The stock market slump and the unions
Nicholas Davenport
In the vast dealing room of a firm of brokers I know — the roar of voices on the telephone has now fallen to a quiet murmur — there is a huge chart on the wall which plots the daily marks of the Financial Times index of thirty industrial shares. It begins in 1970 when a bear market was in progress — the index falling to 305 in March 1971. Then came the Tory boom, the index rising to 543 in May 1972. Thereafter a disquieting fall goes on until 250 is reached. If it goes below 250, as it probably will, this great chart will have to be taken down from the wall, for there is no space left in the frame for a fall of over 54 per cent.
This points to an extraordinary Stock Exchange slump. During the great depression the FT index of thirty shares never fell by as much as 54 per cent. And in the last world war the index dropped by only about 33 per cent and never went down to the 1931 disaster levels. So what has caused confidence in the equity shares of our great industrial companies to fall our of the frame of this chart? What has brought the equity market down to a level not seen • for fifteen years?
A major bull market, as I have often said, has to have a conjuncture of favourable politics and favourable economics. Likewise a major bear market has to have a conjuncture of unfavourable politics and unfavourable economics, which we have today. What makes this bear market worse than any we have had before is first, that we have never before had such unfavourable politics, secondly, that we have never had such a financial malaise in the property and banking fields. Three broker firms, several property companies and fringe banks have gone bust and the forced selling which always follows upon financial collapse, has played havoc in the market. The latest, as I write, is Court Line which has fallen from 60 to 10. Bankruptcies abound.
The more unfavourable politics stems from the Labour manifesto, Which Mr Wedgwood Benn is cleverly exploiting to win the support of all the militant unions and revolutionary cadres. This called for a massive extension of nationalisation and the control of at least twenty-five of the top in
dustrial companies. In addition to that negation of the mixed economy Mr Healey's budget has taken away £1,100 million from the cash flow of industry this financial year. The free enterprise system can hardly be expected to function when no profit can be guaranteed on any investment it undertakes. To complete the capitalist demise we have the increase in dividends (but not wages) limited to 5 per cent — a blow not only to individual pension funds but to the whole flow of savings into investment — and the freezing of commercial and house rents, which 'has for the dine being destroyed the market in property. Capitalism or the mixed economy cannot survive in this sort of blistering political climate. But let us not suppose that all this will be cleared up in the early general election. Mr Heath might win it and that would result in still more unfavourable politics and economics. There would be another confrontation with the militant unions.
Here is a cliche which needs repeating. If you don't learn from your mistakes by using your brains you will have to learn by suffering. This is what the trade union world will have to do. The suffering, which will be staggering unemployment, must not be inflicted by a Tory but by a Labour government. This will give a chance for the moderate social democrats in the Labour Party to oust the militant revolutionaries who will have caused the damage. The Labour Party, as we know, is a split party. The trade unions themselves are already split over the so-called 'social contract' — the vague voluntary agreement to exercise wage restraint. The building workers at their, conference last week openly broke it by demanding a rate of £1.50 for craftsmen and £1.40 for labourers, which implied rate increases of 87 per cent and 107 per cent respectively. Mr Scanlon in his presidential address to the AUEW did not even commend the 'social contract' although he was a member of the committee which drafted it. In the militant trade union view there can by no social 'contract' between workers and government until a socialist state has been created. The terrific wages battle which will break out in the autumn on the expiry of Phase Three is something which must be fought out between the unions and a Labour government. The Tories must keep out.
If the estimates of the National Institute of Economic and Social Research prove to be fairly accurate the battle will be horrific. The Institute beli s that between the end of 19 3 and 1975 all workers will suffer a• decline in their real disposable income (i.e. our standard of living) of nearly 5 per cent. This would be a bigger fall than we experienced in the worst years of the great slump. It could only be avoided if there was an investment boom or an export boom — both unlikely. If the strong arm unions force unreasonable wage claims through — how the moderate union leaders will hate them for it! — the price inflation will jump up towards the 20 per cent rate and the unemployment rate will also rise, not only because Mr Healey's budget has increased taxation and will be found to be 'deflationary' but because industry will be 'down and out.'
The political activism of the CBI is, I think, a mistake. Its new president, Mr Ralph Bateman, seems determined to get his organisation politically involved in the Wedgwood Benn row. He wants every one of his members to come out and stand united against any further nationalisation or state intervention in industry. He is supported by Lord Robens (Vickers), Lord Plowden (Tube Investments), Sir Arnold Hall (Hawker Siddeley), Sir John Clark (Plessey), Mr William Luke (Lindustries) and Sir Raymond Brookes (Guest Keen). And they are no match politically for Mr Tony Wedgwood Benn. They are taking the risk of uniting labour against the capitalists, which would be madness.
The better course for the CBI is to ignore Mr Wedgwood Senn and politely inform the TUC in ad vance of the lay-offs which their members will be forced to make (a) when the rise in wages or delays in deliveries makes their good uncompetitive abroad — the export figures in the shockingly bad May trade returns suggest that we must count on the export boom continuing — or (b) when a further drop in retail sales — now about 3 per cent down on the first quarter — forces the shops and stores to cut their sales staff or (c) when the slump in building forces the contractors to send their surplus workers home (Irish first?) or (d) when the hyper-inflation caused by hyper-wage claims produces hyper-unemployment. This would help the trade unions to learn from their mistakes.
But is the City learning from its own mistakes? The Bank of England stepped in to help the rescue operations to save some secondary or fringe banks which should have been allowed to go bust. The attempted rescue Of property companies which borrowed at 15 per cent to 18 per cent to buy properties yielding 3 per cent to 4 per cent, which became unsaleable, was probably a mistake. Bankruptcy would be good for them. Stockbrokers, on the other hand, who are caught out by the sharp decline in turnover on this slumping market are the most deserving of the new poor.
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