, Britain
A small engineering works in Coventry came back after the New Year in 1974 and found it had been allocated Monday, Tuesday and Wednesday. Thursday and Friday the power would not be there. The order book was full, the men wanted to work, and none of that mattered, because the constraint was not demand and it was not money. It was the ring main.
The three day week ran from 1 January 1974 to 7 March 1974. For ten weeks, commercial users of electricity were restricted to three consecutive days of supply a week.
The constraint was physical, so working harder did not help
Most business crises can be answered with effort. This one could not. A firm that needed power to make something had three days in which to make it and no way to buy a fourth.
The cause was a coal shortage on top of an oil shock. The National Union of Mineworkers had begun an overtime ban in November 1973, coal stocks at power stations fell, and the government declared a state of emergency on 13 November. Television closed down at half past ten in the evening from mid-December. A 50mph speed limit came in to save fuel. Petrol ration coupons were printed and issued to post offices and never actually used, which tells you how close it felt.
The miners voted for a full strike in February, an election was called for 28 February 1974, Edward Heath lost it, and the restrictions ended on 7 March under a new government.
What firms did in those ten weeks divided fairly cleanly. A business that sold from stock carried on, because selling does not need a milling machine. A business that made something either compressed its week, worked its three days at a pace that broke people, or went and found a generator, and generators were unobtainable within about a fortnight. Shops traded by daylight and candle. Offices worked in coats.
The counterintuitive part is that national output held up far better than anyone expected over those ten weeks, which was noticed at the time and has been argued about ever since. What it did to individual firms was much less even. If your three days were the wrong three days for your customers' three days, you spent the period unable to deliver to people who were unable to receive.
The oil price did the damage that lasted
The three day week ended in March. The thing that caused it did not.
The OPEC embargo from October 1973 roughly quadrupled the price of crude oil over a few months, and for a small British firm that fed through into everything. Not just the fuel in the van. Plastics, paint, fertiliser, packaging, anything made from or moved by oil, and then the cost of heating a workshop through the following winter.
Input costs that move by that much in that little time break the way a small business quotes. You price a job on what the materials cost when you price it. You buy the materials when the customer confirms. In 1974 those were meaningfully different numbers and the difference was your margin.
Prices moved faster than anyone could quote
Inflation in Britain climbed through 1974 and ran above 20% through 1975, peaking in the summer of that year at a level that is difficult to convey to anyone who has only lived with two or three per cent. Wages were chasing it, which pushed it further.
Three things follow for a small firm and all three are unpleasant.
Quotations became short dated. Firms that had been happy to hold a price for three months went to thirty days, and then to fourteen, and customers who were used to a quote meaning something found that it did not.
Debtors became a leak. A customer on 60 day terms in 1975 repaid you in money that had lost a noticeable slice of its value in the interval. Chasing money stopped being about cash flow and started being about not being robbed slowly.
And there was a price code. The Counter-Inflation legislation of 1973 created a Price Commission and a code under which firms had to justify price increases by reference to allowable cost increases. So the small firm was caught between input prices it could not control and output prices it had to account for, with the paperwork falling on the person who was also doing the quoting.
The firms that came through held stock and shortened terms
The ones that survived tended to do the same handful of things. They bought materials early and held more stock than was efficient, accepting the tied-up cash as the price of knowing their input cost. They cut their payment terms and enforced them. They repriced more often and in smaller steps, because one large increase attracts an argument and four small ones attract a grumble. And they got very close to whichever customers actually paid.
The ones that failed were usually the ones with a long fixed-price contract signed in 1973.
Where this shows up in the game
Play Business Baron from 1971 and you will trade through the winter of 1973 and 1974 with an electricity allocation, a state of emergency and a decision about which three days you want. Manufacturing capacity is physically capped, retail is not, and the difference between those two positions is the clearest demonstration in the whole game of why the trade you pick changes what a crisis does to you. The inflation that follows then does its work quietly, on every quote you leave open too long.