Lessons for Reagan from Britain's conservatives?
The American and British economies are so different from each other that there are definite limitations in the current game of finding lessons for the Reagan administration in the experience of the Thatcher government. A major distinction lies in Britain's nationalized industries and established "welfare state" institutions.
Yet the temptation to draw parallels has proved irresistible to many writers, now that the United States is on the brink of a proclaimed governmental swing to the right as Britain was when Mrs. Thatcher took office a year and a half ago.
American liberal economist John Kenneth Galbraith looks at the economic plight of Britain and twits his conservative colleagues on how their theories work. Conservatives reply that the problem is not in their theories but in Mrs. Thatcher's failure to execute them sufficiently.
At least one of those theories, monetarism, is itself challenged by a former prime minister in Mrs. Thatcher's own Conservative Party, Edward Heath. He said that this theory, by which the government has been trying to hold down growth of the money supply, had had a "ruinous" effect in Britain and he hoped Mr. Reagan was too intelligent to accept it.
What can one make of this crossfire? What lessons, if any, are there for Mr. Reagan and his team?
First, some facts:
Although the high interest rates associates with monetary restraint have been hard on British business, the annual rate of growth in the money supply has not slowed to the Thatcher target of 7 to 11 percent but only to about 22.5 percent -- more than the rate of inflation. Nor have taxes or government spending been cut to the conservatives' desired degree.
Mrs. Thatcher carried through on pledged pay boosts to public employees while trying to encourage wage restraint in private industry. She has had to lower goals for reduction in public sector borrowing, as nationalized industries were propped up and compensation increased to match the tide of unemployment. Indeed , recession and unemployment have grown to the point where public pools have reversed themselves to indicate greater concern over unemployment than inflation. The high interest rates have helped strengthen the pound, making needed raw materials imports cheaper but making British exports harder to sell.
It all may sound like the worst of both worlds, unless one takes the second look some are offering in the light of the past few months. The rate of inflation for last year may be something like 15 percent. But an annual rate based on the last month would be less than 10 percent. The trend in real terms is in the right direction, as is the trend in interest rates and government spending. "We see wage bargaining at a more sensible level than previously," says the chancellor of the exchequer.
The question is whether the dissatisfaction expressed with Mrs. Thatcher in the polls is outweighed by what she perceived to be the case as the new year began:
"We are absolutely on the right track, and people know and feel it."
Despite the impatience of many, some Britons are sauing that 18 months is too short a time to expect the Thatcher approach to reach fruition. All friends of Britain will hope the prime minister is right when she declares:
"Attitudes are changing. People are becoming more competitive. Managers are beginning to manage, and the industrial base will be genuinely strong, not artificially supported."
It is in the realm of attitudes that the fundamental fight against inflation and recession takes place. Mrs. Thatcher's own unflinching attitude, however many accomodations to necessity she has had to make, is the kind that has a chance to foster similar strength among the people.
Perhaps here is a lesson for Mr. Reagan, despite the differences in the two economies. He can listen to Mrs. Thatcher when, for example, she suggests she failed to go far enough in her first attempts at budget-cutting. And he can follow her unflinching attitude by adhering to his instruction to the members of his cabinet that they must never allow reelection politics to have any effect on their best judgments for the good of the country.