Muddling to Collapse?

During the past three decades, while other nations have devised all sorts of fancy names for their economic plans, Britain has relied on the ancient formula of "muddling through." As the nation lurched from one economic crisis to another, something--a sudden devaluation of sterling, a new draconian budget, the generosity of foreign lenders --always averted catastrophe at the last moment. Today, the British seem to have run out of expedients to solve their latest and worst crisis. Britain "is going down the drain," says Arthur Burns, chairman of the U.S. Federal Reserve Board. At last many Britons are becoming alarmed too.

While inflation is finally subsiding in almost all other industrial countries, it is still rising in Britain. Price increases averaged a horrifying 21% for the twelve months that ended March 31. In the past three months they have accelerated to an annual rate of 25%. The world recession has left nearly a million Britons without jobs, v. 680,000 a year ago; the unemployment total is expected to reach 1.5 million by mid-1976. But that prospect has failed to reverse the inflationary trend; unions still demand and get wage increases of up to 40%. The pound (worth, roughly, $2.30) fell last week to its lowest point ever against most world currencies, a decline of 24.4% since late 1971. The nation that once ran an empire on which the sun never set has become dependent on foreign loans to help meet this year's anticipated public-borrowing requirement of $21 billion.

Britain's troubles raise the specter of international bankruptcy, a situation in which an uncontrollable run on the pound would force Britain to declare a moratorium on repayment of foreign debts, slap tight controls on wages and prices and limit imports drastically. The result would be a sharp decline in British living standards. While recently presenting a new budget that imposes an additional 25% tax on most luxury items, Chancellor of the Exchequer Denis Healey warned that Britain must not exhaust the patience of foreign lenders. "We would then face the appalling prospect of going down in a matter of weeks to the levels of public services and personal living standards which we could finance from what we earned," he said. "I do not believe that our political and social system could stand that strain."

The nation's crisis is the product of a vicious circle of industrial inefficiency, labor indiscipline and overly ambitious welfare-statism. The British government now spends an average of $2,320 annually in social and health benefits for each member of the work force, a staggering sum in a nation where per capita income is only $3,085. The high taxes necessary to finance these benefits have helped drain away funds needed for the modernization of Britain's overaged and decrepit plants; industrial production in the past three years has risen much less in Britain than in any other major industrial country.

The unions' propensity to walk off the job on almost any excuse takes a heavy toll: in 1974, strikes and other work stoppages cost Britain 1,418 man-days of labor for every 1,000 workers, v. 410 in France and only 82 in West Germany. Unions also enforce archaic work rules and featherbedding practices that keep productivity low. By one estimate, the average Japanese worker produces six times more autos per year than his British counterpart.

Accelerated Pace. Worse still, the powerful trade unions have blocked efforts to make the British economy more competitive. Former Conservative Prime Minister Edward Heath provoked a showdown in 1973 with the miners' union over their wage demands, and lost. His defeat set the stage for Laborite Harold Wilson's return to power. The Labor Party, which is heavily dependent on union votes, is not even trying to reform any labor practices that preserve jobs. Instead, left-wing members of the party are using the present crisis to accelerate the pace of state control of British industry, although 30 years of nationalization have hardly helped to make the economy more efficient.

The leader of the movement is Anthony Wedgwood Benn, the Secretary of State for Industry. His policy, called "Bennery" by his many critics, is to force cash-squeezed companies to accept government control in return for government bailout money. His biggest takeover so far is of British Leyland, the nation's largest auto-and truckmaker (Austin Morris, Rover, Jaguar, Triumph), which could not raise funds for plant modernization. The Labor government has already committed $2.2 billion to Leyland, but the total outlay may exceed $6 billion. The rescue plan, however, does not call for cutting back employment, though overmanning is one of Leyland's chief handicaps. Similarly, Benn is resisting the economy measures of Sir Monty Finniston, the chief executive of the nationalized British Steel Corp., which is losing nearly $6 million a week. Finniston wants to reduce the 220,000-member work force by 10% and close small, inefficient plants.

The Labor Party's real master plan for rescuing the economy, as far as it has any, seems to be simply to hang on until 1980 or so, when oil wells now being drilled under the North Sea will provide Britain with a rich new source of tax revenue and cut import bills. It just might work, and the nation might muddle through one more time: Britain is in the position of the debtor whose creditors can ill afford to force him under because they would lose too much in the process. For example, if oil-rich Arabs started withdrawing their huge deposits from London, the pound would skid much further, thus diminishing the value of the Arabs' sterling holdings before they could convert them to some other currency. But the dependence on foreign money is not only humiliating for the nation that was once the world's greatest financial power, it is risky in the extreme.

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