Wednesday, 18 June 2008
Wage restraint - not for me, thank you.
Inflation is picking up and suddenly the government wants everyone to tighten their belts and minimize their wage claims for the greater good.
Darling and King have just woken up to the possibility that the UK could be on the edge of a similar wage-price spiral to the one that afflicted the country back in the 1970s. Today, Darling even made an explicit comparison between the situation today and the chaos back then.
The plea is almost certainly a hopeless one. Back in the 1970s, when pay restraint was a serious policy option, the country had a few haphazard institutions that could make the policy stick. It is largely forgotten period, but during the late 1970s, the Callaghan government managed to reduce inflation through a serious of agreements with trade unions. Callaghan traded off lower wage growth with high public sector expenditure.
However, it all fell apart in 1979, when Callaghan tried the trick once too often. Today, that corporatist cohesion has disappeared. Today, there are no private sector trade unions that could collectively enforce wage restraint.
In any case, wage restraint works best when everyone feels that the sacrifices are shared. With the possible exception of the US, it is hard to find a country where the idea of shared sacrifices is more alien.
Over the last 25 years, income inequality has grown dramatically. The state owned enterprises were privatized; insiders grew rich, while millions of jobs were destroyed. Social housing has virtually disappeared, while the public services have deteriorated. The UK is a country where finance matters more than manufacturing, where profit is king and whatever is mine belongs to me alone.
We can debate whether these developments, on balance, left us better off. Opinions will differ. However, we can all agree that the transformation has made it impossible to confront inflation by a collective act of self-denying impoverishment.
No, I have thought about it. I want my income stream fully indexed for inflation. If someone else wants to take Darling's advice and become poorer, then go for it, but do not expect me to follow.