The Coming Struggle WAGES VERSUS THE CURRENCY

Press, Volume XCVI, Issue 28435, 15 November 1957, Page 14

The Coming Struggle WAGES VERSUS THE CURRENCY

[By "LYNCEUS" of the “Economist”] [From the Economist Intelligence Unit]

London, November s.—The stage, is unfortunately, being set for what may be a serious struggle between employers and labour in Britain. This impending contest and the reasons for it involve issues that apply far beyond I Britain’s frontiers. They illustrate one of the major problems that fqce the free world in this second half of the twentieth century—that of reconciling free wage negotiations and full employment with the stability of the currency.

The modern world has solved the problem of full employment. Even today, when there is so much talk of recession, nowhere in the economic scene is there to be found more than patches of sporadic and essentially shortterm unemployment. By solving this economic scourge of the 1920’s and 1930's massive bargaining power has been put in the hands of organised industrial workers. The discipline of the sack has departed and in most respects no-one will mourn its departure. But it must be replaced by some other economic or emotional force, and it must be admitted that lhe free world has not yet found an effective alternative to it. The fear of unemployment must be replaced either by voluntary restraint or by collective action in which the trade unions regard themselves not merely as defenders of their own vested interests but as defenders of the national interests. Another possibility is to replace the discipline of the sack by that of intelligent co-operation based on recognition that the interests of management and labour are essentially the same and that high wages and national prosperity cannot be secured and maintained except in industries and an economy which are prosperous.. The Inexorable Spiral So far, however, no effective alternative has yet been applied. The result has been that organised labour has used its bargaining power to secure a sequence of almost automatic wage increases which have far outstripped the increase in the efficiency of labour. That, in its turn, has helped to erode the purchasing power of money. This increase in the cost of living has then been made the excuse for still more wage demands. And so the spiral has been revolving inexorably, though at different speeds in different countries. The speed has been greatest recently in France and the United Kingdom; but there has also been clear evidence of an acceleration of this vicious spiral in the United States. It is now beginning to revolve perceptibly in Germany, where for a long time demands for higher wages were kept down partly by the influx of workers from Eastern Germany, and also by a sense of loyalty and patriotism which drove German workers to impressive efforts in rebuilding their homes and factories from the rubble to which they had been reduced at the end of the war. We are now coming face to face with the problem of reconciling full employment with stability of prices. How is it to be done? In the United Kingdom, after many years of drifting, of appeals and exhortations, the attempt is being made with the weapons of credit control. The price of money has been raised and credit is being restricted in order to create a general economic climate in which wage concessions will not be granted because they cannot be afforded. In the private sector of industry the medicine is already at work. Hardly a day passed without some evidence of a considerable narrowing of profit margins, and. in some cases, of reduced dividends. A position is rapidly emerging in which employers, faced with demands for higher wages unaccompanied by higher efficiency, will be compelled by harsh reality to tell their workers that the choice before them is their job at the prevailing rates of pay or no job at all.

This climate docs not. however, directly affect the nationalised industries, which are not subject to the discipline of the profit and loss account to anything like the same extent as private industry, which does not have access to the unlimited resources of the Exchequer. The problem of wages policy in the public sector of the economy must call for direct government intervention. The Chancellor of the Exchequer has taken the initiative by telling the British Transport Commission that if

lit grants wage increases to the 1 railwaymen, the necessary money I will not be forthcoming from the Exchequer. The money, if (concessions are granted, will have to be found by cuts in current or , capital expenditure of the railways. This was the statement which Labour spokesmen in the , recent debate in Parliament defined as “a declaration of war against the unions.” This reaction to Mr Thorneycroft’s remark has conjured up visions of labour disputes which, if they are allowed to break out and persist for any length of time, must react seriously against the pound sterling. Sound Conditions Needed This clash pinpoints the crux of our problems, which is that of reconciling the blessings of full employment with those of honest money. It is evident that this reconciliation can be secured only in the context of “sound” domestic conditions. Inflation may be helped by unreasonable wage pressure: but it cannot be caused by it. The cause of inflation and the means by which it manifests itself are an inflation of demand and a readiness of the Government and central banking printing presses to work overtime to satisfy the currency needs created by inflated demand. In an age when investment requirements are inordinately high and savings tend to be inadequate, the cost of short-term and long-term capital should be relatively high. Physical controls cannot do all the work required to maintain sound economic conditions except in a centrallyplanned and completely collectivised economy. In such an economy, in fact, the problem of wage discipline does not arise at all because the trade unions are merely an abjectly obedient cog in the State machine. A far more subtle approach to this problem will be needed in the economies of the free world. Its solution must be found primarily in the realm of human relations and understanding in industry. Its basis must be a realisation by all concerned that the stability of the currency is essential if prosperity is to last. Those who are better organised than others may appear to snatch an advantage out of inflation by grasping a larger slice of the national income; but any such victory is likely to prove brief. If serious inflation continues the whole basis of prosperity will crumble into pieces. Example of Germany In facing this problem Germany has the advantage of having seen its currency blotted out twice within the span of two generations. The German people are willing to exercise restraint, whether in wage demands or in their acceptance of heavy fiscal burdens because of their determined resolution not to allow the collapse of their currency to occur for a third time. In the United States the problem of personal relations in industry is solved by a more egalitarian approach to promotion. Most American workers are convinced that they have the managing director's baton jn their knapsack. They believe both in the virtues and the fruits of private enterprise and are convinced that high wages can be secured only from a firm which is itself prosperous. In Britain this conviction of a mutuality of interest is less highly developed than it is in the United States, while the fear of inflation is less present than in Germany. The kind of inflation Britain has had to contend with in its history has been of the creeping, not of the galloping kind. If only the British and the Germans could exchange some of their respective fears of unemployment and of inflation a common attitude would emerge in which this crucial problem, the reconcilation of full employment and stable prices, could be secured.