Galloping Consumption
It has emerged with the utmost clarity from the Chequers talks between the Government and the unions, that the national interest has suffered yet another defeat. We say this neither to knock the Government nor to carp at the unions; but because it is so. To such a pass have we come that, if Mr Feather takes tea with Mr Heath, a breakthrough is acclaimed, whether or not one has occurred. Of course it is to be welcomed that, after the abrasiveness and the mutual hostility of the last two years, ministers and union leaders still find it possible — or find it again possible — to behave towards one another with ordinary courtesy; but the fact that they can do so contributes nothing in argument, art or action towards the solution of the country's grievous economic problems. After Chequers we are simply a number of days further along the downward path to open crisis.
That the situation is thus can be put down to a fundamental irreconcilability of the aims of the unions and the aims of the Government. More than ever before the unions are determined to use their muscle to extract from industry higher and higher wage packets; whether or not these are justified in terms of productivity; whether or not they are real as opposed to paper benefits; and whether or not the rest of the community approves. At the same time the Government is determined to reduce the level of wage settlements; and seems to have no other current specific for the economy's ills. Whatever way you look at it this is a prescription for an eventual clash, and who would be victor in that clash is still extremely uncertain, though we know that the national interest would, again, be the principal victim of it. Those of us who wish to pass judgment on the two sides can observe only that wage inflation is an element in the economic crisis, and that no industrial economy can long prosper or remain stable if its workforce extorts unreasonable or economically intolerable rewards in return for its labour. But we can also emphasise that wage inflation is only an element in the situation. It is by no means the whole of it; and few economists would now argue with any conviction that it is even the most important element in inflation as a whole. That is why, whatever the merits of demerits of the principle of an incomes policy—expressed as a freeze, squeeze or regulator—and about that there can be a good deal of disputation—it can in no sense be thought of as a cure for what is wrong with the economy and the country.
There is much currently wrong with the structure of the British economy: not all of industry's problems are strictly speaking economic, but these structural problems are more important than wage inflation, because they cause wage inflation, which is a symptom of disease rather than a disease itself. Such of these problems as were discussed at Chequers were merely touched upon. That gathering concentrated its attention essentially on wage and price levels and the incidence of industrial dispute. Once again, the attention was on the symptoms of our malaise. Among these structural problems are the level of the money supply and its rate of growth; the nature of British industrial investment policy; the fact that our country now creates income rather than wealth; the lack of competitiveness in the economy; the size and char acter of the nationalised sector; and the discontent with their work of the national labour force.
The argument about the money supply is now familiar. It is a fact that the supply of money to finance public expenditure and private borrowing grew at a rate of thirty per cent over the last quarter. It is a fact that this is paper money, not based on any very real assets; and that it can be used to buy things only because people are still to a degree convinced that it represents real credit-worthiness. It is a fact, too, that, though the Chancellor in his last Budget speech announced his intention of continuing with a generous money supply policy practically everybody now agrees that the rate of growth is too fast; and nobody disagrees that the Government can alter that rate of growth overnight, at a stroke.
What is wrong with British investment policy is that money —some of it real money, actually invested, some of it coming from growth in the money supply as a result of government subvention to industry — is being used almost exclusively to create jobs, and with precious little regard for the saleability or profitability of the products industry manufactures. It is not an unworthy — indeed it is a necessary — object of policy to create jobs; but only if at the same time a soundly based and stable industry is being created. But because there is so much subsidisation, because size rather than invention is being helped by the state and the taxpayer, the economy is becoming uncompetitive, both internationally and domestically: without fair competition there will always be steadily rising prices. And because the nationalised sector of British industry is so large, and because no clear-cut decisions have ever been taken about which parts of it must be run economically and which parts are deliberately to be subsidised for social reasons, competitiveness is further reduced.
In combination these factors all come together to make up an economy in which income chases income; in which men are encouraged to earn in order to spend; in which obsolescence alike in material goods and in expectations is encouraged. We do not have a wealth-creating economy: the day of the property-owning democracy seems nearly done, although a handful of City speculators amass paper fortunes. The great proportion of an individual's income goes out as soon as it comes in. Thus the individual worker is discontented and becomes convinced that he must for ever chase his neighbour on the treadmill of higher earning and higher spending. This trend of galloping consumption is encouraged by Conservative tax reforms which have been almost wholly directed towards the maximisation of tax cuts, so that the individual can choose to spend where he likes. We need a more subtle instrument of fiscal and financial policy, which may still enable the individual to spend, but which will also encourage, or at least not discourage, him, or his neighbour, to save for himself, to acquire possessions and property. what, more than anything else, is wrong with the economy of this country is that its workers' activity is directed towards consumption and the Government omits any encouragement to people to stabilise their lives economically.
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