Will Maggie Thatcher make a U-turn?
The big question is this: When will Margaret Thatcher, "the iron lady," make a full U-turn in her economic policies? There are very few commentators left who think she can carry on for long without making such a turn.
Their reasoning is simple. One root cause of Great Britain's problems has been that for the past seven inflationary years wage earners have repeatedly demanded, and received, pay increases that more than make up for the previous year's price inflation but without regard for the ability of firms, industries, or the nation to afford them.
"No union leader now can settle for less than 20 percent," recently remarked the steel men's leader Bill Sirs, the most moderate of men.
Up to now every effort by government to relate wages and salaries to productivity has failed. Edward Heath tried, but the voters threw him out of office in 1974. Sir Harold Wilson tried but was defeated by his own party (largely, indeed, by James Callaghan). Jim Callaghan then tried -- he laid down a norm of 5 percent in 1978 -- and, having failed, was also removed from office by the electorate.
Today it is Mrs. Thatcher's turn. And her policy has differed radically from anything her predecessors tried. For it has been one of complete nonintervention. She has been determined to keep government out of wage negotiations. If the firm can pay, okay. If it can't, then either the unions must settle for less or they must accept the loss of many jobs, so that in spite of the higher pay the total wages bill is not signifacantly increased.
The consequences of this can be seen in the story of the strike in the steel industry. Without increased productivity the British Steel Corporation reckoned it could afford to pay only 2 percent extra nationally and with higher productivity locally up to 13 percent. Mr. Sirs stuck out for 20 percent on a national basis, regardless of local differences in productivity. Meanwhile BSC plans anyway to cut its total work force by at least 50,000.
Now unless the Thatcher government could find the extra money for the steelworkers, so that steel prices could be held down, it was clear very early on that the nationalized part of the British steel industry, which is by far the largest part, could collapse altogether.
But, asked the commentators, how could any government stand by and watch the collapse of such a major industry, and one that is absolutely vital to the nation's defense?
It is easy to understand, and to sympathize with, Margaret Thatcher's dilemma as it is the steelworkers'. For it is her belief that, if Britain continues to grant annaul pay increases far in excess of what firms and industries can afford , and with public servants always later getting comparable increases to those granted in industry, the entire British economy could collapse, not just the steel industry.
If so, the government has to stand and fight. Already in South Wales marching wage earners have been chanting, "General strike! General strike! General strike!"
Yet, obviously enough, you can't fight if you don't intervene. This provides one solid reason for expecting that U-turn. And there are others.
Another basic belief of this administration is that inflation can and will be controlled by controlling the money supply.So far, however, the Thatcher government has been quite unable to achieve any effective control. Even on its own assumptions the rate of inflation cannot be brought down below 15 percent for at least another two years. Meanwhile its own policies in doubling the value added tax, increasing electricity prices by 18 percent and, next year, natural gas prices by 29 percent, and accepting the continued increase in food prices required by the European Community have made it more not less difficult to reduce inflation at all.
It has also been found very, very difficult to cut down private borrowing from the banks and other financial institutions. The effect of tax cuts for big earners has been to increase the pressure for credit, the maxim for the rich in times of inflation having been well expressed to me by the head of a large building society: "Get into debt as soon as you can for as much as you can possibly afford any pay back at the last possible moment."
Another effect has been to draw in more and more imports, which have already been rendered excesive by the decline by Britain's own manufacturing industries. This once-great car producer now imports 60 percent of its new autos.
For all these reasons most commentators expect to see that full U-turn. Unless, of course, industrial strife forces direct government intervention even sooner.