U.K. after the overhaul: 'micro' fixing
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.
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:
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.
Actually, if the economy were running at full employment, the budget would be in a handsome surplus - unlike the one in Washington.
Trim the size of the public sector.
Mrs. Thatcher has slimmed the government sector a little by selling off part of state companies, allowing private business to move into activities previously reserved for the government, and reducing the number of civil servants.
The biggest move was the transfer of oil exploration and production operations of the British National Oil Corporation to a new company, Britoil, 51 percent of which was sold to private investors. The government also sold, entirely or in part, Cable & Wireless, Associated British Ports, British Aerospace, British Rail Hotels, Amersham International, and the National Freight Corporation. Private companies have been allowed to enter telecommunications areas once reserved for government enterprise. The Conservative Party platform calls for sale of more government-owned firms to private ownership: British Telecom, Rolls-Royce, and British Airways and substantial parts of British Steel , British Shipbuilders, and BL (British Leyland). Even some profitable airports are to be turned over to private companies. Private capital will be introduced in the National Bus Company. The British Gas Corporation will sell off its offshore oil interests.
The Thatcher government has had less success in trimming subsidies and loans to public-sector companies such as BL and British Steel, which have been hit by the recession. These total $2.3 billion for 1982-83, only modestly less than in 1979.
Some 500,000 council houses and apartments (government-owned) have been sold to their occupants, however. This, combined with private house building, has boosted the number of homeowners by 1 million in the last four years - and thus the number of property-owning individuals likely to support middle-ground or conservative politics. Also, because of tax relief for interest on mortgages and increased rents on council houses, some council house tenants nowadays pay a larger share of their income toward rents than do private homeowners toward their housing - a sharp reversal of the past.
The number of civil servants has been reduced from 732,000 to 649,000 during the past four years. Some 500 ''quangos,'' quasi-governmental organizations, have been eliminated. The government says further government efficiencies are saving some $628 million a year.
One of Mrs. Thatcher's goals has been to make British industry more competitive, involving some shift from old basic industries such as steel and coal to new high-technology companies and service activities. It hasn't gone as smoothly as hoped, with the recession shrinking the old-line businesses before the new areas opened up sufficiently.
Manufacturing's share of gross domestic product dropped dramatically in the ' 70s. Britain was hurt by insufficient business investment, management inefficiency, inadequate marketing, restrictive labor practices, too many strikes, and so on. The recent deep recession has forced many companies into bankruptcy.
But in a recent study the Organization for Economic Cooperation and Development, a club of the industrial nations, praised the Thatcher government for removing barriers to market forces. It abolished exchange controls and controls on pay, prices, and dividends. It removed regulations on office development and suspended those on industrial development. It lifted restrictions on installment purchases. It lowered corporate taxes. It established 11 ''enterprise zones,'' offering generous incentives to companies locating in these depressed areas. Various programs have been set up to encourage new business.
The future will show whether British companies will grasp their enlarged freedom to exploit new business opportunities.
At the moment, most economists are forecasting modest economic growth for Britain. A typical forecast: ''We will get two or three years of 2 or 3 percent growth,'' says Christopher Johnson, an economic adviser at Lloyds Bank. But just as the United States has been surprised by the vigor of its recovery, Britain may too enjoy better times ahead.
Previous articles were published June 7, 8, 10, 14, and 17.