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Wages in Cuckoo Land
By NICHOLAS DAVENPORT
GENI 1201.-S1.1' voicing the feelings of all his Conservative opponents, Mr. Ray Gunter, the Minister of Labour, told a Labour party meeting at the weekend that there were far too many people in this country living in cuckoo land, unwilling to face the harsh realities of our (debt-laden) position, drifting and dreaming that all was well, that full employment had been divinely ordained for ever and that incomes could go on increasing year after year without any bother. The truth, he said, was far different. Full employment vvas not guaranteed, it could only be maintained in a solvent society: and higher standards of living in the end could not be realised unless they were earned.
Now each Chancellor of the Exechequer has been saying exactly the same thing for the past fifteen years. Unemployment has gone up and down over this period, but the standard of living on the whole has been steadily rising. So the workers can hardly be blamed for assuming that this has been due to the fact that their unions have been demanding, and generally winning, a good annual rise in wages which keeps manage- ments alert and acts as a spur to the economy. Sometimes the wage rise has been ahead of the rise in output and productivity, so that the effect has been either to cause a jump in prices or a jump in imports and a balance of payments deficit or both. Sometimes the rise has been con- sistent with the rise in labour ptoductivity and all has been well. But, as the workers see it, this is a split society and it is not up to them or their unions to be reasonable, or to strike a balance, or to see that all is well. That is the job for the Government. On the contrary, the job of organised labour, in their view, is to keep on 'trying it on'—until they get stopped. It is all very deplorable—indeed, it makes one despair of ever realising a rational society, much less 'a -great society,' but that is the way of our acquisitive world.
Fortunately, the trade unions have come to realise (so I suspect) that for the moment they have gone too far, but the change of government undoubtedly played into their hands— although they never expected Mr. George Brown to stop the rise in prices before he had stopped the rise in wages. This dangerously inflationary situation has at last convinced the Government that it must take firm action. The Bill to make compulsory the 'early warning' system for the Prices and In- comes Board will be coming shortly. That will be a real upset to trade union bargaining tech- niques. And the Prime Minister's 'make or break' speech before leaving for the Lagos conference was a clear warning to the trade unions, as well as an appeal 'to surrender a selfish sectional interest to the call of a greater national and social interest.'
But let no one suppose that British trade unions have been any more selfish than others. In the split societies on the Continent wage rates in the last two years have been rising at a faster rate than in Britain. In manufacturing industries the rise last year was 7-1, per cent in Germany, about 71 per cent in Italy and 6 per cent in France (against 7 per cent in the UK), although consumer prices in those countries rose only 3.8 per cent, 4.1 per cent and 2.4 per cent respec- ts ely (against 4.4 [VI cent in Britain). Reviewing member economies at the ministerial meeting at the end of November last, the OECD reported: 'The United Kingdom ,:cems gradually to be getting back into balance.' This could be inter- preted as meaning that wage rates on the Con- tinent are now catching tip on those in Britain.
A disproportionate rise in wages tends, of course, to make a country's export products un- competitive in price in the world markets. The same ministerial meeting of the OECD had this interesting table to consider of the relative ex- port performance of some of its members, com- paring the first half of 1965 with the first half of 1964.
Growth of Country's Actual Growth of Export Markelt Country's Exports Japan 12.4% 36.1% than:76s:: Italy 1 1 .7`..;, I 2; (.47) 24.1%
Germany 9.4% France UK 3.9%
The first column points to the growth which should have occurred in a country's exports if it had exactly maintained its :hare in total OECD exports to each market. Alas! Britain's perfor- mance is outstandingly bad. We come at the bottom of the league.
It has not yet been demonstrated that British export prices are hopeles-ly uncompetitive in the world's markets. Design. delivery dates and after- sales service are equally important factors in international trade. But it is generally supposed that to stop British wages rising any faster and risking our chances of survival the Government must step up its deflationary policies to the point of creating massive unemployment. If this means increasing direct as well as indirect taxation, it would be a disastrous step. The reason why management and labour do not work harder is not sheer laziness but cool calculation of the net (after tax) benefits of harder work. The working man is no fool. He will calculate as quickly as any computer as to when it pays him not to work. The appalling amount of absentee- km in the mines and factories can only be ex- plained by the fact that the worker feels himself to he overtaxed beyond a certain point of working. If direct taxation were to be increased, absentee- ism would be worse than ever and our export trade would finally be ruined. Indirect taxation (in- cluding a turnover or :ales tax) is another matter.
The Chancellor should therefore be thinking of new incentives, not new direct taxation, incen- tives for extra saving as well as for extra work. And these incenth es must cover managements as well as men. Incentives for new industrial in- % estment are said to be coming shortly, but incentives for the export trade (by way of more remission of taxes) are just as important. If some new import saving js to be considered in the in- terests of the balance of payments, let it be in the shape of temporary import quotas, which are allowed under the rules of GATT as well as the IMF. I cannot believe that the finer qualities of greater effort and more ingenuity which the Prime Minister calls for will be conjured up by a return to the misery of industrial stagnatioa.
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