and urgent stake for the nation.

As the oil clock ticks, Thatcher lionizes private enterprise. While denationalizing major state-owned enterprise--about 20% of it so far--she encourages profit sharing and entrepreneurship as a way to get the nation moving. Her government subsidizes small start-up businesses.

But the unemployment rate does not yield.

By lifting foreign exchange controls and cutting corporate tax rates, the government has encouraged British companies to buy overseas assets. Corporations have invested overseas, but the impact on domestic unemployment is indirect, arguable and, at best, long-term.

Women Fill Many Jobs

Through the so-called Big Bang deregulation of the City, Britain’s Wall Street, Thatcher has fostered the formation of giant financial conglomerates to make London a major center in international capital markets. Again, the jobless figure is barely affected.

New jobs have been created in tourism, advertising and a range of other service industries. These positions, however, are filled almost entirely by women, a majority of them part-time workers. (While the number of men in the work force has remained stable at 15.5 million over the past 15 years, the number of women has increased to 11 million from 9.3 million).

In jest, some Britons predict that their country will become a giant Club Med.

So what does happen when the oil runs out?

More Emigration Seen

History suggests an unhappy answer. For lack of opportunity, Britons by the millions fled their native land in the 19th Century, never to return. Already in this century, Britain has suffered a “brain drain” as scientists, doctors and other highly trained specialists sought opportunity in the United States and elsewhere.

“It will be very rough (when the oil runs out), and it worries me,” said Harvey-Jones, the chairman of ICI, which already does 80% of its business outside Britain. “Manufacturing will become more competitive, but it cannot come up quickly enough and fill the gap . . . because it takes time to develop global markets.

“A likely model will be hefty emigration from this country.”

As an alternative, some Britons propose making more room for workers by cutting back the workweek, instituting earlier retirement and practicing the old idea of state spending to create jobs, including remuneration for volunteer work.

“We will never return to full employment as we have known it,” said Lord Murray, who as Len Murray was general secretary of the Trades Union Congress from 1973 to 1984. “We must redistribute work, income and leisure on a more fair basis. I am optimistic that we can.”

That proposal does not wash with some Britons.

“It is a nice theoretical idea, but we live in a competitive world, and I haven’t heard any indication of South Koreans wanting to work less,” Arthur Norman, the former CBI president, said.

Good Living for Many

For most Britons, though, the living is good, thanks to oil, which, while it lasts, produces the margin between comfort and despair--about 6% of the national income (and 8.5% of tax revenues).

To an American on his first prolonged stay since living here 30 years ago, Britain has risen spectacularly to one of the highest standards of living in the world from the drab days under the late Harold Macmillan, who led the nation as prime minister from 1957 to 1963.

As recently as the mid-1950s, Britain still had not cleaned up all the rubble of World War II. You could choke on winter’s black air, and people died from it.

Now, the coal smoke has vanished, London glistens, and most of the country lives well above past levels of comfort. At enormous expense, the British have vastly expanded the university, health care and highway systems.

They have elevated tastes in food and clothing to world class and let go much of the stodgy past--including coal-burning hearths.

Nearly two-thirds of Britons live in homes they own, central heating warms 66% of homes--compared to 11.5% in 1956--and telephones, once a rarity, sit everywhere--one for every two people.

“Right after the war the only person in our whole neighborhood who had a private telephone was a policeman,” said Norman Willis, the current general secretary of the Trades Union Congress.

Disposable Income Up

Especially in London and the more prosperous southeast, it is easy to see from the life style that, in real terms, personal disposable income indeed has doubled since 1956 and is rising fast. For every 1,000 people, the number of cars has risen from 76 to 284.

Even in Liverpool’s and Birmingham’s most deprived neighborhoods, where male unemployment runs to 50% and more, most of the poor live well by U.S. poverty standards, supported by a social net generous enough to spare its beneficiaries the grinding squalor of the American ghetto.

But the trappings of national wealth mislead. To get them, Britain has fallen into the habit of overspending. And while self-indulging, Britain has slipped from third among the world’s economies (after the United States and the Soviet Union) to sixth (after Japan, West Germany and France). It continues to lose ground.

The empire is gone and the pound sterling, no longer a world reserve currency, is just another bill in the world basket.

Britain hit bottom in the mid-1970s when the Labor government was forced to go like a Third World nation to the International Monetary Fund for a loan. Financial reserves gone, inflation running at more than 20% and public debt skyrocketing, the government had to open its books and accept IMF discipline to get credit.

“When the IMF ‘bailiffs’ came in, the whole country felt shame,” Griffiths, the former Tory minister, said.

Oil Price Benefits

The debacle brought Margaret Thatcher and her Conservative government to power in 1979. For the Conservative Party, the timing was exquisite. Almost immediately, the Organization of Petroleum Exporting Countries doubled the price of oil, which Britain had just begun producing at peak volume in the North Sea. (Before doubling in 1979, the oil price already had quadrupled since 1973).

Buoyed by oil revenue ever since, Thatcher has been reshaping Britain into a private enterprise-oriented society. Her most publicized effort has been the sale of government-owned companies: British Petroleum, British Telecom, British Aerospace, Jaguar and British Rail Hotels already have passed back into private hands.

Shares of British Gas are being offered to the public now. Over the next year or two, British Airways, the British Airport Authority and Rolls-Royce will enter the private sector.

But the most far-reaching result of “Thatcherism” has been the bridling of trade union power.

In short order, Parliament passed laws that required secret balloting of members before strike actions, made unions financially liable for damage they cause companies and prohibited secondary picketing. In a phrase widely used, Thatcher “gave the companies back to the management.”

Record Still Clouded

Immediately the number of strikes began to diminish. But a lot of damage had been done.

Over the last 30 years, Britain has lost more than 242 million workdays as a result of industrial disputes. (In contrast, Japan, with a population twice the size of Britain’s, lost fewer than half as many workdays, the bulk of them to transportation union strikes in the 1960s and 1970s).

“Last year we had the lowest number of strikes in 50 years,” Lord Young, Thatcher’s employment secretary, said. But what Britons call “the British disease” persists under Thatcher as much as it did under previous socialist governments.

“We still don’t grow very fast, and we pay ourselves more than we earn,” said Bill Robinson, senior research fellow of the London Business School.

A single statistic encapsulates the dilemma: At a time of 2.4% inflation, wages are rising at a rate of 7.5%. In a competitive world, wage increases like that are a sure formula for losing markets.

“We have real problems with productivity,” Young said. “In manufacturing, our wage costs per unit are rising about 6% a year, and in Germany and Japan they are not increasing at all.”

Managers, Workers Blamed

Both managers and workers are blamed in part for Britain’s industrial weakness.

As a group, British executives are perceived as remote from their operations, soft and lacking imagination.

“The best potential leaders are not attracted into industry,” said Harvey-Jones, who was a career naval officer before joining ICI nearly 30 years ago. “Management has not done well in Britain.”

And as a group, British workers are perceived as slow on the job and greedy.

“Britain’s failure, including labor’s, was (the failure) to make use of our manpower, to always put the emphasis on the demand side and never on the supply side,” said Murray, the former labor leader. “In West Europe, Japan and the United States, the emphasis was more on output than on income, and in comparison British productivity suffered.

“We were all to blame, we were all complacent,” Murray said. “We had had the advantages of empire, and we had started the Industrial Revolution, and we thought this was the way the good Lord had meant things to be.

“We forgot that we had gotten through two world wars just by the skin of our teeth.”