OPINION - As we head back to the striking Seventies, blame inflation not the unions

·3-min read
 (Natasha Pszenicki)
(Natasha Pszenicki)

“Although the Seventies remains a salutary lesson in what can happen, we should not talk ourselves into believing we are inevitably heading for a repeat performance.” So argued Jon Cunliffe, Deputy Governor of the Bank of England, back in April. I wonder if he’s having second thoughts. The number of strikes either under way or in prospect this summer has already led to claims that we are living through a “summer of discontent”, the 2022 equivalent of the “winter of discontent” that shut down much of the UK in 1978/79.

I fear, though, that the latest bout of inflationary pressure is not being recognised as the provocation it may prove to be. Days lost to industrial disputes have been minimal since the early-1990s, but inflation too has been remarkably well-behaved since then. The latest acceleration in inflation is, therefore, a real test. Have industrial relations permanently improved — as many policymakers would have us believe — or is the quality of industrial relations ultimately contingent on the prevailing inflationary environment?Reconsider the disputes of the Seventies, mentioned by Cunliffe. One version of British economic and political history in the Sixties and Seventies claims that inflation was running out of control long before the 1973 oil price shock for the simple reason that industrial relations were already very bad. But while industrial relations may indeed have been bad, they were not the ultimate cause of the soaring inflation that blighted Britain’s economy in the Sixties and Seventies.

You’d be better off focusing on the global inflationary consequences of the Vietnam War, the resulting collapse of the international monetary system at the beginning of the Seventies, the 1967 devaluation of sterling, and, in 1972, the so-called Barber Boom, an attempt by the eponymous Chancellor of the Exchequer to turbocharge the UK economy.

Arguably, industrial relations deteriorated precisely because of this series of inflationary provocations. Those who had the power to demand compensation for rising prices absolutely did so. Days lost to industrial action of one kind or another began to accelerate in 1968, reaching a localised peak in 1972, when both dockers and miners walked out. 

Following the quadrupling of oil prices in late 1973, the miners went on strike again, ushering in the so-called “three-day week”. Yet a change of government from the Conservatives to Labour did little to help industrial relations. Strikes continued all the way through to the “winter of discontent”, at which point an electorate fed up with continuous industrial unrest decided to elect Margaret Thatcher. The rest, as they say, is history.

High and volatile inflation is a profoundly undemocratic mechanism which acts to create both winners and losers. Those with cash savings typically lose out. Given that interest rates have hardly risen during the current inflationary shock, that’s particularly true today. Those faced with big increases in costs will also be hit hard.

Those who’ve borrowed may do rather well: inflation reduces the “real” value of their outstanding debts. Those with industrial muscle, such as big business and strong unions, may flex those muscles to be partially — even fully — compensated for any inflationary hit.

And that’s precisely what may be happening this summer. Rising food and energy prices make all of us worse off. In economic jargon, the nation has suffered a “terms of trade” shock. We are having to pay more for global commodities than we did before the pandemic and before Russia invaded Ukraine. Ahead of the recent surge in commodity prices, however, inflation was already heading higher, a reflection of excessive Covid-related monetary stimulus that had already contributed to incredibly tight labour markets.

Industrial relations are in danger of deteriorating because some have the opportunity to jump to the front of what might be described as the “inflation compensation” queue. It’s not so much that strikes and wage demands cause inflation, rather inflation leads to strikes and wage demands which, in turn, only add further to inflation.

Not the Seventies? Perhaps, but there’s an awful lot from those years which has suddenly become very relevant indeed.

Stephen King (@kingeconomist) is HSBC’s Senior Economic Adviser and author of Grave New World (Yale)

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