The Indispensable Election

Harold Wilson's first year as Prime Minister has been a prolonged election campaign--a desperate race to make Labour the party of government in the minds of the British voters before death or sickness cut his slim majority out of power. At no time in that campaign has he appeared stronger than he does now: the pound has steadied and the balance of payments deficit may be halved in 1966. The Daily Telegraph polls show Wilson leading the Conservatives by over 7 1/2 per cent. "He has established himself," one political commentator said last week, "as the Indispensable Man."

But if Wilson waits much longer to call an election, many of the longer range problems which he has avoided so far will come into play. The improvement in Britain's balance of payments has resulted from special restrictions--the import surcharge and tax measures--which are decreasing in effectiveness. To generate further improvements, the government has embarked on a policy of deflation--cutting public investment and tightening the credit squeeze. But even if this policy temporarily spurs exports by making British goods more competitive on world markets, it will not deal with the real cause of Britain's economic dislocation: the failure of British industry to keep pace with with other countries in raising productivity.

Output per man hour has failed to rise as rapidly in Britain as in other industrial nations because of the restrictive practices of management and labor. In recent years, British businessmen have failed to take advantage of modern marketing techniques and technology. They have scorned the pecuniary greed and impersonal corporate empires of the Americans. The trade unions have remained divisive, decentralized and doctrinaire; labor has inhibited rather than encouraged attempts to increase economic efficiency. As a result, the country's goods have been outpriced abroad, and Britain has consumed beyond her means.

The government's policy of deflation may improve the technical position of British goods on world markets, but it cannot eliminate the structural weakness of British industry. In fact, Wilson's present policy may only aggravate Britain's problems by causing economic stagnation--cutting the sources of investment which are vital to industrial modernization. When demand and output are falling, businessmen are not likely to risk the investment required for new machinery and increases in productivity. So long as profits and purchasing power are declining, executives will forgo increases in efficiency.

National output is already running lower than at the beginning of this year. Expenditure on new plant and equipment is declining, and a survey by the Confederation of British Industry suggests that home orders are falling and more firms are working below capacity. The Economist predicts that Britain's growth rate will not exceed 1 per cent in 1966, as compared with over 4 per cent in the U.S.

Before a recession cripples Britain's economy, Wilson must take drastic measures to cut consumption and increase productivity. He must impose restraints on wages and prices, and add to the already high taxes on luxury goods. In addition to continuing the surcharge, the Prime Minister must use fiscal policy to stimulate investment and saving. He must centralize the unions, eliminate restrictive practices, rebuild Britain's essential shipbuilding industry, and reorganize the docks.

Yet, these measures cannot be implemented unless Wilson increass his majority in Commons and solidifies his position within the party. To impose the unpopular restraints which will be necessary for Britain's economic reform, Wilson will need more than a mere three vote margin. He cannot rely on the extraordinary combination of good luck and enthusiasm that enabled Labour to govern in 1965. His backbenchers are tired of the midnight votes and the continual fear of surprise defeat.

Economic stagnation has already aggravated the traditional rift between left and right in Labour's ranks. At the Blackpool conference in October, the party's two biggest unions--the Transport and General Workers and the Amalgamated Electrical Workers--threw their one and three quarter million votes against Wilson's wages legislation--the keystone of the government's policy. Rebellious constituency parties contributed another three quarter million--leaving only three and three quarter million of the membership supporting the party's leadership.

A broad shift in expenditure from private consumption to investment will require further sacrifices from the entire country. The standard of living in Britain will fall in comparison to the U.S. and western Europe, and few voters will resist the temptation to blame Labour. Despite Wilsons appeal for "consent and consensus" and his support for housing subsidies and the Ombudsman, his popularity will decline.

Wilson may be expected, therefore, to take advantage of his present strength. While the electorate still remembers the Conservatives' 750 pound deficit of October 1964, and still blames them for the sterling crisis in 1965, Wilson will call an election. By the end of the year, he will attempt to secure a working majority in Commons for the broad measures which are necessary to revive Britain's economy.

As a prelude to the announcement, he will probably reshuffle his cabinet (he has already said his second eleven is "at least as good" as the first) rewarding some of the better ministers of state and consolidating his control over the part. Then, as one eminent British diplomat remarked recently, "he will attempt to remove himself from the danger of defeat and bring in Britain's belt."