Management Today comments:
How an ICI or British Steel manager must envy his counterpart at Sainsbury or Tesco in recession-ridden Britain. Go into any of their branches on a Saturday and any thoughts of recession will be instantly banished. The queues at the checkouts and car parks, the trollies piled high with groceries all testify to booming business.
Results from Sainsbury and Tesco back this up. Pre-profits rise inexorably (by 27% and 28% respectively). Margins are up, investment in new products, productivity and new store openings are also moving ahead smartly. Both are outperforming the stock market by 25 to 30% and both are tipped as good defensive shares to hold in a recession (see our cover story, Good as Gold, pages 36-43).
The fact that people still have to eat - recession or not - plus the supermarkets' enormous clout in dealing with suppliers has allowed them to forge ahead in a way that no other business sector in Britain has managed as we leave an awful 1990 and enter a 1991 that could be even worse. But while Britain's top supermarkets are the envy of the world in their ability to increase margins (Sainsbury achieves 7.3% on its food sales, while a European chain will be lucky to achieve 3%), British industry faces a very different scenario.
Industrialists about to lay off thousands of their employees for the second time this decade must wonder whether the British economy can ever be kick-started out of the dreadful stop-go crises that have punctuated post-war history. Eleven years of the most dynamic and resolute peace-time government this century (and you do not have to be one of that now extinct band - a card-carrying Thatcherite - to believe that) do not appear to have changed matters one jot. Remember those confident reports of the mid-'80s asserting that Britain was set to overtake Germany, such was the strength of the Thatcherite miracle. How hollow that sounds today.
Britain appears to be caught in the worst Catch-22 of all. The moment that a government releases the brakes, lowers interest rates to stimulate economic activity, we head inevitably for a spending spree, followed in short order by a balance of payments crisis and inflation. When the Government changes course to lower inflation and solve the balance of payments problems, the usual cure of raising interest rates and squeezing the economy leads inevitably to the brakes being slammed on again and a spate of rising bankruptcies.
There it is. You pays your money and you takes your choice: inflation or unemployment. But the real trouble comes with both, courtesy of stagflation.
The British economy enters 1991 in a parlous state even though inflation has peaked at some 10.75%, and should fall to around 5% by the year end. Unemployment, currently at 1.6 million, is rising fast and heading, some pessimists fear, to two million by the year end. The balance of payments remains stubbornly in the extreme red at £15 billion. GNP growth is unlikely to be more than a meagre 1.5%.
Maybe this time round, if inflation is cured through the discipline of the European exchange rate mechanism and, sadly, a dose of unemployment, we can stay on a virtuous path of low inflation and high growth leading to increasing prosperity and ultimately better employment prospects.
To achieve this will require a radical programme from John Major's government, particularly relating to labour mobility. For if there is one critical element in the stop-go equation it is the inflexibility of the British labour market. One of the clearest signs of economic overheating are the skills shortages, poaching and highly inflationary wage settlements that we saw in the Barber boom of 1972-73 and again in the 1987-89 period.