Yer What Willie?

Ever since the early 1960s, successive governments had tried to create a high investment, high innovation economy in which the quid pro quo was an acceptance by a strong trade union movement of wage restraint via incomes policies.

Healey believed passionately in this model – it is what happens in Scandinavia and Germany.

I think you\’ll find that such \”wage restraint\” comes from voluntary agreements by the workers and the unions, not by dictat from Whitehall. Quite a difference there really, no?

And does anyone at all think that such a model is viable with Bob Crow and Mark Serwotka running major British unions?

Quite.

16 comments on “Yer What Willie?

  1. Healey the fat pompous fool who led the country to an IMF bailout….and Osbourne is worse?

    No you buffoon Hutton, no.

    And his description of history bears no resemblance to truth.

  2. More specifically with the German model it is a form of mutually agreed co-operation whereby at all levels workers, unions and the government act collectively.

    German wage restraint was only achieved by using improved logistics and market economics to reduce the cost (without direct subsidy) of basic foodstuffs and household goods.

    When I lived in Germany during 2009 – 2011 I was amazed by the cost of my weekly shop, it was about 30% of the cost of my equivalent UK shop without any obvious loss of quality.

  3. The German low wages thing works because the union leaders are bought off. Ladies of the night are routinely involved, that helps to ensure things are kept QT. Famously Volkswagen boss and architect of Germany’s long-term social welfare model Peter Hartz was in on this.

    I can’t agree on the quality of German groceries. Surveys have repeatedly shown that Germany has the cheapest groceries in Europe and it really does show up in quality. Britain merely has the second-worst groceries in Europe, because British consumers are the second-stingiest (after Germans, who as a rule really don’t understand the concept of quality in food).

  4. Healey’s form of wage restraint was one that increased below-average wages and reduced, when adjusted for inflation, above-average wages in the private sector but retained the annual increments for civil servants so *their* incomes continued to climb. Secondly, it was, he fails to point out, introduced *after* (and as a result of the hyper-inflation produced by) the Labour government awarding massive pay increases to the miners and other powerful unions so it was a means to entrench an economic distortion in favour of Labour’s paymasters.

  5. You sure about that 30% figure Mr Galt? Can’t say I have your deep experience of Deutscheshopping, generally only passing through rather than resident, but I do have the advantage ( gained by marrying the only (expurgated) Frenchwoman, in the entire history of the species, who couldn’t cook) of doing most of the shopping for years. I would have said 30% lower. Maybe. Not 30% of. Suppose one could adjust for the higher wage levels, but not that much.
    As for quality, would have said the supermarket food experience was similar to an endless riff on variations of Lidl. Lot of very dubious stuff in packets. Start looking round small retailers & the prices are eye watering. I recall other connoisseurs of German gastronomy have said much the same. The German benchmark for ‘quality’ is not the same.
    Conversely, I find shopping in France, although the prices might be a tad higher than UK the VFM factor is much higher. To buy shit in France you really do have to shop around with malice & aforethought.

  6. Spot on – How Hutton is still spouting the same drivel he did in the pre- Blair era is quite beyond me! It also says much about the bankruptcy, both financial and intellectual, of the British Left!

  7. John77

    What hyperinflation? Cagan’s definition of hyperinflation is 50% PER MONTH or more. The highest inflation in the UK was 27% PER ANNUM in 1975. High, but nowhere near hyper.

    Wage rises for miners were not the only cause of inflation, though they were a contributory factor. There was high inflation following the devaluation of sterling in 1967, which was made worse by abandonment of the Gold Standard in 1971 and – especially – the Yom Kippur war. Although the UK was not subject to the oil embargo imposed on the US and other supporters of Israel, it was none the less severely impacted by the huge rise in the oil price at that time. The reason that miners were able to demand, and get, exorbitant wage rises was because the UK was attempting to keep its energy costs down by relying more on coal than oil. The price they paid for that was the public anger that eventually led to the legislative binding of union power, the miners’ strikes of the 1980s and the systematic dismantling of the UK mining industry.

  8. @ Frances
    When I was young 25% (the figure bandied about at the time) was regarded as hyperinflation and described as such. Compared to the 50s when 3% inflation was enough to precipitate a “Stop” in the “Stop-Go” cycle it was. For those on modest or average fixed incomes (at that time almost all private sector occupational pension schemes had no inflation adjustments) it was devastating. How many people could cope with a 20+% cut in their real incomes without suffering real hardship?
    I think that you mean decimalisation in 1971, which did indeed boost inflation but that effect had pretty much worked its way through the system by 1973, and the 1968 devaluation had earlier so neither contributed to the increase in 1975 prices over 1974 prices.
    The oil price was actually fractionally *lower* in 1975 than 1974 having nearly quadrupled in 1973. There was some follow-on effect in 1974-5 but no direct effect.
    It was not just the 35% pay rise given to the miners as a reward for bringing down the Heath government , but other awards to public sector unions: the NUR got a 30% increase, teachers got a 29% rise, ,electricity supply workers got a big rise (I’ve forgotten how much), the miners another 35% in 1975 …

  9. “The reason that miners were able to demand, and get, exorbitant wage rises was because the UK was attempting to keep its energy costs down by relying more on coal than oil.” Balls – if they’d wanted to keep energy costs down they’d have imported more coal, not bought the ludicrously expensive British stuff.

  10. John77

    Cagan’s definition of hyperinflation is widely recognised: his 1956 paper is regarded as the definitive work on this. High inflation is indeed damaging, but it is not hyperinflation. Hyperinflation (currency collapse) is a different phenomenon from normal price inflation, even high levels of it.

    No, I don’t mean decimalisation – although that was also a contributory factor. I mean Nixon’s suspension of the gold standard in 1971.

    You are wrong to focus on 1975. In fact public sector workers were demanding, and getting, high pay rises throughout the late 1960s and early 1970s. They were doing so partly because they could, and partly because there was high inflation throughout that period. Yes, it peaked in 1975, but it had been persistently high from 1967 onwards. The effect of oil price changes on the economy is of course delayed because of oil inventory and futures, so quadrupling of the oil price in 1973 would have fed through into the economy as higher inflation in 1974/5.

  11. dearieme

    I think you underestimate the (emotional) commitment of people at that time to self-sufficiency in energy.

  12. Dear Frances,
    In theory : Yes, Nixon’s move away from the Gold Standard for the USA in 1971 *did* have an impact on worldwide inflation ever since but its contribution to UK inflation in 1974-5 was insignificant.
    “widely recognised” – not very widely since I have never heard of him, despite passing ‘O’ level economics in 1962, six years after his paper and two professional examinations in economics in the next 25 years. The difference between “high inflation” and “hyperinflation” is subjective and I view 25% as hyperinflation – I only managed to survive thanks to dealing profits on my very small investment portfolio.
    HARD FACT: all your explanations, however valid, do not account for any non-trivial amounts of the 1974-5 inflation that I suffered.

  13. john77

    It was Friedman, particularly, who promoted Cagan’s work on hyperinflations and used it as the basis of his own work on the monetary basis for inflation. I’m surprised therefore that you haven’t encountered Cagan, at least via Friedman. I don’t know what qualifications you did or where you studied but this seems quite a major omission to me.

    I would remind you that Friedman’s definition of inflation excludes wage-price spiral as a primary cause. The primary cause of inflation, according to Friedman, is always monetary – loose monetary policy leading to over-expansion of the money supply. It is this over-expansion that Healey was forced to curb in 1975-6 by raising interest rates to protect sterling, which was falling rapidly against the dollar. Can you imagine having the bank base rate at 15% – which is where it was in October 1976?

    Personally I have some doubts about the exclusiveness of the monetary cause of inflation, and I could see a role for other factors such as external price shock and labour market pressures – both of which were present in this case. But I don’t accept your assertion that excessive wage settlements were the sole cause of the 1974-5 inflation. Blaming government capitulation to over-powerful unions for high inflation may suit your politics, but it is simplistic economics. The fact is that the high interest rates of 1976, which curbed excessive money supply growth, plus the cuts in government spending imposed by the IMF as a condition for the 1976 loan, brought inflation down. Union power was not finally curbed for another ten years.

    I also lived through the 1974-5 inflation.

  14. @ Frances Coppola
    One can “prove” anything one likes if one starts off by making up definitions and/or axioms – I could in theory create an environment where inflation was a purely monetary phenomenon if there were no monopolies, unions or government employees; fuel, power and rail prices were raised in 1974-5 following wage rises. Rates and service charges automatically rose when local government wages did. That is not a spiral in itself but union demands for inflation-linked pay rises turned it into one.
    Friedmanites could argue that the rise in wages in nationalised industries input more money into the economy and that the negative real interest rate (15% nominal) slowed down inflation but it will be difficult to convince me that legislation limiting price rises (profit margins could not be increased) and curbing pay rises had no effect.
    Friedman was not even mentioned in my course – too new – we had to use Samuelson as a text book.

  15. john77

    If Friedman was too new for you to have studied him, you really need to update yourself.

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