The British Illness Strikes Again

Margaret Thatcher's noble experiment hits hard times

When Margaret Thatcher became Britain's first woman Prime Minister last May, she promised nothing less than an economic revolution. During a secure five-year mandate, she would start to reform a socialist economy plagued by years of economic stagnation, inflation, unemployment and industrial strife --whatever the cost. Now, after only ten months of the Iron Lady's rule, the cost of those policies for many Britons is already proving too high.

Last week, the Labor Party filed its first motion of no confidence against the new government, specifically aimed at its economic and financial policies. Thatcher won that test easily because of her party's 43-seat House of Commons majority. But that was only the initial skirmish. The Prime Minister insisted a year ago that the British economy could not be turned around without many tough, unpopular decisions. No Mary Poppins with a spoonful of sugar to help the medicine go down, once in office she quickly cut spending, lifted interest rates and reduced income taxes, but raised sales taxes and relaxed all exchange controls. She promised that the difficult measures would eventually result in a more vigorous economy.

Mrs. Thatcher's program, though, has been heavily buffeted amid a gale of bad economic news. Inflation has risen from 8% to 18% and confidential government studies suggest that unemployment, only 1.3 million last spring, will rise to over 2 million next year. Businesses cut capital spending by 3% last year and will drop it another 10% this year. The 1979 current trade deficit totaled $5.5 billion, vs. a 1978 surplus of $1.5 billion. The British Treasury, in a gloomy report, now suggests that this year's projected economic slump will be even worse than the 1973-74 decline.

But the worsening outlook and the criticism have not fazed the government, which is determined to free Britain from 30 years of Keynesian economic theory and even more government involvement in the economy. In an interview with TIME'S Frank Melville, Chancellor of the Exchequer Sir Geoffrey Howe talked openly of the "almost frighteningly bad" economic outlook. But, he added, "people have still not appreciated the scale of difficulties. They have got to understand the length of time which will be necessary to achieve modest but firm steps in the right direction. Within four years, we should be able to point to things bigger than seedlings but smaller than saplings."

Thatcher's No. 1 priority is beating inflation. A close follower of the monetarist theories of Nobel Laureate Milton Friedman, Thatcher has tightened money and cut government spending. The growth in money supply has been curbed, and interest rates have risen to alltime peaks. Mortgages now cost 15% and a car loan 20%.

The second part of the Thatcher strategy, involving spending cuts and less propping up of ailing government industries, has been vigorously pushed. Last June $7.5 billion was shaved off the previous Labor government's spending plan. Still tougher classical Conservative medicine is coming. This year's budget, due this month, will include higher health prescription charges and big cuts in funds for new hospitals, roads, subsidized housing and schools.

After a trying start, Mrs. Thatcher now faces her most severe test: the labor unions. Right now the government is suffering from a ten-week-old strike by iron and steel workers and blast furnacemen against state-owned British Steel. The two unions, which are demanding a raise of more than 20%, have already rejected a 13% annual pay hike. The steel confrontation has already produced some uncharacteristic violence, with pickets battling police and pelting Industry Secretary Sir Keith Joseph with rotten eggs.

Most union leaders remain hostile to the government. Said Len Murray, general secretary of the Trades Union Congress, the British equivalent of the AFL-CIO: "We are being attacked and clobbered by Margaret Thatcher." Tight credit is expected to send 3,500 small businesses into bankruptcy this year--some 1,000 more than usual. Nonetheless, business remains a staunch supporter of Thatcher and her hard economic line. Says Keith Showering, chairman of the large Allied Breweries conglomerate:

"The lady has done more for British business in a shorter period than any Prime Minister since the war. She has given us everything we asked for."

But voices of opposition to the tough Thatcher are starting to grow within her Conservative Party ranks and even within her own Cabinet. Members of Parliament, fearful about reelection, say that her uncompromising free enterprise philosophy should be tempered. Thatcher's strong personal style has offended some former backers. Said Conservative M.P. Julian Critchley: "Thatcher is didactic, tart and obstinate. She has elevated economics above politics in an almost Marxist fashion, and it cannot be long before the Conservative Party will pay the price." Without some signs soon of payoffs in the battle against inflation, the growing unrest in the Labor Party, in unions and within her own ranks may condemn Margaret Thatcher's noble experiment.

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