Freeman

ARTICLE

The Control of Wages and Incomes in Britain

APRIL 01, 1967 by GEORGE WINDER

Mr. Winder is a long-time analyst and re­porter of monetary and other politico-eco­nomic affairs in Britain.

Some form of socialism is assured once a country accepts an incon­vertible currency as its monetary medium. Its money either will lose all value, as it did in Germany and several other European coun­tries between the World Wars, or it will be "saved" only by drastic governmental action involving all the rigors of socialist authoritar­ian rule.

Britain is slowly realizing this fact. The British pound over the past twenty years has been losing value at about twice the rate of the American dollar. Such infla­tion is reflected, of course, in con­stantly rising wages, which leads many persons to demand govern­ment control of wages to halt further price rises. That notion originated among Keynesian economists, but is welcomed by social­ists who see in it a means to their ends. Naturally, they would insist that if wages are to be controlled, then prices and profits must also be controlled.

Though many of the British people found this new policy op­posed to all their previous ideas, they gradually came to accept it as a way to achieve a stable pound. Mr. Macmillan, the Conservative Prime Minister, had failed on sev­eral promises to end the inflation. Why should the socialists, under Mr. Harold Wilson, not be given their chance?

The socialists had come to power at a time of crisis in Brit­ain’s foreign trade, when it was imperative to reduce costs and so strengthen the value of the pound. Their first attempts were half­hearted. They cut defense estimates and increased taxation, a notable example being a surtax on all manufactured imports. But, in their first two years of office, government spending rose 24 per cent, from 6.8 to 8.5 billion pounds.

In mid-1966 the pound was be­ing supported not only by the Inter­national Monetary Fund but also by the leading central banks of the world. The socialist govern­ment took this opportunity to im­pose on the British people its new policy of control of wages, prices, and incomes. For the first time since the Statute of Labourers in the fourteenth century, all wages were under the complete control of the government. It had pre­pared the way by persuading the Confederation of British Indus­tries and the Trade Union Con­gress to consent to an Early Warn­ing System by which all increases in wages and prices were to be referred to the National Board of Prices and Incomes. The Trade Union Congress had been prom­ised that any increases in profits or dividends were to be similarly screened.

"Voluntary Cooperation" Under the Power of Coercion

This unusual system of persua­sion began with no positive Act of Parliament to make it legally effec­tive. But the intensification of the crisis allowed the government to pass through Parliament its Prices and Incomes Act with the necessary authority for control.

The Act ordered a general standstill (freeze) on all wages, prices, and incomes, to last until the end of 1966 and to be followed by six months of "severe restric­tion." The fiction of voluntary enforcement was kept alive but it was only a short time before the gov­ernment invoked its power of coer­cion: "Although the Govern­ment has been obliged to bring Part IV of the Prices and In­comes Act 1966 into operation, they hope that severe restraint will be observed on a voluntary basis, and that the same general responsible attitude which has marked the period since 20th July will continue. The Government will use their statutory powers for the sole purpose of ensuring that the voluntary support of the ma­jority is not undermined by the actions of a few." This is very much like the Sergeant Major’s demand for volunteers… or else.

All incomes derived from em­ployment and every other type of income, including professional fees and dividends, are thus made completely subject to government control. The Act provides for a fine of £500 or more for any employer who contravenes its pro­visions by paying over the stipulated wage rate — for paying too high a wage!

According to a government White Paper: "It is not expected that there will be any general in­crease in dividends during the next twelve months. Nevertheless, all company distributions, includ­ing dividends paid by companies, are subject to the standstill and should not be increased during the twelve-month period." As to wages: "The standstill to the end of 1966 is intended to apply to increases in pay and to reduction in the working hours…. Dur­ing the six-month period of severe restraint (i.e., the first six months of 1967) the criteria for consid­eration of new proposals for pay and hours will be more stringent than those set out in Part I of the White Paper on Prices and In­comes Policy and for the time being the income norm must be regarded as zero. The guiding principle must be that of national economy and social priorities."

All long-term contracts for in­creased wages were at the same time canceled: "It will clearly have been inequitable to intro­duce a standstill on incomes while allowing these existing commit­ments to go ahead unchecked."

It is highly probable that the prices and incomes period of se­vere restraint will be extended in­definitely. Many people foresee that as Britain abandoned inter­national free trade during the fi­nancial crisis between the two wars, so she will abandon the sys­tem of free enterprise during the present crisis. As one White Paper warns: "During the coming months, the Government will con­sult with interested parties about the best way of carrying forward the productivity, prices and in­comes policy after June 1967."

There can be little doubt that this policy is not merely to meet an emergency, but envisions a scheme of redistribution to be im­posed on Britain for as long as the Socialist government lasts.

Opposition from Left and Right

Strangely enough, although the government has obtained the con­sent of the Trade Union Congress to this policy, many trade unions strenuously oppose it. Mr. Frank Cousins, former Minister of Tech­nology, has resigned over this issue, though it cannot be said that those trade unions which support him are particularly in­terested in freedom; they merely want the power to bargain for their own wages, whether there is increased productivity or not.

One stout defender of free en­terprise among the Conservatives is Mr. Enoch Powell. He is con­stantly condemning Labour’s pol­icy and showing the extreme dangers of its implications. He ad­vocates, as a remedy, the freeing of exchange rates so that the British people will know the true value of their pound. The re­mainder of the Conservatives, of course, are against inflation; but this did not help the pound when they were in power. They failed to advocate a balanced budget or anything else resembling fiscal re­sponsibility.

The believers in free enterprise have been led into a trap by this constant inflation. If they do not now agree to Labour’s prices and incomes policy, the pound will lose all value; and if they do agree, they must give the government unlimited power over the economy and their own freedom of choice.

The pressure of the trade unions might eventually release wages from control; but dividends would continue to be decided by the gov­ernment "in the national interest" and to meet "the claims of social needs and justice"— as though it were the sole judge of these things.

The only policy which can pre­vent socialism’s entry by the back door in this manner is to see that a country’s money is sound.

 

***

French Inflation, 1789-1799

Now began to be seen more plainly some of the many ways in which an inflation policy robs the working class… the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was re­duced. Soon the great class living on wages felt it even more sadly…. the demand for labor was diminished; laboring men were thrown out of employment… the price of labor… went down…. Working men of all sorts were more and more thrown out of employment.

ANDREW DICKSON WHITE, Fiat Money Inflation in France

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April 1967

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