After nearly 18 months in office, the testing time has come for Prime Minister Margaret Thatcher and her Conservative government's monetarist, free-market strategy for restructuring Britain's troubled economy.
Skepticism about the Thatcher experiment has grown recently. Her government has come under increasing pressure to alter its course, as a severe, still deepening recession forces thousands more businesses to the wall and puts tens of thousands more Britons out of work each month.
Up to now, the government's policies have painfully squeezed industry and its work force while failing to hold down overall government spending.
Business leaders, backed by a growing number of economists and conservative politicians and commentators, want the government to substantially lower the 16 percent minimum lending rate and reduce business taxes.
They also want government to share more of the sacrifice of austerity by shedding more employees and holding down raises, as private industry has already been forced to do. In the past year, government pay raises averaging over 20 percent prevented Thatcher from keeping government spending down as promised, despite cuts in the size of the civil service, welfare state social services, housing, education and industry subsidies.
A continuing large budget deficit has forced the government to borrow much more heavily than expected. That, plusunforeseen and apparently still unmastered technical problems, have made it difficult for the government to control the growth of Britian's money supply central to Thatcher's monetarist strategy.
The leadership council of the Confederation of British Industries recently took the unusual step of voting a well publicized resolution objecting "most strongly to the fact that the main burden of the government's counterinflationary policies is being allowed to fall on productive industry and those who work for it."
Factories are closing and businesses are slimming down while government spending stays the same," Dermot Glynn, the business group's economic director, said.
Thatcher and her ministers are now determined to do everything short of a formal wage policy to keep pay raises in both government and industry well below the 16 percent inflation rate in this winter's round of bargaining. Thatcher earlier believed that her tight-money policies would naturally produce lower prices and wages without government interference.
The new tack risks a confrontation with labor unions, whose leaders will meet with Thatcher next week.
They have warned of the potential this winter for strikes, social unrest and unruly protests like the one this past week by several thousand union members, unemployed workers and young people who heckled and jostled Conservative delegates outside the party's annual conference in Brighton.
Some business leaders and Conservative politicians are also worrying aloud that widespread business failures and unemployment could both damage the country's social fabric and wipe out support for Thatcher's basic free-market approach, which they still believe Britain needs.
The current unemployment rate of more than eight percent -- more than two million Britons jobless -- is easily the country's highest since the 1930s depression. Britain's postwar welfare state, with its government subsidies for business and nationalization of failing industries -- a reaction to the hardships of the depression -- had previously cushioned British industry and work force alike against the dislocation common to the United States.
Recent opinion polls, economic statistics and even some analyses of the country's mood by conservative commentators who back Thatcher's overall strategy depict the British people as significantly worse off than when Thatcher took office, somewhat bewildered by what her government is trying to do, and impatient with its often harsh, unyielding rhetoric of sacrifice for future rewards.
"If we are to stand even the remotest chance of building up trust and changing attitudes for the better, we have to show that we understand the hardship and worry that being without work can bring," James Prior, Thatcher's employment secretary and a leading voice of moderation in her Cabinet, told the Conservative Party delegates in Brighton. While saying that she shared this concern, Thatcher and her chancellor of the Exchequer, Sir Geoffrey Howe, emphasized in Brighton that they were determined to stick with policies they believe will eventually free the country of the government interference, social dependence on the welfare state and industrial inefficiency they blame on weak-kneed postwar politics.
What makes her government "one of the truly radical" postwar administrations in Britain, Thatcher said, is "its determination to stay with the policy and see it through to its conclusion." Dismissing speculation that the government might be pressured by "the faint-hearted" to make a "U-turn," she declared: "The lady's not for turning."
Amid the bad news about unemployment, bankruptcies and government spending, Thatcher and her economic lieutenants see encouraging signs.
Britain's inflation rate has dropped in recent months from a peak of 22 percent to just over 16 percent, and economic indicators point to possibly even under 10 percent by the end of next year.
The growth of the money supply slowed substantially last month, and Howe hinted that if it stayed under control, in time he might be able to reduce interest rates.
Surveys of private industry indicate that pay raises may be considerably smaller in the coming round because employes of hard-hit businesses are afraid that the alternative to lower wage settlements could be the loss of their jobs.
Industry surveys also show that many businesses have shed excess labor, cut down on costly company perquisites such as automobiles and generally become leaner and more efficient.
"The chairmen of big industries I talk to realize two things: for the first time the government is not running their businesses and the unions aren't going to run their businesses," said Anthony Beaumont-Dark, a Conservative member of Parliament and staunch Thatcher supporter who is a stockbroker and company director.
"Many of these businesses are using the present situation to do things they otherwise would not have done or been able to do, such as moderating wage increases," he said.
Other business executives and skeptical economic analysts question whether too high a price is being paid for such changes.
"This means a very, very deep recession to achieve what is likely to be only a temporary improvement in inflation," said Gavyn Davies, a senior analyst with stockbrokers Phillips and Drew. "It's a very painful way of increasing productivity, a very wasteful way of getting change.
"The government is playing with fire now," he added. "The cash position of the manufacturing sector is worsening very badly. It is moving near to a crisis point."
Efficient as well as inefficient firms are threatened, said John Rice, assistant director of the Birmingham Chamber of Commerce in the industrial Midlands, including some of the well-run smaller businesses on which Thatcher has said she wants to build Britain's economic future.
He said they had been priced out of export markets by the high value of the pound, which has been kept up in part by the speculative money attracted to Britain by its high interest rates. Some British firms have been forced to cut back or buy components at lower cost from foreign firms -- the opposite of the Thatcher government's intention with a "buy-British" promotional campaign.
The Wedgwood china company has been losing money on the exports that account for nearly two-thirds of its sales. Its chairman, Sir Arthur Bryan, said recently, "I warned that our high interest rate policy would harm British industry and would not solve our problems."
Conservative back-benchers in Parliament who are less than sanguine about the Thatcher experiment expect that behind the tough talk her government will become more flexible. The first indications are its active efforts to hold wages down and increased subsidies for selected industries and regions.
"We shall not see a U-turn," Conservative member of Parliament Julian Critchley has said. "What we are already seeing is a series of accommodations to reality, announced but unadmitted, for reality must impinge even upon this government."
Beaumont-Dark admitted that "there is more nervousness on the back benches," even among the many true believers like himself. "People do ask themselves, 'My God, what if we're wrong?' But if this fails, what is left except to have a great binge while the North Seal oil money holds out?"