At first glance there is no obvious resemblance in the problems burdening Margaret Thatcher's Tory government in Britain, the leadership of the communist party in Poland, and the economic advisers to Ronald Reagan. But take a closer look.
Why is the Polish government locked in a bitter and, politically, an almost life-and-death struggle with the industrial workers of Poland? Inflation. And what lies behind inflation? The inability of the communist government in Poland to solve its economic problems on a sound and lasting basis.
Poland has tried to buy time by borrowing money. It now owes Western governments and Western bankers some $21 billion. And it is asking Washington for another $3 billion.
If it could go on borrowing it probably would. What does it use the money for? To buy grain and meat which Polish farms should be producing. It needs that imported grain and meat to satisfy the Polish industrial workers who, not surprisingly, expect a communist government to increase the living standards of workers. But the government has not been able to provide those workers with a rising standard of living.
Most of the strikes in Poland have been trigged by a shortage of food, particularly of meat. The workers have been pacified by increased wages. But the effect of higher wages and food shortages is inflation. It may be concealed by price fixing, but the money supply has gone up in Poland after each of the labor strikes. And of what use is an increase in pay which amounts only to a depreciation in the value of the currency?
Mrs. Thatcher's government in Britain took office in April 1979 with a promise and a intention to whip inflation and restore Britain to economic health. Her plan was to reduce taxes, reduce government spending, and slow the growth of the money supply. Her theory was that such easy sounding measures would slow the inflation, encourage industrial expansion, and improve the welfare of all.
Perhaps 10 years from now people will look back and conclude that Mrs. Thatcher's actions cleared the deadwood out of the British industrial system and opened the way for a great and vibrant economic revival. But it is difficult for anyone in Britain today to be sure of that long-term result.
Thatcher policies over the past 20 months have paced increase in the inflation rate from 10 percent to 15 percent, a rise in wage settlements from about 15 percent annually to nearly 30 percent. And the money supply, supposedly to be checked by higher interest rates, has soared on foreign funds pouring in to take advantage of those higher interest rates and to buy British oil. And that the intended cut in government spending has been ruined by the rise in unemployment which has increased the number of persons requiring government support.
Mr. Reagan's economic advisers have been talking about doing to the US economy almost precisely what Mrs. thatcher has been trying to do to Britain's economy. The formula might work better in the US. The American economy is more resilient. It does not have a huge public sector as does the British. Wage rises are more restrained. But what if tax cuts and a tightened money growth rate should have the same resulting trends as in Britain? The effect would be more recession, just when Americans thought they were emerging from the last one. Suppose then that Mr. Reagan tries for serious cuts in government spending? That would reduce economic demand, encourage recession, and raise the level of unemployment.
The Poles, The British and Mr. Reagan's advisers all want the same thing -- a way out of the whirlpool of rising inflation and rising popular discontent. Polish workers will not be willing workers until and unless they can get the food they want in return for their work. British workers will not again be willing workers unless or until they can see revived expectations instead of declining expectations. And Americans, all of them, are going to expect Mr. Reagan to slow down the inflation without putting their economy back into recession.
The trouble for all three -- Poles, British, and Reagan advisers -- is that people, whether in a communist or capitalist society, now expect government to guarantee them a rising standard of living. But no government has yet learned how to do this by methods which public opinion will tolerate. The world will belong to the person or party or government which first comes up with a successful answer.