As Britain joins the Western industrial nations on the slide into deeper recession, the government's vow to rein in costs and corral inflation faces one of its toughest challenges: unemployment.
Pressured by energy costs, high interest rates, and a strong pound, British industry has been shedding labor as orders dwindle.
The latest unemployment figure, swollen by a summer crop of school-leavers seeking first jobs, approached 1.9 million, or 6.6 percent -- a total, though not a percentage -- that matches the grim days of the 1930s. Some government officials privately expect it to break the emotive 2 million mark in August.
Since they were announced July 22, the figures have whipped the nation into a furor, spurring the Labour opposition to put forward its second no-confidence motion to the 15- month-old government.
"The economy is in a nose-dive," said Len Murray, the moderate general secretary of the Trades Union Congress, in a television interview, "and the pilot is spending half his time wringing his hands in mock sorrow and the other half of his time haranguing the passengers with lectures about monetarist theory."
But the "pilot," Prime Minister Margaret Thatcher, vigorously defended her policies before a packed and boistrous House of Commons July 29. "It's no good dreaming about U-turns," she said. "There aren't any available."
Beneath the political rhetoric, however, there are signs, if not of U-turns, at least of modest adjustments on both sides.
The Oxford-educated Mr. Murray, at a luncheon with American correspondents, admitted that "naive Keynesianism" (a reference to the demand-management policies advocated by Cambridge economist John Maynard Keynes and practiced in some degree by previous Labour governments) would not alone solve the nation's problems.
He affirmed a need to control the money supply -- Mrs. Thatcher's central goal. He also confessed his dislike of wage settlements of 25 or 30 percent. "We can recognize an elephant when we see one," he said, "and we know danger when we see it."
Does Mr. Murray's moderate stance, applauded privately by some Cabinet ministers, foreshadow a relatively mild winter of industrial relations? He predicts "considerable difficulty" with the public sector unions. But he insists the only solution lies in three-way cooperation among unions, government , and employers -- rather than in head-on strikes.
But so far, he says, the government has not listened. Talking with ministers , he says, is "like trying to teach Chinese to a deaf mute."
For her part, Mrs. Thatcher may be moving slightly away from the hard-line, hands- off-free-enterprise policies she so loudly espouses -- hoping to show more obvious concern for harassed industries and their unemployed.
Her speech in the Commons, opening the censure debate which her large majority won handily, included several concessions toward interventionism:
* The government-sponsored microchip firm, Inmos, is to be given a further L 25 million ($60 million) for a production plant in South Wales.
* Seven "enterprise zones" in blighted inner-city areas around the country will offer hefty incentives to industries, including freedom from bureaucratic interference and relief from taxes for ten years. Paradoxically, the plan to promote free-market conditions requires government intervention -- at an expected cost of some L10 million ($23.9 million) a year.
* A private firm, Dunlop, is to receive L6.1 million ($14.5 million) to modernize two tiremaking plants. The choice surprised observers, partly because of the acknowledged overcapacity of European tiremakers facing declining automotive markets, and partly because, as the Financial Times newspaper explained, the aid to the non-nationalized firm was given under the 1972 Industry Act -- the measure which marked the U-turn toward interventionism by the previous conservative government of Edward Heath.
There is also speculation that the government may impose pay increase limits of less than 10 percent (well below the inflation rate) on public sector employees. Such a move would be reminiscent of the ill-fated incomes policy of the previous Labour government and would grate on unions and on right-wing Tories committed to free collective bargaining.
No one expects Mrs. Thatcher's nerve to falter in her wrestlings with inflation, which has begun to ease. Even the Confederation of British Industry, in one of its gloomiest surveys of business confidence, still calls on the government to hold firm in its fight against inflation -- although it longs for a lowering of interest rates.
But Mrs. Thatcher, who recently reaped considerable criticism by suggesting that the nation's home-loving and conspicuously immobile workforce should be willing to move to find jobs, seems bent on proving that her government is not as aloof as some fear.
And if she is conceding some things, so are the unions. Ministers, who tend to see high wage claims unrelated to productivity as the bane of British industry, have been encouraged recently by some settlements well below the inflation level.