MONEY AND TILE CITY
The edge of the precipice
iicholas Davenport
The profits of industrial companies r,ePorted in the Financial Times in '973 increased by some 25 per cent ever those of 1972. This was the ighest rate for many years. The quarter by quarter increases were 16.3 per cent, 21.3 per cent, 37.8 per cent and 37.3 per cent. The increase in dividends paid was 91 Per cent. The energy shortage, the quadrupling of the price of oil, the Continuing cost-push inflation and stricter control of profit margins, and now the disastrous three-day
Working week, all imply that such an. increase in industrial profits Will never be seen again — not for a very long time, if ever. Yet the Stock Exchange is behaving as if
trhls was a normal recession. The _ 'thirty' index, after the shock 91 the three day week, which sent it spinning down to 3051, recovered to 343 and is now, as I Write, 333, I have described the three-day working week as a sort of electric shock treatment given to a mental patient in the hope that it ihaY bring him to his senses. It has certainly not brought the stock Markets to their senses. They go living in cloud cuckoo land. his may be because brokers sit for two days every week in semidarkness after the House is closed, dictating letters to their clients With the aid of a hurricane lamp. Clearly, this brings out the British bulldog breed, the Churchillian tradition, so that they make their letters as cheerful and confident as they would on the eve of a victorious battle. The electric shock treatment has also not brought the miners to their senses. In fact, it has made them more stubborn and more non-co-operative than ever. This ,goes to prove that they are fine t not normal people. No oruinary man would work in the dark, dirt and danger of an underground coal mine unless he felt some special calling and received some special reward. Clearly, they are a special case. On the other hand, the electric Shock did bring the TUC to its senses. This may be due to their new secretary, Len Murray, who is an exceptionally able and sensitive man, as you might expect from a scholar of New College, Oxford. . He declared at the NEDC meeting last week that a settlement of the coal dispute outside Phase 3 limits would not be cited by
members of the TUC as sup-. porting evidence for higher pay. We all know that the TUC cannot order its members about but this was a genuine offer, he said, made after much consultation. The Government, not surprisingly, is showing interest. I venture to throw out this suggestion to Len Murray in his future dialogue with the Prime Minister. Conditions have changed since the present prices and incomes policy was devised— the energy crisis, the jump in the price of oil and other commodities, the fall in sterling, etc, etc — and it would be appropriate for Mr Heath to announce that Phase 3 will end in a month or so and be followed by another freeze for six months to enable a sensible agreement between Government, TUC and CBI to be reached. The approaching end of Phase 3 would cause all wage negotiations to be quickly concluded. (Already four million workers have agreed their claims.) And a settlement with the miners could be made without fear of TUC members jumping the gun because a freeze would follow. Then there could be six months of serious talks to work out a new incomes policy to be pursued until North Sea oil takes us out of the energy crisis. • The nation is in an economic mess and it needs a consensus to get out of it. It is threatened by a raging inflation partly because the Arab oil producers are going to quadruple their prices, partly because the Communist-dominated trade unions have a political motive — to bring down the Heath government and then control the Labour Party — which means that they will never co-operate in an anti-inflation policy. The Prime Minister as well as Len Murray should read a wise article by Sir Alec Cairncross on incomes policy which comes in the December Three Banks Review, Sir Alec has been an economic adviser to the Treasury and knows more about an incomes policy than most academics or politicians. (He is now Master of St Peter's College, Oxford.) It is important to get away from the idea, he says, that wage restraint by itself will curb an inflation. The inflationary process is fed from many different quarters — employers bidding for more labour in a boom, workers pushing for higher wages through strong-arm union methods, foreign suppliers raising commodity prices, govern ments increasing retail taxes — or putting taxes on labour. At the same time the wage drift, the 'lump' in the building trades, piece-work bargains, all create upsets in the wage structure and disturb 'relativities.' So the inflationary merry-go-round goes on and it is increasingly difficult to stop it. Mr Heath's incomes policy did not stop it but it certainly slowed it down. It is monstrous of Mr Wilson to claim that Phase 1, Phase 2 and Phase 3 have been dismal failures. Phase 1 was a freeze, Phase 2 (April to November 1972) saw prices rise by 5 per cent and wage earnings by 9 per cent. They might have been more.
We have got to have some incomes policy and if it is not to divide our split society to the point of an explosion the TUC must cooperate with the Government and the Government must co-operate with the TUC. This means an amendment of the Industrial Relations Act. In the meantime the TUC might study Sir Alec's article. Full employment, he says, gives them supreme bargaining power but they must recognise their responsibility to society. As employers can pass on rises in wages to consumer prices and as 90 per cent of consumer spending comes from wage and salary earners and recipients of public welfare a trade union wage claim is simply a claim on fellowworkers. That must be brought home to them. The idea that an excessive wage claim can be met out of the excess profits of industrial profiteers is a myth which only lunatics nurture who are immune to the electric shock treatment.
The gilt-edged market will miss Jimmy Priestley who retires after nearly forty years as a jobber. As one broker put it to me, he behaved as a jobber should: he would always make a price and it would always be a fair price in the circumstances. What is more, he could influence the market, for he held strong views, and if he thought the market was dear or cheap and brokers got to know about it they would act accordingly. He had a lively sense of humour and once claimed that he must have sold more fraudulent securities than any other jobber on the Stock Exchange. He was referring, of course, to undated government stocks which are the plaything of Chancellors and the Bank of England and the whipping boy of the great inflations.
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