When the Labour Party came to power last year, it was widely believed in the Labour movement that this was the beginning of a long period of socialist construction. Planning would replace the anarchy of the market and Britain would be forced to the left, both by the logic of planning and by the insistent demands of the trade union movement. Optimistic articles appeared in Tribunefootnote¹ hailing the incomes policy as an unprecedented opportunity for the Left to break out of the defensive positions it has held for so long, and take up the offensive. Opposition to the policy was confronted with Lenin’s words ‘. . .the whole task of the Communists is to be able to convince the backward elements, to be able to work among them, and not to fence themselves off from them by artificial and childish ‘left-wing’ slogans.’ Welcoming the incomes policy, Michael Barratt-Brown and Royden Harrison said: ‘It is imperative that the Labour left should grasp the revolutionary possibilities of the situation. For two hundred years trade unions, in Marx’s words, have been fighting with effects rather than the causes from which these effects proceed.’footnote²

Few of us now feel so confident. The National Plan makes it clear that the incomes policy is intended to maintain the present share of profits in the National Income, and that any redistribution is to be within the working class: badly-paid workers are to be helped, not by cutting profits and higher salaries, but by holding down the wages of the better-paid workers. There is no evidence in the plan of any intention to redirect the economy in a socialist direction. In this situation, socialists need no convincing that this particular incomes policy must be fought. Unfortunately, there seems to be little understanding that the whole strategy of socialism-through-an-incomes-policy was wrongly conceived in the first place. The composite motion moved by Royden Harrison at the Labour Party conference recognized the need for a socialist incomes policy while criticizing the present policy. In the event of a shift to the left in the Labour Party brought about by a rank-and-file rebellion, a ‘socialist’ incomes policy would become a serious possibility, and it therefore seems appropriate to examine the strategy of socialism-through-an-incomes-policy or, as it has been called, ‘probing the limits of capitalism from within’. This article will examine the economic analysis which seems to underly most of the arguments of supporters of the incomes policy and show that there are several major weaknesses in it. Following this, it will show that, even if their assumptions about the workings of the economy were correct, the institutional changes necessary to make the incomes policy work would make the struggle for a socialist society yet more difficult than it is at present.

Most supporters of the incomes policy, socialist or otherwise, share a common economic analysis of Britain, which runs roughly as follows: when there is full employment, the trade unions are able to exploit local and national labour shortages to force up the level of wages more rapidly than productivity rises. To maintain their profit margins, employers raise prices, with the result that real wages rise only as fast as productivity. If British prices rise faster than those of some of our main competitors, e.g. the us or Japan, it will be increasingly difficult to export. This, in turn, means that we are faced with periodic balance of payments crises which are aggravated by the fact that sterling is an international currency vulnerable to large speculative pressure. Faced with a major crisis, the government has a number of possible choices. It can deflate, causing unemployment and reducing investment in typical Tory fashion, a policy which will usually solve the crisis in the shortrun, even if exacerbating it in the long run. This has the major disadvantage of slowing down the rate of growth of the economy and is therefore inefficient, as well as damaging to the working class. Alternatively the government, can devalue the pound but this, it is argued, would be an attack on the working class standard of living and might be impossible because of the wide use of sterling as a reserve currency. Since both these choices are supposed to be unacceptable to socialists, some other way must be found. In the short run, cutting overseas military expenditure and the outflow of private capital would provide some relief but, sooner or later, our prices must be prevented from rising too fast. The incomes policy is seen to be the only hope left of avoiding either deflation or devaluation. In return for certain guarantees about income distribution and social justice, the trade unions are to agree to co-operate in controlling wage increases so that wages rise little or no faster than productivity. If wages are prevented from rising no faster than productivity it will be relatively easy to control prices.

This is at first plausible, but is incorrect for two reasons. First, trade unions are assumed to be the main cause of wage increases at times of full employment, whereas much of the available evidence suggests that the effect of trade unions on the wage level is at most marginal. The rate of growth of wages is largely determined by other factors in the economy such as the level of unemployment, the structure of the labour force, the share of profits in the national income, the rate of growth of productivity and so on. Second, it assumes that the present exchange rate is sacrosanct, and that it is, therefore, important to avoid devaluation. This is little more than a fetish.

European incomes policies, attempted under conditions of considerably less class-hostility and much greater centralization of workers organizations than in Britain, have had little success in preventing ‘wage drift’ (the tendency for actual wages to move ahead of nationally negotiated wage rates). The most comprehensive of these has been the Dutch policyfootnote³ in which strong centralized employers’ organizations and trade unions and the government agreed increases in total money wages at the national level, and left the details to be settled by local bargaining, on condition that all local bargains should be acceptable to the central organizations. Penalties, including imprisonment, were frequently imposed on employers who paid ‘black’ wages and workers who struck illegally. Despite the low level of shop floor activity, competitive bidding by employers resulted in extensive payment of ‘black’ wages in periods of high demand. Other legal devices, such as the upgrading of workers, and the paying of constant piece-rates to workers in dynamic industries, also contributed to the drift. The stresses and strains have been so great that the policy has virtually broken down. In Sweden,footnote⁴ which since the war has had little industrial unrest and strong centralized employers’ and workers’ federations, there has been a high rate of growth of actual money wages. Despite the ‘responsible’ policy of both trade unions and employers, money wages actually paid in the fifties rose at about twice the rate of the nationally negotiated rates. Prices rose at a rate of 3 per cent a year—faster than in the uk. Norwegian and Danish experience has been similar.

Although European evidence cannot be taken as conclusive proof that British trade unions would be unable to control the level of money wages in a period of full employment, it does place the burden of proof on the advocates of the incomes policy. The evidence relating to the British economy in the post-war period suggests that the experience will be repeated here. Numerous econometric studiesfootnote⁵ suggest that at most the effect of trade unions in the post-war period has been to slow down the growth of nationally negotiated wage rates, particularly in the late forties during the period of wage restraint. Their effect on actual hourly earnings—the crucial variable for an anti-inflationary policy—was negligible. Non-econometric evidence on trade unions and wages provides equally little evidence of their alleged power.footnote⁶ For example, male salary earners have not been losing in recent years relative to manual workers, even though they are almost un-unionized. Indeed, it is often forgotten that only one-third of the labour force is unionized.

The exact mechanism by which wages have been raised in post-war Europe is still obscure. It seems that dynamic industries with a high rate of productivity and output growth are of major importancefootnote⁷ Many of the workers in these industries are paid by the piece. As output per worker increases, their money wages move up automatically. Time-workers in the same plant must be paid comparable rates if there is not to be serious unrest and labour turnover. It should be realized that this unrest and non-co-operation by the time-workers, when differentials between them and piece-workers grow too large, is not necessarily caused by trade union action. This action may simply serve to focus the unrest which would have achieved its result by more subtle and less obvious means. The policy of high wages in prosperous firms is not a sign of generosity, it is a recognition of the fact that if high wages are not paid, workers will go elsewhere and there will be general non-co-operation from the remaining workers. In the same way, other firms and other industries are forced to keep up. Since the war, in every major industrial country, strongly or weakly unionized, the relative positions of different industries in the pay hierarchy has hardly altered.footnote⁸