WEEKLY SUMMARY SPECIAL REPORT - ECONOMIC IMPLICATIONS OF BRITAINS COAL STRIKE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A009400080002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 20, 2016
• Document Release Date: February 21, 2006
• Sequence Number: 2
• Publication Date: March 3, 1972
• Content Type: SUMMARY

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DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Economic Implications of Britain's Coal Strike
Secret
N2 47
3IIrr,Maarch 1972
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 Britain's first nationwide coal strike in 46
years began on 5 January 1972 after pay negotia-
tions between miners and the National Coal
Board broke down. The president of the National
Union of Mineworkers, Joe Gormley, had been
demanding pay increases of 30-46 percent for
various worker categories, while the National Coal
Board, which manages the nationalized industry,
stuck firmly to Prime Minister Heath's informal
wage-settlement guideline of eight percent. Be-
cause coal is a declining industry in Britain, the
miners' wages had not increased as rapidly as had
those of other industrial workers. In the end, the
miners settled for nearly 20 percent more than
their previous wage, almost all they had been
demanding during the strike.
One effect of the strike will be to accelerate
the shift to other sources of energy for power
generation, manufacturing, and heating. Over the
next eighteen months, some 80-90,000 miners
will likely be laid off as demand for coal declines,
and purchases of Middle Eastern and African oil
to replace the coal could add up to $350 million
annually to British (xpenditures abroad. Exploita-
tion of British oil ind gas in the North Sea will
reduce foreign dependence eventually, but full
exploitation is not expected until the last half of
this decade.
The strike hzs seriously hurt the British
economy. Gross national product lost during the
strike could exceed $1.5 billion, although heavy
overtime work and intensive scheduling of pro-
duction could cut these losses by half. The strike
will hamper the UK's recovery from the slow
growth and high irflation that have plagued the
economy in recent years, and it now seems likely
that Prime Ministe Heath will have to include
new reflationary measures in his budget due on
21 March. The setth'ment, which opened a serious
breach in Heath's guidelines, will have some
inflationary impact, but it does not necessarily
mean an end to the guidelines, which Heath
intends to defend. Nevertheless, unions will be
encouraged to press for big settlements. On
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balance, the outlook is for heightened labor-
management conflict this year with little likeli-
hood of keeping wage settlements below eight
percent.
Coal is Britain's most important energy
source, accounting for 47 percent of all energy
used, more than twice the share in the US. As
recently as 1956, the UK derived 85 percent of its
energy needs from coal, and in 1960 coal was still
the source of over two thirds of energy con-
sumed. Until recently, this dependency on coal
has been dictated by resource availability. The
UK has relatively extensive bituminous coal
deposits, but little in the way of exploitable
petroleum, natural gas, or hydroelectric potential.
By 1975, however, the North Sea oil and natural
gas deposits will supplement imported oil in meet-
ing growing domestic energy needs.
British electric power plants consume 46
percent of British coal production to generate
three fourths of their power. Typically, coal is
used in heating larger buildings, and is still used
for home heating, though it is rapidly being re-
placed by gas, oil, and electricity in households.
Approximately one third of British coal is con-
sumed in manufacturing, much of it to make
coke.
During the 1950s, conversion from coal to
petroleum began in earnest. Over-all annual coal
consumption has declined from 194 million tons
in 1963 to less than 150 million tons today. The
reasons behind the decline are largely economic;
it is becoming more expensive relative to alterna-
tive fuels. Coal prices are more than 30 percent
higher than they were in 1963, while the price of
fuel oil is only 12 percent higher. Miner pro-
ductivity, in particular, has been nearly stagnant
since 1969. Technological considerations and
coal's generally unfavorable environmental impact
also favor other fuels. Even nuclear power plants,
which require enormous capital outlays, are look-
ing more attractive to the government's Elec-
tricity Board.
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Dirty, arduous, and dangerous
work justifies top wages.
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US-UK Fuel Comparisons
Energy sources, 1970
(PERCENT)
Less Less
than than
1 1
Nuclear and
Hydroelectric
Fuels Used in Power Generation, 1970
2 1
Hydroelectric Nuclear
Natural Gas
3 March ].972
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The decline in coal consumption has been
inhibited, however, by the government's energy
policy. British governments have worried over the
country's dependence for much of its oil on
unstable Middle East and North African suppliers.
Fears of wholesale nationalization of British inter-
ests in the area or a ban on exports to the UK
have lessened British political flexibility in dealing
with the Middle East. In an attempt to slow the
conversion from coal to oil, the government
placed an additional tax on imported oil last year.
Another aspect of British energy policy has been
the desire to protect jobs in the coal mines.
Unemployment in communities surrounding the
mines has been well above the national average
for years, and an even faster decline in coal use
would only worsen an already bad situation. The
number of miners employed by the National Coal
Board fell from 517,000 in 1963 to 280,000 in
1971.
Dependence on Coal and the Strike
Over-all dependence on coal to generate elec-
tricity explains much of the mineworkers' success
in forcing Prime Minister Heath to meet their
wage demands. Without electricity, Britain's
economy would be virtually paralyzed. By pre-
venting coal deliveries to electric power gen-
erating stations, the miners threatened eventually
to cut off nearly 75 percent of Britain's electric
power. The miners also moved to stop deliveries
of oil to oil-fired power plants, which supply
another 16 percent. They were thus able to black
out selected areas of the country intermittently.
The power stations' potential to continue
operating from coal stockpiles was a critical
factor in the miners' strike strategy. Stockpiles
had been built up to near-record levels by a mild
winter and expectation of the strike. At the
beginning of the strike, they were generally
thought to be adequate for at least ten weeks of
normal usage. The mineworkers' union was able
to limit access to stockpiles at the mines through
effective picketing at the generating sites. More-
over, the stations were also denied other supplies,
including lighting-up oil, acids, and lubricants.
The pervasive picketing created a power emer-
gency well before actual coal stocks were ex-
hausted. When the strike was settled, there was at
least a three-week supply of coal at the mines,
and many power stations had at least several
weeks' coal supplies on hand.
Although electric power will be back to
normal in another week or so, Britain's coal out-
put will not recover fully from the strike for
several months. Production at the mines resumed
early this week and should be up to 30-40 percent
of the pre-strike level within a few more days. But
it may be two months or more before full pro-
duction can be attained, depending upon the
speed with which new mine faces can be opened
up to replace those that have deteriorated too
much to be worked again. In the interim, stocks
at the mines can supply essential needs.
Once pre-strike levels of production are at-
tained, they will be maintained for as long as it
takes coal users to rebuild their stockpiles. Once
stockpiling needs are met, however, the impact of
the strike and the wage settlement on the coal
industry will begin gradually to surface. The price
of coal will rise, and this, along with the incon-
veniences of the strike, will accelerate the con-
version from coal to oil. The effects of the strike
will also likely cause the government to look
favorably on less reliance on coal.
An accelerated conversion will require
expensive capital outlays and considerable time.
Homeowners still using coal will be among the
first to convert, followed by other retail cus-
tomers. Even before the strike, coal was more
expensive than oil for generating electricity, and
further coal price hikes will mean that new gen-
erating equipment is likely to use natural gas, oil,
or nuclear power. Few, if any, new major coal
facilities will be built, and conversion or retire-
ment of less efficient coal-fired generating plants
will be speeded up.
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Full production will take
several months to achieve.
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Within a year, coal production will likely be
1.5-20 percent low ~r than it was before the strike,
and at least 50,000 jobs will have been lost. One
reputable British journal estimates that in the
"very near future"- possibly one and a half
years-all grossly unprofitable pits will have been
shut down. This would mean 80 to 90 fewer
mines (the present total is 289), and a further
30-40,000 miners )ut of work, adding as much as
0.4 percent to unemployment.
During the f rst week of the power emer-
gency, industry began to suffer heavy losses.
Food processing production was reported off 20
percent, auto out )ut down at least 30 percent:,
aircraft down 50 percent, steel down nearly 50
percent, and tires Town 70 percent. Many manu-
facturers with continuous processes had to shut
down altogether. Based on some reasonable as-
sumptions concer ling over-all industrial losses
and the knowledce that services, retailing, and
agriculture generally continued without much
disruption, the strike could cost the economy as
much as 5 percen, in lost gross national product
during the first quarter of 1972. If, as seems
likely, some of those production losses are made
up by overtime work, intensive scheduling, and
possibly even additional hirings, then GNP losses
could be cut to 2-3 percent.
Whatever the GNP loss, it will be a serious
blow to the British economy. Britain is now
recovering from 1;3 months of slow growth and
excessive in'lation. Unemployment was already at
4.3 percent--the h ghest rate in more than a gen-
eration-before thr- massive industrial shutdowns
caused by the strike. The widespread layoffs and
plant shutdowns are certain to interrupt the eco-
nomic recovery. Pr strike forecasts had estimated
1972 GNP growth at four percent during the first
half, compared to only one percent during 1971.
The strike's impact on the economy is
magnified because it comes at a time of rather
nervous economic recovery. After a bad first half,
consumer spending grew at an annual rate of six
percent during the third quarter of 1971 and
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probably almost as fast during the last quarter.
But British businessmen are a skittish lot, and
they have been unwilling as yet to commit them-
selves to significantly higher capital expenditures
or to increased industrial production. Inventories
have been declining for at least half a year.
Thus a "stop signal" at this time in the way
of an extremely disruptive strike heightened the
investor and consumer uncertainty that already
existed. The strike will not only undermine the
British recovery through the first half of this year,
but will likely affect the second half too.
Impact on the Balance of Payments
The strike probably will not have much
direct effect on UK foreign trade other than to
encourage a gradual increase of oil imports.
Stockpiles are sufficient to obviate any need for
heavy emergency coal imports, and there is suf-
ficient slack in the economy to enable producers
to fill export orders that may have been dis-
rupted.
Britain eventually will have to buy more oil
to replace coal. The UK used approximately 100
million tons of crude oil in 1970. If coal use
declines as expected, imports at the rate of 25
million tons of crude per year would be needed
within a year's time to replace declining coal
production.
The potential balance-of-payments cost of
less reliance on coal could likely be reduced over
the next three to five years as the UK's oil and
natural gas deposits in deep North Sea waters are
tapped. Preliminary exploration of the new fields
indicates that they may be able to supply up to
20 percent of the country's oil and gas needs in
the second half of this decade.
Future Wage and Price Stability
The miners' success in forcing a 20-percent
pay settlement on the government is a serious
breach of Heath's informal incomes policy. He
Closing of inefficient mines will
lit many coal mining towns hard.
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had successfully defended his eight percent wage
settlement guideline against several civil service
unions earlier this winter and apparently felt
ready to take on the militant miners. His inflexi-
bility in handling the strike served to further
inflame the miners, cost him public support, and
resulted in a higher settlement than the miners
would have been willing to accept before the
strike began.
At this time, the outlook for future wage-
and-price stability is uncertain. On one hand, the
government is already describing the coal settle-
ment as a ''special case," and Heath has publicly
reaffirmed his intention of firmly defending the
guidelines. He also retains the option of intro-
ducing other initiatives to support them, possibly
in the form of a more formal incomes policy. On
the other hand, unions with contracts expiring
this spring are certain to plead the same "special
circumstances" that worked for the miners and
press for bigger settlements. Union members will
not look favorably, on union leadership that does
not set its sights is high as did the miners or is
willing to accept a settlement within guidelines
already crossed by another union.
The outlook. then, seems to be for sharply
increased labor-management conflict this spring,
with the governm,mt urging management to bar-
gain firmly, and rnion leadership committed to
holding out for settlements in excess of the Heath
guidelines. Shipbuilding workers, railwaymen,
teachers, and nurses are demanding from 15 to 40
percent increases This spring; there is little likeli-
hood the will be held below eight per-
cent.
One of the few trucks that crossed picket lines at the power plants.
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Secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Arms and Security in Latin America
Secret
N2 47
3 March 1972
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In the .furor over the alleged arms race in Laths
America, there is much hypocrisy, maneuvering and
trickery. And a good dose of foolishness in the repeti-
tion of disarmament cliches without much attention
to the facts....
Alberto L leras Carmargo
Former secretary general
of the OAS
Latin America spends less on arms than any
other part of the world. In fact, in the past 20 years,
defense budgets as a proportion of total expenditures
have dropped 50 percent.
Sol Linowitz
Former US envoy to the OAS
During the past five years, South American countries have purchased more than a billion
dollars worth of armaments from Western Europe and Canada with deliveries scheduled through the
mid-seventies. While this amount is admittedly small in comparison with the acquisitions of major
world powers, it reflects a growing interest in modern weapons systems and a movement away from
traditional US suppliers. Nevertheless, no single European seller has cornered the arms market. Most
of the Latin American countries continue to show a preference for US military missions.
Arms control efforts have been thwarted by political, economic, and institutional factors as
well as by the way major Latin American governments view potential threats to their security.
There is little danger, however, of a serious arms race since internal security and patrol of territorial
seas continue to be the main focus of military operations. Armament inventories will continue to
expand, but there is no indication of a dramatic increase in total military expenditures.
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Background
During World War II, the US replaced
Europe as the main source of military assistance
and materiel for Latin America. Military equip-
ment from the US, provided at first through lend-
lease aid, was supplied to the major South
American forces at relatively low cost through
surplus sales or loans. The sales of new armaments
to South America consisted mainly of trainer and
transport aircraft, helicopters, and small arms.
After the war, the US continued to domi-
nate the Latin American arms market for many
years. A little West European equipment was
purchased, largely surplus warships, jet tactical
aircraft, and tanks. These items the US was reluc-
tant or unwilling to supply.
While the smaller Latin American military
establishments, along with Mexico, generally have
welcomed the US emphasis on internal security
and arms limitations, the leading South American
forces have been less receptive. In part, this re-
flects important differences among Latin Ameri-
can military organizations. Those in the larger
South American countries are characterized by a
high degree of specialization, adherence to dis-
cipline, and a hierarchical structure. They are
relatively cohesive, and have well-organized com-
mand, staff, and school systems. They are not
receptive to US attempts to limit their arms sup-
plies. Since the mid-1960s, the six major South
American countries-Argentina, Brazil, Chile,
Colombia, Peru, and Venezuela-which account
for 80 percent of Latin American military spend-
ing, have turned increasingly to non-US suppliers
for major combat equipment. The smaller Latin
American countries, however, generally lack the
economic resources and technical expertise
needed to support professional military in-
stitutions, and the acquisition of modern arms is
not a matter of such intense national pride.
Arms Purchases from Europe
In Latin America, as in other areas of the
world, weapons procurement is often dictated by
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economic and political forces rather than by the
strategic realities or by missions created to cope
with those realities. In the 1960s, military leaders
in the major South American countries began to
express concern about the state of their military
equipment. Their inventories dated from World
War II or earlier and were in poor condition.
Replacement parts were in short supply and tech-
nical skills lacking. In planning to modernize their
holdings of combat equipment, the major South
American services were inclined to set higher
goals than were suggested by their US advisers.
The advisers emphasized low cost and utility
factors, while the Latin military wanted badly to
stay abreast of contemporary military tech-
nology. The US stress on internal security, par-
ticularly, clashed with the nationalistic attitudes
of leaders of the larger South American services.
Before the current round of arms modernization
began, some military commanders complained
that their outmoded equipment made it difficult
to attract officer candidates.
In the late 1960s, the larger South American
countries were benefiting from better economic
conditions, and in many of them military govern-
ments were determining the allocation of funds.
These factors favored a more generous attitude
toward military re-equipment programs. Brazil,
the country that accounts for about 40 percent of
current arms purchases, is particularly flush as a
result of rapid industrial growth and increased
government revenues. With more cash available
and under pressures to expand and replace aging
inventories, military buyers were willing to look
beyond the US for new equipment.
Another factor promoting the sale of non-
US arms to Latin America has been US legislative
restrictions on military assistance to foreign coun-
tries, particularly the Symington and Conte-Long
amendments to the US Foreign Assistance Act of
1967. These amendments call for a reduction or
termination of US economic assistance to coun-
tries that make "unnecessary military expendi-
tures" or purchase sophisticated equipment. To
most Latin American leaders, this was an unac-
ceptable challenge to their national sovereignty
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AMERICAN
PRODUCTS
,nM
Rid 3
Italian designed Aermacchi 326 jet aircraft produced in Brazil.
'po
British Mark 10 frigate, which Brazil plans to build next year.
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and prestige, and they preferred to accept eco-
nomic aid cuts rather than abandon their military
modernization programs. European countries, on
the other hand, have been less inhibited by such
political reservations and have exported arms to
Latin America for economic reasons. In many
cases in West Europe, the export of arms helps to
sustain armament industries, which would not be
economically viable without a sizable export
market, and to promote technological innova-
tions. Naturally, these exports provide employ-
ment in European countries and strengthen their
Peru, Venezuela, Chile, and Colombia (in that
order). Venezuela's large foreign exchange earn-
ings have allowed it recently to increase its mili-
tary expenditures at a record pace. Major equip-
ment purchases, however, have been made to
refurbish an antiquated weapons inventory.
The naval services used to account for the
bulk of Latin armament acquisitions, but air and
ground forces have greatly increased their share
over the past several years. Latin American navies
are buying the usual mix of principal combatant
Major Non-US Arms Purchases, 1965-1970
ay `try a~
~o
fi
~ . aI 1b, e ~ 3, a
m~ G~ O~ ~i .~ 2 hQ J A?
Argentina
Brazil
Chile
Colombia
Ecuador 0.6
Mexico 2.5
Paraguay
Peru 8.0
Uruguay
Venezuela
5.5
47.2
1.6
0.4
70.0
16.7
60.5
balance of payments position. Most European
countries have regulations controlling or pro-
hibiting arms sales to "disturbed" areas, but there
has not been a major war in Latin America since
the Chaco War of the 1930s.
Major South American Consumers
Argentina and Chile were the main pur-
chasers of military equipment prior to World War
II. The circle of major customers has expanded
since then to include Brazil, Colombia, Peru, and
Venezuela. Today Brazil is the leading military
power in South America, Followed by Argentina,
6.4 21.0+1 22.0+ 90.7 162.3+
52.0 I 5.8 307.0 479.3
2.3 1 1 7.0 126.8
6.0 2.2 8.2
3.6 2.4 6.6
2.5
0.4
3.6+ 51.1 176.3+
8.2
17.0 29.1
ships and are showing a new interest in fast patrol
craft. Recent orders by the air forces commit
large sums for supersonic tactical aircraft, heli-
copters, and transport airplanes. Ground forces
still take only a small portion of the armament
pie. They are buying more armored personnel
carriers, tanks, trucks, and electronic equipment,
reflecting the modern emphasis on mobility and
rapid communications. In addition, South Ameri-
can armies are seeking helicopters and transport
aircraft; some even plan to use small tactical mis-
siles.
Although the ships of the naval powers
(Brazil, Argentina, Chile, Peru) look large by
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FROM NON-US
SUPPLIERS
French Alouette helicopter used by Argentina, Peru, and Venezuela.
Canadian CF-5 jet (equipped with Sidewinder missiles) recently sold to Venezuela.
French Mirage 5-P multi-purpose combat aircraft of Peruvian Air Force. Colombia also
has Mirages, and they have been ordered by Argentina, Brazil, Chile, and Venezuela.
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Latin American standards and current puchases
include modern destroyers and submarines, in-
ventories still consist mainly of World War II
patrol boats, destroyers, and small aircraft car-
riers. Purchases of modern aircraft such as
Canadian CF-5s and the French Mirages have not
included the advanced radar systems necessary to
give their owners a real intercept capability.
Although the major Latin American coun-
tries do not show serious expansionist tendencies
that might generate an arms race, there are indica-
tions of continuous and deep nationalistic con-
cern over disputes with neighbors. These reflect in
part the natural tendency of a military establish-
ment to keep up with its neighbors. They also
reflect latent conflicts in hemispheric relations
that have persisted over the years: Argentina and
Chile (the Beagle Channel), Bolivia and Chile
(outlet to the sea), Chile and Peru (Peruvian re-
vanchism), and Colombia and Venezuela (dis-
puted border, migrant workers). Among the
smaller countries, the struggle between El
Salvador and Honduras is a reminder of the possi-
bilities of conflict and escalation of military costs.
Other forms of nationalism provide reasons
for arms purchases. The current efforts of Ec-
uador to prevent foreign fishing fleets from work-
ing what it regards as Ecuadorean waters have
resulted in the capture of a number of US tuna
boats. The vessels used in these operations are
German-made patrol boats and an old destroyer.
Since there is no indication that these operations
are slackening off, the need for small naval craft
will continue.
While most of the major countries do not
feel threatened by extra-hemispheric forces, both
Argentina and Brazil have voiced concern over the
growing presence of Soviet fishing trawlers and
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naval vessels in the South Atlantic. Argentina's
response appears to be dictated by concern for
the security of its shipping lanes, but Brazilian
military leaders also view their country as a
potential world power with commensurate secu-
rity responsibilities.
Argentina has been assembling French
AMX-13 tanks, various missiles, and transport
vehicles, for which it obtains parts from European
producers. In Brazil, each service has a representa-
tive who participates regularly as a member of the
Permanent Group for Industrial Mobilization, a
body that has as its principal aim the develop-
ment of a capacity for domestic production of
military items. Almost all of the purchase con-
tracts signed with European suppliers since 1967
have included a provision that at least part of the
items be assembled in Brazil. Current domestic
production items include small arms, antitank and
artillery rocket launchers, and most ammunition.
Brazilian aircraft production in 1970 was about
70 trainer and light support aircraft. The Brazilian
Air Force plans to assemble 112 Italian-designed
Macchi MB-326 jet trainer/counterinsurgency air-
craft in Brazil using Italian- and Brazilian-made
components. This will be a major step toward the
air force goal. Brazilian shipyards have produced
ships as large as destroyers and are capable of
repairing and overhauling all types of naval ves-
sels.
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While the current rate of Latin American
arms purchases does not herald a major arms race,
there is little likelihood of a general working
agreement on arms control. The lack of serious
conflict and the contest for funds with economic
development put brakes on the pace of military
spending and slow hemispheric efforts to work
for arms control. So does the fact that a number
of big buyers are military-controlled governments.
On the other hand, with the US and regional
organizations occupying somewhat less influential
roles, Latin American governments are becoming
more preoccupied with balance of power politics
and consequently more responsive to military re-
quirements. External defense missions will prob-
ably seem of lesser security importance to most
government policy makers. Border patrols of the
major countries may be more in the public eye
than in the recent past, but insofar as weapons are
concerned, they will probably settle for parity of
equipment wi-h their neighbors rather than seek
extensive arms with a view to actual warfare. For
some navies and air forces (Argentina, Brazil,
Chile, Ecuadcr, and Peru), the surveillance and
control of activity in the 200-mile coastal zone
currently claimed by their governments will be an
important function. The traditional mission of
internal defense, transformed as it has been in
recent years by greater mobility and communica-
tions, will also constitute a substantial source of
demand for equipment. While regional peace-
keeping efforts could require significant amounts
of equipment, this concept is not far enough
advanced to raise real pressures for substantial
ac uisition of arms.
Approved For Release 2006/~iltkTI RDP79-00927A009400080002-1
 9pprov d For-$&lease 2006/03/16 : CIA-RDP79-009274L'09400080002-1
Secret
Approved For Release 2006/03/16 : CIA-RDP79-00927AO09400080002-1