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Europe: Britain--Flexible Labor Markets Drive Strong Economy

  • Stuart Parrott



London, 25 March 1998 (RFE/RL) -- Britain, once described as the "sick man of (Western) Europe," today has one of the strongest economies in the European Union and a jobless rate that has been falling steadily for five straight years.

Analysts say the success is due to a combination of factors: privatization, deregulation, flexible labor markets, a growth in enterprise, and a booming services sector.

Britain is also free of the burden of steep taxes imposed by many of its EU partners to pay for the social protection of workers. State welfare benefits -- unemployment pay, sick leave, rent subsidies -- are much less generous than in France or Germany.

In many ways, the British economy is more like that of the U.S., sharing its strengths (an ability to create new jobs), but also its weaknesses (job insecurity).

Today, commentators often group Britain together with the U.S., calling their approach the "Anglo-Saxon model." Bob Tyrell, chairman of the British planning consultancy, the Henley Center for Forecasting, said recently: "We've become a nation of winners and losers, like the United States."

In the 1960s and 1970s, Britain was notorious for strikes, poor labor relations, low productivity and bad management. Millions were employed in unionized and loss-making state-owned heavy industries --coal, steel, shipbuilding -- that offered job security but low wages. "They pretend to pay us, and we pretend to work," was the catchphrase of the time.

But 1979 proved a watershed with the election of Margaret Thatcher as Britain's first woman prime minister -- and, as it proved, the most radical leader this century.

Thatcher, an admirer of the U.S. economic approach, rejected the state ownership of industry, blaming it for Britain's relative economic decline in the post-war years. She embarked on a radical restructuring of the economy: selling off state-owned industries, emphasizing private enterprise, cutting top taxes and deregulating markets.

The Thatcher approach was continued by her successor, John Major, and by the Labor Party of Tony Blair, which won a landslide election victory last year after 18 years in political opposition, and four straight election defeats.

Labor won because it has moved to the center and fought on a largely Thatcherite program, a revolutionary break with its past as a Left-wing party committed to the nationalization of major industries, and hostile to private business.

The legacy of this restructuring process? Britain has seen a shift from a manufacturing to a service economy. Today, only one worker in five labors in manufacturing compared with one in three 20 years ago. Jobs in heavy industry have disappeared to be replaced by ones in service industries such as finance or tourism, or in new high-tech "sunrise" industries.

Restructuring has brought strong growth, rising real incomes and the third highest level of foreign investment after the U.S. and China. Unemployment (7 percent) has fallen steadily since 1993, reflecting a capacity to create new jobs. Labor markets are far more flexible than in other EU nations.

But there has been a fundamental change in working patterns. There has been a surge in the number of Britons doing part-time or contract work (one quarter of all jobs are part-time). And more Britons are their own bosses: 12 percent are self-employed compared with eight percent in 1979.

Some analysts see the rise in part-time work and self-employment as disturbing evidence of the casualization of the work-force and job insecurity; others as a reflection of the changing demands of workers as well as employers.

But evidence suggests that Britons are more insecure (albeit better paid) than 20 years ago. One recent survey showed that 64 percent of British workers were "very or fairly" concerned about losing their jobs (the third highest level of insecurity in Europe after East Germany and Spain).

Losing a job in Britain can be more traumatic than in other EU countries because, in general, severance payments are much lower, and because state unemployment benefits are barely adequate to house, feed and heat a family.

Evidence suggests that the gap between haves and have-nots has increased. By one estimate, 23 percent of Britons now live below the official poverty line -- a far higher figure than in most EU members. Still, the majority is much better off owing to the Thatcherite "revolution."

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