Britain's Struggle with Stagflation

ONLY last year it seemed to many Britons that their long-sought economic turn-around was finally at hand. The balance of payments showed a handsome surplus, foreign debts declined, and even the country's laggard industrial productivity gave signs of recovery. The euphoria turned out to be shorter than an English summer. Britain is once again tumbling into one of the periodic economic crises that have made the country the chronic invalid of Europe.

The British have dubbed the current malady "stagflation"--a combination of stagnant consumer demand and almost runaway wage-price inflation. During the first quarter, the country's real output actually fell by 1%; retail prices have risen so far this year at a 7.7% annual rate. In one recent week, statisticians counted 286 increases in grocery prices. Telephone charges and railway fares are up, some London subway fares have doubled, and postage for a first-class letter will go up from 5d. to 7d. in January. The nationalized coal and gas industries have publicly warned that substantial rate increases are in the offing. Inflation, says Robert Carr, Secretary of State for Employment and Productivity, "is out of control. Until we can get it under control, the country will be heading for economic disaster."

Militant Wildcats. The sharp rise in prices is exceeded only by wage demands unprecedented in scale, and by the militancy with which they are sought. Basic wage rates rose a steep 9.9% in the seven months from January to July, compared with 5.4% for all of 1969. By one estimate, there has been a daily average of ten work stoppages so far this year among the companies that supply parts to Britain's auto industry. Now a four-week wildcat strike by 5,000 metalworkers at GKN Sankey Ltd., a major manufacturer of car parts, has halted automakers' assembly lines and has put 35,000 other auto workers out of their jobs. The parts makers are holding out for a 43% raise.

British workers have spent more time on strike so far this year than in any similar period since 1947. They have succeeded in winning hefty wage increases, despite the existence of a Prices and Incomes Board that is supposed to keep that from happening. London dockers tied up shipping for three weeks this summer, paralyzing the foreign trade from which Britain earns its living. They want a 7% basic wage increase, and as much as 45% more in minimum overtime pay. Miners, who got a 10% raise in October, are now pressing for a 33 1/3% hike; local government laborers are demanding a raise of at least 20% on top of an increase last fall. Some 350,000 farm workers want a 37% boost and 320,000 teachers, who won an average 11% increase after a 3-month strike last winter, are after another 37%. Even 5,000 unionized steel executives are demanding raises of 18 1/2%.

The new surge of inflation is rapidly eroding the balance of payments gains brought about by two years of severe economic restraint. It has again called into question Britain's capacity to compete in an enlarged Common Market and poses a renewed--though not immediate--threat of another devaluation of the pound. To avert that blow, many economic analysts contend, Britain's new conservative government will have to adopt strong anti-inflation measures soon.

Heath's Dilemma. How to do so presents an acute dilemma for Prime Minister Edward Heath, who last week held his first Cabinet meeting in six weeks, after a summer largely spent sailing his 34-ft. sloop around the Isle of Wight. Heath cruised into office last June on a promise to cut taxes and restore financial incentive to Britons, who are among the most oppressively taxed people in the world. Income taxes take $22 out of the average worker's $250-a-month income, but collect as much as $18,250 of a top executive's $25,000 taxable income. If Heath reduces taxes to spur productivity now, however, he runs the risk of fueling an inflationary burst of consumer spending. If he confronts the unions headon, the resulting strikes could damage badly needed production at a time when 2.6% of the labor force --a high level for Britain--already are jobless.

Last week Heath met with the Trades Union Congress's general secretary, Victor Feather, in what turned out to be little more than an exercise in political diplomacy. The powerful T.U.C. had already rejected government appeals for moderation in wage demands, and the government has shown no inclination to adopt the unionists' alternative suggestion of rapidly expanding the economy. "This government has no policy," complained Feather last week. "Unions are the scapegoat."

Useless Degrees. Stagflation is also contributing to Britain's social tensions. "I don't expect to work ever again," says Peter Yore, 48, a jobless miner who has spent 34 years in the coal pits. "I've tried, tramping about all over the place, but nobody wants me." At the other end of the spectrum, some 4,000 graduates leave Britain's universities each year without a job, largely because they hold degrees in "unmarketable" subjects. When job opportunities do open up, many workers are reluctant to move to another town because it would mean giving up low-rent public housing that they have waited years to occupy. Near the root of the country's economic problems are pandemic featherbedding by nearly everyone from chairman to charwoman and a class antagonism that heightens the normal tension between management and organized labor. Each tends to blame the other--and each, in a way, is right.

British management has been notorious for its slowness in adopting cost-cutting techniques, new machinery and sophisticated marketing methods. But nowhere is it more critically behind the times than in industrial relations. As one young industrial executive said last week, "In a lot of British firms, they still assign some retired naval officer to the job of industrial-relations officer. The post is usually so far down the organization ladder that it's almost invisible."

In return, British laborers often take pains not to work too briskly, for fear of cutting into their regular overtime. Both the organization of Britain's unions and the country's obsolete labor laws also promote industrial strife. National union leaders have little power to discipline locals for wildcat strikes, or to curb the disruptive tendencies of unruly shop stewards. Many companies must contend with as many as 20 different unions in a single factory. Worst of all, British labor contracts are not enforceable in law, and even wildcat strikers cannot be haled into court. Last year former Prime Minister Harold Wilson proposed a bill to enforce mandatory cooling-off periods but shelved the idea because of union opposition. Heath's government, which has no obligation to organized labor, has promised to introduce its own industrial-reform measure later this year. Despite the risk of triggering a general strike, some such measure seems inescapable if Britain is to bring an end to its industrial-labor chaos.

No Giggling. Many moneymen contend that Britain must also place more reliance on monetary policy to control its economy. Instead, the government for years has depended mainly on taxes and direct controls to even out economic swings. But heavy taxes have greatly diminished the incentive for both companies and individuals to become more productive.

Britain has survived many previous economic crises, even though the country perennially appears to critics to be "sinking giggling into the sea." The difference now is that the rate of descent seems even more precipitous, and the giggling has turned into hollow laughter.

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