Callaghan: Winning the Battle

British Prime Minister James Callaghan 's Labor Cabinet is six weeks old, and "Sunny Jim " is still enjoying an early crest of popular approval. Some of that can be traced to his government's success in negotiating a second-phase pay increase limit with the country's trade unions that is designed to halve Britain's critical inflation rate to about 6% by the end of next year. Another Callaghan asset is his personal openness and ebullience. At his new official home at No. 10 Downing Street, he tells visitors that he feels like a cardinal who has suddenly been named Pope: "God has given me the papacy. Now I propose to enjoy it."

Last week Callaghan discussed Britain and the world as he sees it from his new vantage point with Time Inc. Editor in Chief Hedley Donovan, TIME Managing Editor Henry Anatole Grunwald and London Bureau Chief Herman Nickel. Excerpts:

THE ECONOMIC STRUGGLE. Just a year ago people were saying that this country was ungovernable. It was never true. Trade unions have a great understanding of the employers' difficulties and the employers of what is possible for the unions. It is a great tribute that people are apparently willing to accept a genuine cut in their standard of living for the second year in succession. But the recent wage settlement is only one part of it; we've won the battle, but we haven't won the war.

The trade figures are not going to improve very much, because import prices are going up quicker than export prices. But we've got a real prospect now in the export markets. One fortunate thing is that the American economy is now taking off again.

Our internal budget deficit can be financed this year, but the crunch is going to come next year when industry will be needing more resources for investment, and that will come into competition with the government program. We are restraining the increase in public spending, but I don't want to destroy our growing sense of social cohesion by cutting into programs for education, health or pensions; so what we've got to go for is a fast rate of growth, mainly through exports.

To be frank, we shall also have to look again next year at problems such as pay differentials, and industry tells me that middle managers are feeling they're not getting the rewards that they would get elsewhere. These problems built up during two years of rigid incomes policy. In the long run, I would like to think that unions and employers would themselves work out a policy for pay and incomes so that the government need not step in, that each would recognize what they can take out of the kitty. I think this common assent has been the great success of the German economy.

THAT LOSER MENTALITY. What we need is not so much a change in economic policy as changes in attitudes. This country has felt too long that it has been on the losing side. Well, I think that a country which can be self-supporting in energy (as we shall be in 1980), a country which has skilled scientific manpower and a technological base, a country that has a self-disciplined population --don't tell me that this country can't succeed. Of course it can. We've got to give our people confidence that there is something on the other side of the hill and stop the loser mentality.

THE BRITISH AS EUROPEANS. I'm not lukewarm on Europe. But I'm lukewarm about some of the schemes that are proposed more for the sake of uniformity than unity, like whether only eviscerated chickens must be sold within all countries. On the question of direct elections for a European Parliament, we have said we shall go on with it. But if Britain is to have only 36 members in the European Assembly, which is the latest French proposal, stretched over the entire United Kingdom, you won't get any personal link between the member and his constituents. I would sooner go on nominating them from our Parliament than have elections on that basis.

It is this kind of practical consideration that gives us the reputation of being bad Europeans. We think we're just practical about these things. And, of course, when I first came in [as Foreign Secretary in 1974], there was, in some quarters, a very strong anti-American slant which I find distasteful. That, I think, has evaporated completely now.

We shall have the presidency of the Community, probably, on January 1 next year, and I have already strengthened the foreign office team with a view to considering what Britain can do. But I am not interested in gimmicks for gimmicks' sake.

THE WEST AND AFRICA. I think Henry Kissinger has made America's position absolutely clear and will have favorably affected the attitude of Africa to the U.S. For the U.S., that is not an unimportant consideration. Now the touchstone by which it will be judged, to a large extent, will be the repeal of the Byrd Amendment [permitting the U.S. to import chrome from Rhodesia]. The repeal of it is essential if you are to put your money where your mouth is. I do not wish to interfere in any way with the discretion of Congress, but as a friend of America, I would say most strongly that it would be in America's long-term interest to do this.

THE SPECIAL RELATIONSHIP. Of course it is special. I am not claiming a relationship with the U.S. that France or Germany do not have. But to me, the special relationship is that I sit down with an American and can discuss matters from a common viewpoint. I think that's one of the reasons Henry [Kissinger] and I got on so well. He used to say to me that when he came to London he got a sort of world outlook as he did in Washington. That is bound to create a special relationship between us. America, thank God, is recovering its self-confidence. If America loses its self-confidence, then the Western world is in bad shape.

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