Wages and Profits under Thatcher

It is the prospect of making a profit that promotes the activities of companies and nationalised industries. Except for comparatively short periods, companies which make losses go out of business or close down unprofitable branches, and get rid of workers. Nationalised industries can extend their period of loss-making to the extent that they can get subsidies from the government. It is one of the features of Thatcher government policy that it is much less willing than were Labour governments to give continuing subsidies. Employers, generally, have an interest in this. They want government expenditure, and therefore taxes affecting their profits, to be kept to a minimum. So they support government efforts to hold down pay levels in the Civil Service, local government, health service and so on and its attempts to reduce the numbers employed in these services.

With the same end in view, that of reducing expenditure and taxes, the government is making unemployment pay taxable (after reducing it by 5 percent in 1980) and has introduced the rule which assumes, for the purpose of the eligibility of a striker’s dependants to receive social security payments, that the striker is receiving £13 a week strike pay from the union whether or not this is so. Most employers have also supported the changes in trade union law (with more to follow) to reduce the effectiveness of trade unions in striking for pay increases.

While Labour governments have not passed legislation to curb the unions, and the Labour Party is pledged to repeal the Tory legislation, the attitude of Labour governments towards wage increases has been much the same as that of the Thatcher government. It will be recalled that in the “winter of discontent” at the end of its term of office, the Callaghan government was trying to restrict the wage increases of local government and other workers to five per cent, against a rise of prices of about twice as much.

In a childishly unrealistic policy document adopted by the Labour Party Conference in 1944, they held out the prospect that Labour governments would double or treble the workers’ standard of living. But within four years the Attlee government had introduced its “wage-freeze” policy—an example followed by every government, Labour and Tory, up to 1979. The present government, while formally disclaiming any intention to do that again, is trying to achieve the same result by exhortation and other means.

For civil servants, and workers in the health service and education, government policy is to hold pay increases this year down to about half the current annual rate of price increases of 10 per cent. Civil Servants claimed 13 per cent and were offered an overall increase of four per cent, but which included no increase for some, and up to 5½ per cent for others. The government argument was that in some areas of the Civil Service there was no case for any increase at all because, at current rates of pay, there are more applicants than vacancies, and it is the intention to let “market forces” have full play. The government agreed to let the claim go to arbitration and the Tribunal awarded some increase to all, ranging from 4½ per cent to 6¼ per cent. For the police and armed forces the government recognised “a special case” and gave substantially higher increases.

In their own field the employers are always trying to keep wages as low as possible and (which has the same effect on profits) trying to intensify work and get a given volume of output produced by a smaller number of workers. For a considerable period after the war, because unemployment was very low (usually under 2 per cent), trade union resistance was too strong and the employers could make little headway, so that the workers’ standard of living rose considerably.

Now there is a deep depression and the case is altered. In many undertakings including coal, railways, steel and the rest of the nationalised industries “productivity” schemes have been imposed, raising output per worker and reducing the number required for a given total output. Though some of the 3 million unemployed have lost their jobs because the depression has reduced sales, a considerable proportion have been squeezed out through greater “productivity”.

The reaction of some unions to employers who have attempted to keep wage increases below the rise of prices has been naive. Though they no longer claim and expect (as they did in the early post-war years) that wages should all continuously move ahead of the cost of living, they have fallen back on the argument that it is “unacceptable” that real wages should ever go through periods of decline. Capitalism never has given, and indeed could not give, any such guarantee. With declining sales and falling profits (in some cases losses) there has been in every sizeable depression in the past a temporary fall in the living standards of most workers. In the present depression workers in some industries have been compelled to accept wage increases which fall short of price rises. In some, like the airlines, they have had to accept wage cuts.

But experience has been far from uniform and the official index of average weekly earnings of all workers (manual and non-manual) has continued to keep ahead of inflation. In this respect the present depression is unlike those in the past. In the 19th century far fewer workers were organised in unions and there was no state unemployment or social security scheme. Workers on strike or thrown out of work had to rely on the limited trade union or Friendly Society funds financed out of their own contributions, or on charity, with the consequence that in times of bad trade most workers were quickly forced to accept wage reductions. In the present depression this has so far happened to only some workers.

The government statistical service also publishes figures showing total payments by employers as wages and salaries to all employees, and the total profits of companies and nationalised industries. They show that from 1977 onwards there has been a continuous and sharp fall of profits in relation to wages and salaries.

In 1977 profits were 33 per cent of wages and salaries. They fell in 1978 and 1979 to 32 per cent then to 25 per cent in 1980 and to 23 per cent in the first three quarters of 1981. (The latest published figures.) There is indication now that the trend has been reversed. Profits are rising again and it is likely that in coming months average weekly earnings of all workers will fall behind the rise of prices.

In addition to the depression. British capitalism has a long-standing problem of its own. It is that a lot of plant, machinery and processes is out of date by the standards of competing countries. This was spelled out during the Attlee Labour government, 1945-51, by Sir Stafford Cripps and Aneurin Bevan. Urgently needed modernisation, they said, requires a vast investment of capital, which can be provided only by holding down consumption, including wages, and this, for political reasons, is extremely difficult.

Consistently since World War II the expansion of production in Britain has been far below that in most other countries. The Financial Times (19 April 1982) published a table showing the annual rates of growth in fifteen countries, mostly European but including Japan and USA. It shows the annual rate of growth in the years 1975-1980 was in Britain by far the lowest of the fifteen. It stood at 1.6 per cent compared with 3.9 percent in USA and 5.1 percent in Japan. This low productivity means inability to produce at competitive prices and helps to explain why unemployment in Britain is higher than in most industrial countries. The British unemployment rate of 12.6 per cent compares with 2.2 per cent in Japan and under 1 per cent in Switzerland.

The many “productivity” schemes in British industry are designed to make it more competitive and doubtless will have had some effect in that direction. All the problems of the Thatcher government are concerned with this problem of British capitalism. The Labour Party is equally concerned with it. In a debate in the House of Commons Shadow Chancellor Peter Shore said:

   The major concern must be to restore the competitiveness of British industry in relation to its overseas rivals. Despite the government’s boasting, competitiveness has suffered dreadfully. There must be a major attack on the unnecessarily high cost of British industry. (The Times, 29 January 1982.)