Edward Heath U-turned. Will Osborne be forced to do the same?

By David Blanchflower Published 03 April 2012

Creating mayhem is unlikely to be a sustainable, long-run industrial relations strategy. The government already has troubles in the public sector with its cull of jobs – remember all that talk of the enemy? Now it has intervened in an ongoing private-sector negotiation between haulage contractors and tanker drivers and made matters markedly worse. No strike has been called and the two parties are flexing their muscles as they do in the midst of a negotiation.

A strike threat is not the same thing as a strike. A threatened lockout is not the same as a lockout. A breakdown of negotiations can occur because of the intransigence of either party. Not infrequently, strikes occur because of mistakes.

The chart shows that, over the past decade or so, the incidence of strikes has fallen sharply.

It plots the numbers of days lost to disputes since 1970 and does not account for the increase in the numbers employed, up from roughly 24.5 million to 29 million over this period. Strikes have not been a major issue in the UK for decades, certainly up until the public-sector workers’ strike over pensions in November 2011. This is in contrast to the 1970s, an era of protracted industrial disputes when we had three-day weeks, power outages and uncollected rubbish on the streets.

The biggest spike in industrial disputes was in September 1979, when 11.7 million working days were lost (compared to fewer than a million last November). A large part of the explanation for the decline in strikes is that globalisation has weakened workers’ bargaining power. There is an ever-present fear that firms could move production to China. Since 2008, during what is now called the “Great Recession”, private-sector workers have accepted reductions in hours and wage freezes rather than lose their jobs.

Pointless point-scoring

The Cabinet Office minister Francis Maude’s reckless comments, encouraging people to fill up jerrycans when there was no need to, unnecessarily created long lines at petrol stations, as well as panic, even though there was no planned strike. He should have followed Monty Python’s suggestion to “shut your festering gob”. It appears that the Tories thought they could score political points because the Unite union that represents the drivers is a major funder of the Labour Party. A Machiavellian interpretation is that this was all just a cynical attempt to move spending from April to March to help lift GDP in the first quarter.

The biggest concern about incompetence is in relation to the coalition’s handling of the economy. I have previously described the last five quarters for which we have data as the “Osborne collapse”. I take this period from the fourth quarter of 2010 until the fourth quarter of 2011. Until recently, official data suggested that the economy grew by 3.1 per cent in the previous five-quarter period under Alistair Darling – the period that I have called the “Darling recovery” – but by only 0.1 per cent under George Osborne. However, the latest data revisions published by the Office for National Statistics (ONS) adjusted the +0.1 per cent growth to -0.1 per cent. On top of that, the Organisation for Economic Co-operation and Development (OECD) lowered its forecast for the first quarter of 2012 to -0.1 per cent, which, when added to the -0.3 per cent for the fourth quarter (revised down from -0.2 per cent), would imply that the UK was in double-dip recession. But most of the cuts haven’t hit yet and the concern is that we are going to see rapidly worsening social consequences – which, in my view, would inevitably add to the government’s unpopularity.

Status symbol

So, what will happen next? There are several instances in recent history of how UK governments were forced into making U-turns on economic policy. The markets forced U-turns in 1967, 1976, 1981 and 1992. Of particular relevance now is Ted Heath’s U-turn on economic policy in 1972 that precipitated what became known as the “Barber boom”. This was forced on the Conservative government primarily by unemployment passing the socially unacceptable one million barrier.

The economics commentator William Keegan has pointed out to me that a big factor behind Heath’s policy reversal was a telephone call to Downing Street from the then chief constable of Glasgow, David McNee. He said that he could no longer be responsible for public order in the city if, with unemployment already high, the government did not rescue Upper Clyde Shipbuilders, which was threatened with closure. In response, in his 1972 Budget, Anthony Barber reduced income taxes and gave big tax concessions to firms to save jobs.

A crucial moment for the coalition could well come as soon as 25 April, when the ONS announces GDP growth for the first quarter of this year, especially if the number is negative, as it may well be. Such an announcement could result in one or more of the credit rating agencies removing Britain’s cherished AAA status. Osborne has claimed that maintaining this rating is an important goal of his strategy, so losing it would be a great blow.

In reality, it wouldn’t be that big a deal even if it happened. France and the US had their costs of borrowing fall when recently they lost their AAA status. The consequences of trying to keep it, with rising unemployment, falling growth and declining living standards, are worse than the costs of losing it.

The Chancellor is surely going to have to change tack. The only question is whether he will do so voluntarily or involuntarily.

Tags: Employment

View the discussion thread.

58 comments

Sun, 2012-05-06 05:20 — mbrecker (not verified)

Admit that the total debt (national, personal, etc.) can never be repaid.
Nationalize the banks.
Write off the debt and recapitalize the banks until the system stabilizies
Then start over.

Tue, 2012-04-24 16:04 — Will Podmore (not verified)

Paul Krugman estimates that cutting budgets by 1 per cent of GDP reduces GDP by around 1.25 per cent.
So the government's policy is making the situation worse.
Which is not to say that Labour's policies would be any better.
The Engineering Employers Federation's paper, Manufacturing our future: building a balanced economy on a secure manufacturing base, July 2009, downloadable, for free, makes useful proposals. It recommends that we strengthen manufacturing, that government must work with the private sector to fund long-term investment in energy supply, and that we make significant investment in infrastructure including schools, hospitals, utilities and transport, as well as new home builds and urban regeneration.
It urges us to put finance to work for the real economy, to focus on real investments, not on exotic financial products, and on long-term relationships, not short-term gains.

Mon, 2012-04-16 10:17 — John Martin (not verified)

Life is often less dramatic than theory. There is always: first you see it and then you don't. Arguably the Government is already changing economic policy and can slide into more. In time it would look like Labour policy so what you might ask is the fuss about?

Thu, 2012-04-12 08:57 — Quattro Man (not verified)

Oh dear, more tripe from Danny "I dont do solutions" Blanchflower. I do hope no one is paying him for this. He seems to have nothing useful to say about anything.

Tue, 2012-04-10 13:24 — Boomandbuster (not verified)

matt tel us all a labour policy between 1997 and 2010 you actually disagreed with? if you are a true solcialist surely there are many? I can think of any number of things which mrs thatcher did were that were mistakes, I can even recognise the successes of labour such as civil partnership, northern ireland and arguably overseas aid though it seems to be largely mispent. being asked whether you think the house price bubble was bad for the poor is not to deny your politics but to surely restate it and understand how your views inform your own views of theworld. to deny any error and to thump the drum in such a partisan way makes you look a complete moron and does you no credit whatsoever.

back to question surely as a socialist having house prices that are 6 times avergae income are a terrible state of affairs for the poor, or are you really saying labour no longer has any consideration for the poor? also do you still deny that low base rates don't prop house prices up? pretty inaccurate if you ask me but i don't make a habit of accusing ppl of being liars because it adds nothing to the debate.

Tue, 2012-04-10 13:22 — Boomand buster (not verified)

Tue, 2012-04-10 17:00 — matthew fox (not verified)

The word "tiresome" springs to mind Gloomandfluster.

Calling Bozo555 a liar is pretty easy, this is a character who talks about low interest rates propping up house prices, yet for the love of honesty, can't explain to me why they declined in 2010 and 2011.

Do I have to remind you about his " All I Said " argument, it is a well worn road.

I take it your being ironic with the sermon, if I wanted lessons on being moronic, I would defer to your superior knowledge.

At least you have stopped talking like Shakespeare, then again, your comments are " Much ado about nothing " and a " Comedy of Errors "

Tue, 2012-04-10 19:01 — Indu Pendent

@matt
.... interest rates don't prop up house prices ... "makes you look a complete moron". You have to admit they've got a point Matt.

So you read Shakespeare now - I'm struggling to think you've got beyond Janet and John if your understanding of Labouromics is anything to go by.

You could always do the big think and admit your were wrong on house prices ... ever read hobsons choice? (being a moron or loosing yet another point).

Tue, 2012-04-10 19:19 — mike555

@Matt

House prices remain high, look at the indices which come out, they talk of low rates supporting the market. I've explained to you at length my reasoning, you on the other hand have nothing but pathetic insults, and no answers to the questions I ask - which is very telling. You still have yet to tell me what stories I'm supposed to have made up, that's because I haven't made any up, as you well know.

Nothing changes the fact that house prices tripled under New Labour, what effect do you think that had on the poor? I think you know but don't want to admit it, so it's easier to call me names and say I'm a liar isn't it? I'll keep answering your ridicule because it's very easy, but I doubt you will answer my questions.

"yet for the love of honesty, can't explain to me why they declined in 2010 and 2011."

Prices dropped but after tripling remain very high, re-read my posts. I think you'll find I've answered this, you're talking of relatively small falls after the big bounce in 2009 (as a result of the bailouts, the slashing of interest rates and QE). What answers have you given? I remember asking you what would happen to house prices if interest rates rose to a neutral rate of 5% if low rates aren't supposed to be propping up prices, but I don't recall you answering that one, no surprises there because I think you know what the answer is.

Also I see you still don't appear to know the difference between "your" and "you're" despite being told many times, and in the same post you talk of a "comedy of errors" too.

Wed, 2012-04-11 08:30 — matthew fox (not verified)

Bozo555, would you like to explain to me, what happened to house prices in 2008.

Remind me, how the measure of the " big bounce " circa2009 ?. Do you need reminding when the bailouts occured? If I was you, I would start composing that apology.

Do you need reminding?

Really Bozo555, just remind me how you use the word queue in the correct context?

But please do not type too fast, I would hate you to make a mistake.