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U.K. after the overhaul: 'micro' fixing

By David R. FrancisBusiness editor of The Christian Science Monitor / June 22, 1983


In the jargon of a top Treasury official, the reelected government of Prime Minister Margaret Thatcher will now turn its attention to ''micro'' questions. ''The 'macro' problem has been pretty well dealt with,'' he held.

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What he meant is that the Conservative government figures it has now brought under control inflation, the growth of the money supply, the size of the budget, and other such ''macro'' problems touching the entire economy.

There may be room for some improvement in these ''macro'' areas, he admitted. But mostly it will be a matter of ''keeping it stable.''

Instead, the government will focus more of its efforts on such ''micro'' areas - portions of the economic structure - as measures to modernize the laws concerning labor unions; tighten up welfare benefits so that it pays to work; and alter taxation to provide greater incentives to saving and investment.

''The supply side will get a lot of attention in the next period,'' he said, sounding much like some Reagan government officials in Washington.

With the Tory government enjoying an enlarged majority, Mrs. Thatcher has enormous power to pass what she wishes in new legislation. Whether such measures will revive the British economy, stepping up productivity and growth, remains to be seen. Hopes are rising, however.

David Hale, chief economist with Kemper Financial Services in Chicago, praises Mrs. Thatcher for ''a more coherent mix'' of monetary and fiscal policy than that in the United States. He adds: ''. . .the British economy has now the necessary financial underpinning for a sustained period of moderate noninflationary economic recovery.''

Another observer of the British scene, J.Paul Horne, the European economist at Smith Barney, Harris Upham & Co., gives Mrs. Thatcher an ''overall B-plus'' for her economic record.

Here are some of the goals of ''Thatcherism'' and what has been accomplished:

Reduce inflation.

Retail price rises have dropped from a peak 18 percent average in 1980 to 8.6 percent in '82. The average forecast for this year is about 6 percent. On the negative side, unemployment has risen from 1.2 million, or 5 percent of the labor force, in 1979, when the Tories moved into power, to just over 3 million today, or more than 13 percent. The recession-unemployment crunch has persuaded labor to accept lower wage settlements. The increase in average earnings has dropped from 15.5 percent in 1979 to 12.9 percent in 1981 to 8 percent last year , and even slightly lower this year. For those with jobs, earnings have climbed faster than inflation, and thus their living standards have risen. Business productivity and corporate profits have also risen smartly.

Reduce the government deficit.

Mrs. Thatcher has maintained Britain's basic social welfare system, leaving in place (using American terminology) unemployment insurance, welfare, children's allowances, a nationalized health program, etc. She promised during the election to continue these government services, although she wants to reduce the growth in their costs.

So far, though, the Tories have not lived up to their pledge to cut taxes - except for the well-to-do. Total taxes as a percentage of gross domestic product (GDP) have risen from 33.7 percent in fiscal year 1978-79 to 39.6 percent in 1982-83 and a projected 39.1 percent in 1983-84. The explanation for this growth in the national tax burden is that recession has reduced the size of the economy. Industrial production has fallen a massive 9.9 percent. Moreover, high unemployment has boosted ''transfer payments'' such as the dole, or unemployment benefits. If such social expenditures were excluded, government spending would be ''severely reduced,'' a top official noted.

By boosting taxes and social security contributions, the Thatcher government has slashed the budget deficit to the lowest percentage of the total domestic output of any major industrialized nation. What the British call the ''public-sector borrowing requirement'' increased from 4.9 percent of GDP in 1979-80 to 5.7 percent in 1980-81, partly because of huge wage increases given in the public sector. But it has dropped back to 2.7 percent for 1982-83 and is expected to decline further to 2 percent by 1984-85.