Watching the Action

Britain wears a deceptive look of prosperity. Cash registers are ringing merrily in the nation of shopkeepers, and consumer credit is on the rise. Less than 2% of the work force is unemployed. Construction is booming.

Though overall industrial production has been bobbing along a plateau, steel output is heading for a record 26 million tons this year, and auto production will rise almost 25%. But there is one dangerous, debilitating weakness. It is axiomatic that Britain must trade to live--and this year, as in many recent years, the country is living beyond its means in world markets.

Double Tariffs. Imports have been rising three times faster than exports, and Britons have been investing capital abroad at a considerably greater rate than foreigners put money into Britain.

Result: Britain's trade gap topped $1 billion in this year's first nine months, and the country has been heading toward a 1964 payments gap almost equal to its entire gold reserves. Throughout the postwar era, Britain's inability in periods of domestic prosperity to export enough to pay for its imports has meant recurring payments crises, pressure on the pound, and credit-tightening moves that have restricted economic growth.

As a consequence, France and Germany have lapped Britain in terms of production and personal income.

Last week the activist economists in Britain's Labor government (see THE WORLD) put through a stern pound-protecting program. A new 15% tax on manufactured imports will have the effect of doubling tariffs, adding 28-c- to a bottle of sherry and $225 to a Volkswagen. The government also started to "re-examine" the joint Anglo-French projects to build the Channel tunnel and the Concorde supersonic jet transport (the French feel certain that Britain will try to pull out of the Concorde). On top of that, the government announced a tax kickback for exporters, amounting to 1.5% of the value of goods shipped.

Encouraged by Incentives. British businessmen, having expected something worse, seemed surprisingly unruffled about Labor's first major show of economic activism. Stocks rose on the London market, and many businessmen echoed the sentiments of Leyland Motors Managing Director Donald Stokes: "We are encouraged by the new measures to provide incentives to exporters." Though businessmen felt more comfortable with the Conservatives in power, many of them had grumbled about the Tories' more-talk-than-action approach to exports. Economics-trained Harold Wilson quietly mended his fences in the City with a series of preelection private lunches in corporate board rooms. Britain's businessmen have not wholly bought his ideas, but in something of a honeymoon mood, they are willing to see whether he can and will help them to make British industry more modern, more aggressive and more competitive.

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