The Freeze and After
One of the myths of our age is that wages are sometimes restricted and sometimes not. Wages are always restricted; it is only the method that changes. Unless wage rates are kept down to levels which leave a margin of profit for the employer he intensifies the search for ways to reduce his total wages bill by getting more output from each worker; failing which he stops production and stands workers off.
The government always plays a part in this. It stands behind the employers, backing them up to deal with strikes and other manifestations of working-class discontent. But the government’s role is not always in the same form. It sometimes includes direct intervention through the imposition of controls on wages and prices. Generally this is when conditions favour the workers in pressing for wage increases. This happened in two world wars when unemployment had practically disappeared. By contrast, nobody talked about a prices and incomes policy between the wars when there were two million unemployed, markets were failing and bankruptcies soaring, prices were tumbling and workers were completely unable to prevent wages falling with them.
Since 1945 there have been half a dozen attempts by Labour and Tory governments to impose controls, starting with the “Wage Restraint” of the Attlee Labour Government imposed in September 1948. They have been variously named but all conform to the same general pattern. They were all excused as emergency measures called for by unforeseen circumstances, they were all claimed to be needed to prevent prices from rising and British exports being priced out of world markets with consequent increase of unemployment, and all were in contradiction with the election programmes of the Labour and Tory parties. Mr. Wilson rightly chided Heath with having abandoned his election pledges but seems to have forgotten that the freeze imposed by his own government in July 1966 came only four months after the Labour Party election programme had said “our purpose is not to dictate prices, wages and salaries”.
None of the post-war “freezes” completely prevented some increases of wages and prices. Nearly all were followed by a bigger rate of increase, with wages rising slightly more than prices. From the employers’ point of view the most successful freeze was the first, the Labour Government wage restraint from September 1948 to October 1950 which kept wage increases appreciably below the rise of the cost of living. As a method of preventing prices from rising the freezes, individually and collectively, have been a complete failure, for the rate of price increase in 1971 was higher than at any time since 1945.
Trying to Manage
In 1944 the Tory, Liberal and Labour parties all committed themselves to a three-point policy of stable prices, full employment and steady growth of production. Critics of government policy have often pointed out that at no time has a Labour or Tory government succeeded in getting all three together; it remained for Heath in 1972 to fall down on all three at the same time — a million unemployed, fast-rising prices and near-stagnant production.
The imposition of the present freeze was surrounded with loud recriminations between Heath and Wilson, all of it signifying nothing because this one does not differ from past Labour Government freezes except in minor details and reflects the same erroneous theories which are shared by the Labour and trade-union leaders with most of the Tory leaders. (The Times cynically commented that “it is their business to criticize each other”.) The Labour Party motion of dissent in the House of Commons on November 8 did not condemn capitalism and offer an alternative, but blamed the highest unemployment since the ‘thirties and a massive increase in the cost of living on “mismanagement of the economy” by the Tory government. The chairman of the Parliamentary Labour Party, Mr. Douglas Houghton MP, who in 1967 was boasting of the success of the Wilson government in making “modern capitalism work”, attacked the Tories this time not on the ground that they are running capitalism but on the ground that they are not “managing” it properly: they have, he said, “left capitalism unbridled”.
Guess the Answer
The completely erroneous theories held by the political and trade-union leaders since the three-party declaration in 1944 are that capitalism can be managed in a way to secure permanent full employment, with a more or less stable price level. On full employment, the TUC in 1970 declared:
“Maintenance of full employment is chiefly the responsibility of the government. All political parties, the Confederation of British Industry and the TUC accept that this should be the case. There is agreement that the necessary techniques are available to sustain full employment . . . “ (TUC pamphlet, Automation and Technical Change)
On stable prices, Mr. Wilson in 1957 wrote:
“Ever since the Coalition Government’s White Paper all major parties have been committed on Keynesian lines to using the Budget as a means of avoiding undue inflation or deflation.” (Labour Party pamphlet, Remedies for Inflation)
At the beginning none of them said anything about wage and price freezes, but already in 1957 Mr. Wilson was saying that:
“For a Labour government no less than for tne Conservatives, success or failure in the battle against inflation would depend on its ability to secure an understanding with the unions which would make wage restraint possible”. For the unions it was either you agree “voluntarily” to restraint or you have it imposed.
Act of Iniquity
Much of the conflict between the Labour Party and the unions on the one side and the Heath government on the other about the failure of the consultations which preceded the present freeze concerned the question of the Industrial Relations Act. The Labour-trade union side argued that if the Government would suspend the Act it would make agreement easier.
It is to the point here to recall the case made against the Act in 1970 by Vic Feather, General Secretary of the TUC. It was not that the Act would depress wages but that it would encourage competitive wage claims between workers and push wages up too much. “This Bill would create a wage drift of a kind the country could not afford, either now or at any time in the future.” (Report of a trade union conference, Sunday Times, 13 December 1970).
What has happened is that the policy held by all of them has proved quite fallacious and they do not know what to do next. What the TUC described as “the necessary techniques … to sustain full employment” meant in practice “pumping more money into the economy”, which they imagined would lead to expanded production and full employment but which is a sure specific for putting up prices. As the Chancellor of the Exchequer, Mr. Barber, has complained, he wants to pump more money in the belief that production will then expand but at the same time wants to “curb the money supply” to stop prices going up.
Marx was right. Capitalism goes through its phases of expansion with low unemployment on one hand, depression with heavier unemployment on the other, in spite of government financial and budgetary policies. The only remedy is to replace capitalism with Socialism.
In the meantime, fearful of the explosion that could occur if inflation is carried on extremes, the view has been gathering support among economists and business men that the government should stop inflation whatever the consequences. The Tory politicians on the other hand recoil from this because one consequence could be that they lose the next election. So they put their trust in the hope that British capitalism now, after several false starts, is on the way to recovery from the depression.
They have another fear. There is one Tory politician who never accepted the Keynesian nonsense and who wants to go back to the old-style policy of letting capitalism take its course, with the unions “free” to make which wage claims they choose and businesses “free” to go bankrupt if they can’t survive. Some commentators have begun to speculate on the possibility that if Heath’s hopes of industrial recovery are not speedily fulfilled, Enoch Powell will get the leadership of the Tory Party.