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

New Statesman

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. 
Working days lost
 
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.