BRITAIN Clouds of Recession

In its struggle to defend the battered pound, Britain's Labor government has not only borrowed heavily abroad but has severely cut back its whole welfare program in favor of the toughest clampdown on Britain's overheated economy since the early '50s. Purpose: to create a measure of deflation and thereby dampen Britain's appetite for buying more abroad than it sells, a habit that has upset the country's trade balance and contributed heavily to the pound's troubles. Last week, with stunning swiftness, the government began getting its way. The first clouds of recession rolled across Britain, and with them came the question of whether Labor's strong measures had caused as many troubles as they cured.

Layoffs & Cutbacks. Ford Motor Co. Ltd., Britain's second largest automaker, put 10,000 workers on a four-day week, starting this week. Reason: the credit restrictions imposed by Labor in June have cut home demand (exports are at record levels). Hoover Ltd., a major washing-machine maker, ordered 4,000 Welsh and Scottish workers onto a short week starting Sept. 6. The Transport Ministry postponed for six months about half of the $140 million in road building that was to have started shortly. Most telltale of all, unemployment leaped by 58,333 -a startling 20% -in the four weeks from mid-July to mid-August (it is still a relatively low 1.7% of the work force).

In response to the news, prices slumped on London's stock market -and on Wall Street. One of the few cheerful notes involved the price of the pound itself, which remained steady for the second straight week without support from the Bank of England, thanks chiefly to the encouraging fact that Britain's trade gap for July fell to a trivial $2,800,000. There was some economic news to grin about too, including efforts by a big oil company to grab more of the country's gasoline market by hiring bikini-clad station attendants to give away one gallon free.

The Labor government's aim is not only to wipe out Britain's trade deficit next year, but also to shock ordinary citizens, businessmen and labor into grasping the gravity of Britain's economic plight -and then reforming the featherbedding, from chairman to charwoman, that has helped to cause it. Prime Minister Harold Wilson recently warned that "complacent and prosperous manufacturers must get off their backsides," insisted that Britain can no longer tolerate "workers who inflict harm on production with go-slows or sporadic strikes in defiance of their own union." A government report has just accused Jack Dash, the unofficial leader of London's dock workers, of disrupting export-centered work on London's docks. Though the government does not admit so publicly, its policy is now clearly aimed at creating unemployment on purpose to rid the economy of irresponsible labor disturbances, force workers to shift into the most productive industries.

Stagnation or Default? The economic Battle of Britain is only beginning. The pound faces another crisis in the fall, when seasonally unfavorable trade figures are likely to trigger another run on sterling. The National Institute of Economic and Social Research last week warned that Britain, by crimping its economy to balance its trade, is likely to suffer a halt in economic growth.

After 1966, said the institute, Britain will face a choice between 1) economic "quasi-stagnation" and rising unemployment to hold down imports, or 2) a level of imports that will make it hard to repay on time the $2.5 billion it borrowed to defend sterling. There is just one way for Britain to escape those unpleasant alternatives: get rid of its lingering inefficiencies.

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