Control money, not wages
For all its reversals of policy, confusions, humiliations and surrenders, the Government has stuck rigidly and stubbornly to one domestic objective throughout its life: the achievement of a 5 per cent growth rate. The prospect of entry into Europe and a high unemployment rate both played their part in influencing Mr Heath and his colleagues in the adoption of various economic policies. But on each occasion on which the Government has run into economic difficulties the opportune policy adopted has been that which appeared most likely to allow healthy growth prospects. Mr Barber said only the other day, when justifying the Government's total reversal of its initial policy on prices and incomes, "Well, I suppose that instead I could have abandoned the determination to have a faster rate of growth . . . and have deflated the economy ". Growth has been, and remains the god of economic policy. So it has been with all governments since the war. It is probably true that the great majority of Conservatives who are now so distressed by Mr Heath's about-turn on the matter of a statutory incomes policy would forget their unhappiness if a faster rate of growth were actually being achieved. But before the country is led through the garden maze once more by a Chancellor dangling in front of its nose the ever-elusive, ever-promising prospect of a really high rate of growth, two questions must be asked. Are we actually likely, on present trends, to reach and sustain over a period a growth rate of 5 per cent? And what, if any, contribution will the proposed statutory prices and incomes policy, the oulines of which are already clear, make to growth?
The Government now believes that inflation (the principal cause of which, ministers think, is excessive growth in wages) constitutes the greatest threat to growth. Consequently, they want to hold wages back. Further, though Mr Heath and his Cabinet know perfectly well that one of the principal causes of inflation is an excessively rapid growth in the money supply, they fear to choke the money supply back, because they are committed to heavy spending on the regions and in the subvention of industry, which spending is believed to be, in turn, an indispensable contribution to growth. In the present climate of opinion, moreover, the Government considers that the electorate which believed before the general election that the reform of industrial relations was vital to economic health will now gladly accept that holding wages back, and holding some prices back as well, are likewise essential, if our future economic prospects are to be anything but grim. It is clear that the Government is attacking on the wages and prices front because of its collective opinion that here ut can score a victory, with the aid of public opinion, and because it no longer has the courage to go ahead with its original and rigorous policies on industry and the money supply. The trouble is that the Government's current logic is spurious.
It is spurious because no statutory prices and incomes policy which relies essentially on restraint, can operate for long in a free society. Whatever apparatus of control Mr Heath may erect after the present series of consultations with the unions, industry and the retail trade, such apparatus will not and cannot last longer than the unions permit. It is fairly clear now that the Government has no particular favourite system of control in mind. At a recent press conference Mr Barber went out of his way to say that, while he would be quite pleased with the rumoured two board' scheme — one board controlling prices and the other incomes — he was not particularly committed to it; what mattered were the norms of wage and price increases which operated. There has seldom been a more naked admission that what preoccupies Mr Heath and his colleagues is not some sophisticated restructuring of wage relations, some elaborate and highly developed method of ensuring a controlled rise in prosperity, but, rather, the crudest possible throttling of wage and price rises. Because the ambition is crude it cannot for very long be tolerated by the country's labour force. Because it cannot long be tolerated there will have to be an explosion sooner rather than later. If, at the time of that explosion, the wished-for rate of growth is being achieved, then the explosion will destroy it. Yet it is vital that any growth rate Britain does achieve should be capable oi being sustained.
Wage inflation is an important part of general inflation, and it becomes a much more dominant part when the wage pressures of months or years build up and then explode at the same moment. The sensible way to deal with wage inflation is not by crude, statutory, overall restriction, but by preventing firms — and this includes nationalised industries — laying their hands on the money they desire to buy off the unions. Such a policy, which would amount to a restriction of the money supply, rather than a statutory restriction of incomes, would lead to some industrial strife. But the Government has, after all, fought a number of battles with the unions on behalf of ilts Industrial Relations Act, and will sooner or later have to fight its incomes policy. Would it not be wiser to fight on its right to regulate and control the supply of money itself?
The machinery which will be created to police the next stage of the wages freeze is irrelevant. What matters is the Govern ment's determination to hold wages and some prices down, a determination which will ultimately endanger its great ambition of growth. If the Government feels strong enough to adopt a policy of really tough restraint, it will have signalled the abandonment of any attempt to achieve its economic ends through the control of the money supply, for a wages restraint policy is bound to be accompanied by greater doses of that massive expenditure on industrial subvention and the regions which is the carrot accompanying the stick of wage control. Alternatively, the Government could drop its 5 per cent growth target. On past form this seems unlikely. A dog's dinner mixture of policies of subsidies and incomes (and prices?) controls may see us through this year. But the longer it is thus delayed, the greater the ensuing wages explosion will be. It is a grim prospect which could have been prevented only had the Government remained true to its original intention of restructuring British industry through competition, before attempting to reach its growth target: an attempt which, in all likelihood, will now be unsuccessful. The political logic of this analysis suggests an autumn election.
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