Ned, Nic, and Incomes
By STEPHEN FAY AN incomes policy is elusive, almost an illusion.
Britain seems to have one; then she hasn't. The Treasury occasionally says there is one, and nobody likes it. When you ask Treasury officials what the policy is they ask back—Tut what do You mean by an incomes policy?' When the National Economic Development Council agrees that an incomes policy is essential, vested in- terests scurry away from the poky council cham- bers in Westminster muttering about the almost insuperable difficulties of ever finding one. But the extraordinary thing is that almost nobody— in the unions, in management, and least of all in Government—says that Britain does not need an incomes policy.
This is one of the few monuments to Mr. Selwyn Lloyd's stay at the. Treasury. Even in trade union circles the customary smirk which accompanies any mention of Selwyn is followed by the slightly patronising remark that he did force people to think about the importance of incomes as an influence on the balance of pay- ments. Disagreements are primarily about means not ends. There is general acceptance of the Government's dictum about the absolute neces- - sitY of relating increases in incomes to increases in productivity so that prices will remain stable, exports will flourish, and balance of payments crises be avoided. The lesson of the pay pause was that an in- comes policy will not work unless the Govern- ment administering it has the passive acceptance, if not active co-operation, of the unions and man- agement. This was the lesson the Government seemed to have learned when it established the NEDC. Yet by establishing the National Incomes Commission the Government ignored the lesson again. It is very difficult to discover what it really thought could be achieved by going over the heads of organised labour and making a direct appeal to 'public opinion' for what is, in effect, Wage restraint. For this they would need the sYmpathy of every newspaper editor in the coun- try. They will not have it, for NIC is no longer a good story.' But if NEDC does become an important in- fluence on economic policy, NIC is not going to be very important—even to the Treasury. As to NEDC, in the first flush of enthusiasm, journal- ists--aided and abetted by members of the secre- tariat—presented it as the panacea for most of Britain's economic problems. During the past six Weeks they have discovered that it is not so simple; NEDC has been brought down from its Pinnacle. Things are not that bad. Certainly the first signs of disillusion have set in: but that is ao disaster. Now the rose-tinted spectacles are off, 1,11,e council can apply itself to the job of relating it ideas to the Government's economic policies. The members have the secretariat's hurried, but comprehensive, radical, but not particularly violent reports on the methods of and the ob- stacles to achieving its agreed target of an aver- age annual economic growth rate of 4 per cent. a Year. They will soon begin to make their sug- gestions about the changes in government policy necessary to help the British economy grow faster. When these are available they will begin to know just how influential NEDC might be- come. But they will never really know until they begin to grapple with the most contentious ob- stacles to a stable 4 per cent. rate of growth. If NEDC works it will play the major role in the search for the elusive incomes policy.
The four important groups involved in the search are the Government, the unions, the em- ployers, and the secretariat of NEDC. Their pre- sent thoughts, and their ambitions on the subject of incomes must be summarised before any more can be said. The Government has the greatest interest in an incomes policy; obviously so, since it has to manage Britain's finances.
The Government made life difficult for itself recently by letting Professor A. K. Cairncross, the economic adviser, loose before NIC. He told Sir Geoffrey Lawrence and his Commissioners that the Government could not condone wage in- creases averaging more than 21 per cent. this year, and possible next. This brought the house down. Both trade unionists and the NEDC secre- tariat were angry because it showed no progress in government policy 'since the unacceptable White Paper on Incomes published over a year ago. Professor Cairncross felt hurt by the re- action to his evidence. He claims to have been misrepresented, and he can make a good case in his own defence against the accusation that the Government was showing signs of no confidence in NEDC.
It seems Mr. Maudling had no idea that his Treasury officers were going to be so intransi- gent. He clearly wanted more flexibility. So an Under-Secretary was sent along to NIC two weeks later to explain that 21 per cent. is not the Treasury's last word on the matter; that there is not much difference between 21 per cent. and 3 per cent, anyway; and that an incomes policy is really NEDC's business. This done, the Govern- ment's position remains vague, but not quite so absurd. (The Labour Party is making its first ten- tative steps on the subject. Mr. Callaghan is known to favour one; Transport House is work- ing on possible policies.) The unions are playing their cards very close to their chest—but it is important to understand that 'the unions' in this context often means little more than the six TUC representatives on NEDC, which is still thought of, by some mem- bers of the General Council, as a mouthpiece for capitalist economics. The basis of its attitude re- mains the belief that an incomes policy can only be part of a general economic plan. What hap- pens if they are offered a plan which they find acceptable is even more uncertain. The General Council does not have enough power to do any more than accept a plan in principle: the Coun- cil cannot implement it. That is up to the 182 affiliated, but autonomous, unions. There is some comfort, however, in the fact that methods of achieving more concerted action on the wages front are being considered in Congress House.
The attitude of management in industry is even more difficult to summarise; employers are so disorganised and fragmented. Generally, they would favour an incomes policy because it would give them the chance to plan their cost structure more carefully, over a longer period of time. Individual industries can already do this by mak- ing long-term wages andjor hours agreements, as the electricity supply and contracting indus- tries have done recently. Otherwise their attitudes are vague. The basic factor is that only the Government can exercise real influence on man- agement policies of this kind; employers' asso- ciations have no real powers of initiative or dis- cipline; the employers' representatives on NEDC can commit no one but themselves. Their rote is little more than advisory.
Sir Robert Shone and his men on NEDC are the most optimistic of the four 'parties.' Some of them are now engaged in the production of a paper on an incomes policy. But their main in- terest at the moment is the 4 per cent. rate of growth, and they are convinced that the first im- portant steps towards achieving it can be taken without the benefit of an incomes policy. Ex- pansimr is their main theme, even to the extent of saying that there is no real chance of getting any such thing until there is expansion enough to allow wage restraint at a higher level.
All four groups agree that an incomes policy is necessary, disagreeing on the type and timing of the policy. Should expansion come first, at the risk of a balance of payments crisis caused by the increases in imports necessary for increased production? Is expansion possible without an incomes policy? Are there not other methods of curing Britain's economic weaknesses?
The last question is worth considering first. There are indeed alternative methods of solving balance of payments difficulties. One is to intro- duce export incentives to force manufacturers into export markets by offering the bait of higher profits. Another is to devalue the pound and make British goods cheaper in foreign markets. Both, for a variety of good and bad reasons, are unpopular in government and union circles. Their supporters are most common in univer- sity economics departments, which does not help the cause very much. Both would help if they could be made politically acceptable at home and abroad. And even then there are few good reasons to suppose that they would solve the long-term instability in the British economy. Only an in- comes policy can do this. (And even there, too, is a catch, for an incomes policy will not control the level of world trade, on which Britain's pros- perity ultimately depends.) But why an incomes policy? Just as important, how is one to be implemented? An incomes policy is necessary because there is an important social justification for it. The policy can be used as a tool to create a fairer distribution of in- comes in Britain. It could attack the anomalies which abound today—that a majority of crafts- men in British industry are earning less than semi-skilled men in the motor industry; or the absurdity of the relative salaries of teachers and advertising men (or even journalists); the list goes on and on.
The object of economic policy should be to achieve economic growth without inflation, or, at least, without too much inflation. This is only possible if the trade cycle can be controlled. Meaning that the Government has to find alter- natives to the 'stop-go" policy of inflation—de- flation—inflation, which has characterised its Chancellors' activities during the past decade. If they are to be found, prices must be controlled and the only way to control prices is to control incomes. It sounds simple. Most economic theories do. The complications arise when poli- tics is introduced.
Therefore increases in incomes must be con- tained. But should the emphasis be on wages or Profits? An economist will say that the in- fluence of profits and dividends on prices is rela- tively unimportant. All that really matters is wages—particularly during the period of low un- employment Britain has experienced in recent years.
But profits are important to politicians and trade unionists, if not to economists. If an in- comes policy is to be acceptable to the TUC the Government must show willing to restrain profits and dividends when they are leaping ahead of wage increases. The Government will probably have to put something on the statute book to demonstrate its ability to attack profits and divi- dends if they go too high. Then it will be easier to bully industry into the frame of mind in which it is willing to re-invest its profits, rather than distribute them haphazardly during boom Periods. To do this the Government will almost certainly have to reform the tax structure, so that they can tax company profits. earned and unearned income at separate rates.
That leaves wages, and the necessity of re- straining them when they increase too rapidly, as they can have done during five of the past seven years. But are they to be restrained before or after expansion? There is a simple answer to that question. If Britain waits for an incomes policy before starting a real programme of economic expansion and structural reorganisa- tion it will have to wait too long. An incomes Policy is not going to appear suddenly during the summer like manna from heaven. The first signs of one might be seen at the end of the year; it might begin to flourish during 1964. If expansion is held back until then the chances of achieving a 4 per cent. average growth rate between 1961 and 1966 are nil instead of merely doubtful.
The mechanics of the policy are much the same as the politics. The Government eventually has to find a way of persuading the unions to Make their claims on a Wider front, and put them generally at a level which bears some re- lation to the state of the economy. They must convince the unions that their members will have a fair and growing share of increases in national prosperity (another reason for immediate economic expansion). There must also be some machinery to hear the appeals from sections of the community which regard themselves as special cases deserving larger-than-average shares of increased prosperity, The machinery could Well be NIC, if the Government can salvage it from its slough of disrepute before it is too late. None of this is easy. It demands imagination and nerve from the Government; imagination and self-discipline from the unions; imagination and generosity from the employers. They have not been common commodities in the past. It is as well to remember that they, too, will not ap- pear overnight. They will be the result of long and hard bargaining. NEDC is the place where e bargain is most likely to be struck.
Previous page
