Thursday, 19 June 2008

Chicken, Egg, Scrambled Message

Inflation - Chicken and egg Alistair Darling can only be applauded for trying. In his Mansion House speech he called on employers and employees, private and public sector, to exercise restraint over pay increases. A valiant but vain attempt to curb inflationary pressures bubbling up from the workplace in a way not seen for over 15 years.

The news that Shell tanker drivers had received a 2-year 14% pay deal must have been greeted with a grimace by the Chancellor as he prepared to convince City bigwigs that pay must be controlled. And with the Bank of England Governor's inflation letter in his pocket, announcing the CPI has breached 3.3%, perhaps even Alistair could be forgiven for disbelieving his own message.

Inflation, once it gets a foothold, is self-perpetuating - as we all know. As fuel, food and housing costs push skyward almost daily we as rational individuals can only reapply that pressure to our employers. Over the last 10 years there has been little need for employees to do this, but as the pips start to squeak the workforce is moved to act. And so the dominos tumble.

The Shell drivers episode is chilling. Already earning well above the national average (and several times their real worth), these workers were nevertheless able to force a monumental rise out of their employers. True, they had more influence (in terms of being able to bring the country to a standstill) than most employees do. But their actions may have set a dangerous precedent. Firstly they signal to workers in similar jobs that they could demand similar wages. Secondly, they showed that the unions have a lot more power than we are used to crediting them for.

Back in the 70's and 80's we were familiar with the regular and frequent attempts (often successful) of unions in forcing up wages; industrial action was commonplace, union membership was high; stoppages at Leyland, pickets at coal mines - the unions held sway for much of the post-war period. Then came Maggie and the unions were effectively neutered. And with economic growth, full paypackets and high employment, there was no place for militant unions. But things are changing. Whether we are seeing a real resurgence of the unions is too early to say, but many of the signs are there. Unions get their strength from disenchanted members, their growth when workers feel threatened and want support. Those times are most certainly upon us, being fuelled by a pound that buys less and less.

Darling is saying what he has to say, but while we can all agree in principle we will be not be complying in practice.

There are surely more challenges to come when public sector pay settlements hit the negotiating table. With an official target inflation rate of 2%, yet with the RPI topping 4% and rising, there are going to be increasingly disgruntled government employees out there. Can we really countenance a nursing strike, or a police work-to-rule?

MPs are reportedly angling for a pay increase again, to take their pay to £75,000 with a 21% rise. Brown has supposedly ordered his ministers to refuse an increment to set an example. But anything above 2% would be utterly hypocritical and given the furore over expenses payments in recent weeks it's amazing that Parliamentarians have the nerve to ask for a raise at all.

The spiral has begun to turn, the dominos are tilting and about to fall. Government may thinks its message is clear, but in reality it is scrambled, unconvincing and ultimately futile. Costs go up, wages go up. Wages go up, costs go up.

I may not know much about poultry, by I know Chicken and Egg when I see them. Hello inflation. It's been a while...

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