Public Affairs


The wages of Ideology

Holding down wage rises as inflation spirals is a recipe for a recession, which may kill off inflation but will also damage large swathes of the economy in the process, argues the ICTU’s John O’Farrell.

Garret FitzGerald once asked a cabinet meeting of the 1973-77 Fine Gael/ Labour coalition about someone’s proposal, ‘that may very well work in practice, but will it work in theory?’

I am reminded of that quandary by the antics of the Conservative Party, in general, since its pursuit of austerity and debt reduction since 2010 and the search for the perfect Brexit since 2016, and accelerated since the defenestration of Alexander ‘Boris’ Johnson this summer.

When the final two candidates, Truss and Sunak, were asked at a TV debate if the passport chaos at the Port of Dover bore any relation to Brexit and the abolition of freedom of movement, both trilled “No!” like Soviet pioneers being asked if Stalin’s ‘scientific socialism’ was less than perfect.

Tories aren’t supposed to be rigidly ideological. They are supposed to reflect the ‘permanent interests’ of the British ruling classes with something extra for their current donors. The flexibility which has aided their remarkable resilience for 200 years as either the government or the one-in-waiting has calcified, in particular since Johnson’s expulsion of its ‘one-nation’ pragmatists in 2019 and the mass infiltration of new members from the far-right, in particular UKIP.

Oblivious to the onrushing train of inflation, with energy costs quadrupling, it talks of tax cuts for corporations, scrapping green subsidies and abandoning the European Convention on Human Rights, because Home Office policies towards Afghan asylum seekers aren’t cruel enough.

They offer solutions to take on imaginary enemies within: “What is best described as the left blob, which is now omnipresent in British public life, dominant in the citadels of power, including most of the media (above all the broadcasters), the Civil Service, the NHS, the legal system (including the judiciary), education (especially the universities), social media, most public bodies and private charities. It’s even wheedling its way into boardrooms,” so says that marginalised martyr from his French exile, Andrew Neil.

Added to that list are ‘militant unions’, demanding unreasonable pay claims, and so new laws are being proposed to stymie strikes and industrial action, to match the laws just passed to nudge public demonstrations to illegality.

Except opinion polls show that there is widespread understanding of the case for pay increases which match inflation and support for unions taking the democratic lead from their members who are voting for action for fair pay.

The public understand what Truss and Sunak or their tiny fringe ‘selectorate’ cannot. There is no threat of a wage-price spiral. Energy prices were already increasing as the economy came back to life after lockdowns, to which the war in Ukraine added rocket boosters.

According to the Nevin Economic Research Institute, if we were to heed the advice of those who say that wages must be held down, the impact is that spending and consumption in our economy would contract significantly. Less spend in our local economy means businesses having to close and jobs lost. There is every chance that such a strategy would pull us into a recession. Recessions tend to kill off inflation, but they also tend to kill off vast swathes of our economy in the process.

We have to begin to close the gap between wages and the price level or we risk another more serious economic crisis. Pay restraint is not the responsible reaction to this crisis, in fact it is a strategy that carries enormous risks for our economy. Pay rises did not cause the current wave of inflation and therefore pay restraint will not automatically bring it back into line.

The response to the pandemic showed that when faced with an economic crisis, only government can act to prevent collapse in the economy. There is, as someone said, no alternative.

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