Notes of the Month


[After Phase 3]

(June 1974)

From International Socialism (1st series), No.70, Mid-June 1974, pp.3-5.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘THE SCRAMBLE for threshold agreements’, wrote the Financial Times editorial on 18 June, ‘is a timely reminder of what could happen when Stage Three comes to an end.’ The warning is hardly surprising, with more than 20,000 workers on strike in the week before the second threshold payment became due and with 100,000 more workers threatening strike action.

Most workers have been cowed by the legal backing to wage restraint into accepting its limitations for the last 18 months. A major casualty has been the localised, fragmented struggles that used to characterise the engineering industry in particular – and which laid the basis for the day-to-day power of shop floor organisation. The National Institute Economic Review has been able to conclude from a study of wage movements in the last 18 months, that

‘We can apparently discount "drift" as a tendency for local negotiations and payment practices to lead to a divergence of actual wages from centrally negotiated rates.’

The struggle over the threshold payments, however, show that local organisation still exists which is capable of making itself felt the moment workers feel they can fight without immediately running up against the law.

But the struggles have not been the only sign of new militancy. A rash of other local disputes have been developing in recent weeks over issues like parity, shift pay, restoration of differentials, staff status, the ending of Friday night working. In each case workers have found a different excuse for taking action. What they have in common, however, is a willingness to take action on a scale which did not exist within the traditionally militant sections of industry a year ago.

Parallel with this has been the continuing build up of white collar discontent – most notably the struggles of teachers and local government workers in London and the first ever really national movement among nurses.

The growth of militancy has been reflected, to some extent, in trade union conferences. Despite the TUC’s attempts to help out the government, the Economist can still complain that

‘So far claims for wage rises set new records. Not a single union has proposed a claim which would fit within the TUC’s guidelines.’

The difficulty for the government is somehow to reconcile its response to.

these claims with what British capitalism can afford. But the economic omens are by no means favourable. On the one hand, most industries have virtually abandoned plans for new investment and the construction industry faces what could, according to some predictions, be ‘its worst slump ever’. On the other, prices are now expected to rise between 15 and 20 per cent this year and the balance of payments deficit has risen still further to a record £481 million in May, despite hopes that it would start improving.

The government’s dilemma, basically, is that any action it takes to off-set the recession is likely to make worse its balance of payments deficit and to increase still further the rate of inflation – unless at the same time it cuts further into real wages. Yet the National Institute Economic Review has calculated that real wages will already have fallen by nearly four per cent by the end of this year.

Plans for After Phase 3

DISCUSSIONS carried on by the ruling class’s own advisors throw a great deal of light on the package Labour would like to have after Phase Three. The most popular idea seems to be to move towards some sort of permanent threshold or ‘indexing’ scheme.

There are all sorts of difficulties here. As the current resistance to paying out the present threshold by firms such as British Leyland indicates, even the meagre compensation it provides for rising prices is too much for large chunks of British capitalism. In the longer term, there is a good deal of fear that any threshold scheme will prevent big business passing the majority of any increased raw material costs onto the backs of its workers.

The Economics Editor of the Sunday Times has, for instance, suggested that threshold schemes can only be afforded if import prices are falling anyway.

‘If the trend of retail prices settles down as a result of falling commodity prices, then indexing of wages could be a real help. For the rate of increase of wages would also come down and so wages and prices would help each other on a more stable path ... So long as commodity prices are falling or stable and basic pay increases do not exceed the national average growth of productivity, then indexing of wages will not aggravate inflation and may even help to limit it... But if the price of imported goods does not begin to fall indexing would genuinely cause escalating inflation which threatens to become not merely inflationary, but explosively so ...’

The most discussed indexing scheme has been that put forward by the National Institute Economic Review. This suggests that when Phase Three ends, there should be no overall wage increase for anyone, except for a few ‘special cases’. Instead there should be an upward adjustment of wages every three months equal to the percentage increase in prices.

The key point about such a scheme is that it would leave workers even worse off than the current threshold does. At present the average worker needs at least 60p just to keep up with each one per cent extra increase in prices but gets only 40p. Under the National Institute’s plan he would similarly fall behind price increases – but instead of his pay being adjusted monthly it would be adjusted quarterly. In other words, he would have to see it cut by inflation for three months, then get a rise; it would then be cut again by inflation for three months, until he got another rise. If you assume (as the National Institute does) that inflation is 17 per cent a year, then prices will have risen by about four per cent in the three months and the value of wages fallen by the same amount. Wages will always be following prices up, in three monthly steps, with the workers losing an average of two per cent of their wages in the process. But it is not only the effect of thresholds on real incomes which would be welcomed by many sections of big business. If threshold increases became a substitute for regular wage claims, then they might well lead to a gradual erosion of shop floor organisation.

The role of union activists in preparing their fellow workers for wages battles could easily decline. The way might be open for British capitalism to emulate some of the methods used, for instance, in the US (see elsewhere in this Journal) in imposing long term agreements and castrating the stewards’ organisation: As the Economist puts it

‘In practice, this would leave all trade union negotiators in the country, from Jack Jones to the most junior shop steward, suddenly with no function ...’

Revolutionaries have to be fundamentally opposed to any such attempt to replace wages battles with statistical arguments between trade union and government bureaucrats – particularly when such plans involve falling living standards.

That might seem in contradiction to encouraging demands for the threshold payments available under Phase Three. There would be such a contradiction if we encouraged workers to believe that the threshold payments are enough. But we do not. Instead we recognise that many workers do not yet feel strong enough to take on both the employer and the law. That is why there have been so few local disputes until recently. But workers do feel able to take on the employer alone over the one sort of extra payment allowed under Phase Three. Success in such struggles can help them build up the muscle, the organisation and the confidence to fight seriously as Phase Three ends.

We pointed out in this journal last month that the class struggle was already at as high a level as in the period of Tory government prior to the miners’ dispute. This month it has risen in quantitative terms to a much higher level. Many more industries and many more workplaces have been taking action. But what is still lacking from the struggle is the strong political tension of the Tories’ closing months. There is not the same feeling that all struggles run up against the same obstacle, an obstacle which provides them with an easy political focus.

But this state of affairs cannot last much longer. As the struggle to keep up with inflation comes to mean a confrontation with the government and its supporters within the union bureaucracies, we can expect a level of political tension even greater than that of the first months of this year. And with Labour in power the lessons drawn can be much deeper ones.

The International Context

THE CONDITION of the world economy is not going to give Wilson much help in dealing with his problems. The picture in country after country is similar to that in Britain, if not usually as bad

The commodity boom – the upsurge in the prices of raw materials and foodstuffs caused by shortages and speculation – seems to be running out of steam. But many of the increases in prices it produced have yet to find their way through to the consumer. Meanwhile workers everywhere are pushing for wage increases to compensate themselves for its effects, thus producing the likelihood of still further price increases.

As the National Institute puts the matter,

‘In the early months of this year domestic wholesale prices were 35-40 per cent higher in Japan, 20 per cent higher in the US and Canada, 17 per cent higher in the United Kingdom ... 12 per cent higher in West Germany than they had been a year before, and in each case the rate of rise appeared to be accelerating rapidly ... Wage rises in 1974 seem likely to be even bigger than in 1973 and so to give another sharp twist to the inflationary spiral.’

Rising prices are now accompanied almost everywhere by a sharp drop in the rate of economic growth (estimated to fall from five per cent to two per cent for the western world as a whole) and a tendency towards rising unemployment.

The problem facing the British Labour government – how to prevent inflation getting out of hand without causing an all-out recession – is matched in virtually every other country.

For some countries it is made worse by the growing imbalance between the different economies. When the sudden increase in the price of oil took place at the turn of the year, there were a number of commentators who optimistically argued that no-one should worry. They recognised, of course,

that most countries would have to pay massively more for their oil. But they pointed out, most of the oil producing states which received this money were small and run by minute ruling classes which would not know what to do with it, apart from lending it back to the countries which had paid it out In the first place. All that was necessary was that the different western states get together to ensure that this ‘recycling’ was properly organised.

The only trouble has been that the very nature of capitalism as a system was bound to prevent this happening. The different capitalist economies are involved in continual competition with one another, each endeavouring to take any advantage it can to get one over its neighbours. The more the system goes into crisis, the more intractable becomes the competition.

Under such conditions talk of a common effort to deal with the oil problem has come to nothing. The result has been the most dramatic in the case of Italy.

At the beginning of the year its rulers could afford to be fairly complacent about their situation. Industrial production grew about 9.3 per cent last year – more than twice as much as the year before; unemployment fell and for the first time in 15 years more jobs were created than people born; although prices rose, the figure of 10 per cent was not too bad. In the last three months, however, the country seems to have been plunged into its deepest economic crisis since the war. Price rises are around 20 per cent, there are huge balance of payments deficits, the country is being forced to borrow massive overseas loans to finance its imports, and the different government parties cannot agree on what to do about the crisis.

But Italy is not the only country to suffer from the imbalance. In Denmark attempts to deal with the situation have already led to tax increases which caused political strikes and to the imposition of controls on imports. In France virtually the first act of the new government was a set of measures designed to cut down the balance of payments deficit.

The more the crisis hits individual countries, the more difficult it makes concerted efforts to deal with the crisis. Italy and Denmark have attempted to protect themselves by controls designed to cut back imports. The effect must be to make it more difficult for other countries to export, forcing them to cut back in turn. It is this which has created fears of a spreading international recession and has compelled the managing director of the International Monetary Fund to say that the world faces ‘the most difficult combination of economic policy decisions since the reconstruction period following World War II’.

It is hardly surprising that the most optimistic commentators in Britain see no way of avoiding a growth of unemployment to around 650,000 by the end of the year and 17 per cent inflation. The pessimists would add 2-300,000 to the unemployment total and af least 3 per cent to the inflation. Labour’s chances of avoiding a stand-up confrontation with the working class over jobs and wages seem very tow. What is being said about Italy today could well be commonplace comment about Britain too by the winter.

Last updated on 18 November 2009