The Social Contract

The purpose of this pamphlet is threefold. First, to show that the Social Contract, far from solving the problems facing the British people, would make them worse.

Second, to argue that there is an alternative policy to tackle the immediate crisis in Britain, fight inflation, prevent rising unemployment and expand the economy.

Third, to demonstrate that this policy will at the same time weaken the grip which the big monopolists have on Britain and create conditions for achieving the aim set out in the Labour Party election manifesto — “a fundamental and irreversible shift in the balance of wealth and power in favour of the working people and their families.”

On November 23, 1974, The Times editorial said:

The market is conditioned by the possibility that inflation will continue to increase; at the same time there is mounting evidence that the Western economies are slipping into recession, and there are considerable forebodings about sterling exchange rates. At this stage few people would be brave enough to stand up and dispute the view, taken by the stock market, that Britain could be heading for a recession comparable to that seen in the 19305. Indeed. the debate goes farther than that. There is fear for the future of a mixed economy; the future, possibly, of capitalism as we know it.”

This quotation from the consistent mouthpiece of the dominant and most influential section of the ruling class demonstrates the present political and economic vulnerability of British capitalism.

It is an indication of the tremendous possibilities inherent in the situation for achieving a break with the past and for creating conditions that could open the road to the transformation of a society that has been in chronic crisis of varying degree for the past three decades.

Because the ruling class knows that the Social Contract would divert the Labour Movement from fighting for this, its main fear is that working class struggle will defeat the Social Contract and its main energies are directed to ensure rigid adherence to it, if necessary through legal enforcement.

Another quotation, from an article in the Sunday Observer of December 8, 1974, by Alan Day, one of the leading theoreticians of capitalism, and Professor of Economics at the London School of Economics, illustrates this:

“The only major fault in the National Institute’s [of Economic and Social Research] gloomy forecasts for the British economy in 1975 is that they are not gloomy enough. Unless there are major changes [ie, legal enforcement of the Social Contract. B.R.] in the Government’s policies, it is increasingly likely that 1975 will see either an economic and social catastrophe or a rapid slide towards a rigidly-controlled Socialist economy.”

From recession to slump

Everyone agrees that we are in the throes of one of the severest crises in living memory.

There is no need for Wilson, Heath and Thorpe to vie with each other in finding the most scarifying adjectives to describe the depth and extent of the crisis.

The almost daily flood of official statistics, gleefully seized upon and emblazoned on the front pages and screens of the mass media, is constantly reminding us of the mess. Our own daily experiences in coping with life provide even better evidence.

In a way which is probably unparalleled in the entire history of British capitalism, all the indicators point simultaneously towards an unprecedented, all embracing economic, political and social crisis.

Inflation — the rise in prices of all goods and services — has reached the staggering record rate of over 18% over the last year With no signs that the end of the almost monotonous monthly announcements of rising costs is in sight. The latest report of the National Institute for Economic and Social Research forecasts an inflation rate of up to 25% in 1975...

Unemployment is rising monthly, vacancies are declining, and ministers, economists and pundits alike speculate on whether the million unemployed mark will be reached by the spring or the autumn, while some, like the Sunday Telegraph economic experts on December 1, forecast a figure of 1 million.

In fact, Healey, in his Budget speech, and most economists, have expressed surprise that unemployment isn’t rising faster than it actually is. The figure of nearly 700,000 officially registered unemployed (always a gross underestimation of the real number, variously estimated to be between a quarter and a third higher, thus bringing the present total to nearly one million) is being presented as tolerable and acceptable. '

Investment is at an all time low, even for Britain, which has chronically had the lowest investment rate of all industrial countries, and the latest forecast of the CBI is that investment prospects will continue to decline below recent levels.

Output is below last year and the most optimistic forecast is not to expect any real growth for at least the next few years. The exact meaning of “few” varies in the speeches made by ministers at various times from two to four years.

The balance-of-payments deficit of around £4,000m. is more than five times the debt of £800m. inherited by the 1964-70 Wilson Government from the Tories, which was then considered intolerable.

The £ has been steadily losing value and is now at its lowest ever level relative to most currencies. It has, in fact, been devalued by nearly 22% since it started floating in 1971. There can be no doubt that it would have sunk still lower if it hadn’t been shored up by “hot Arab oil money” attracted by the highest interest rate of any industrial country. Apart from this being a very risky business indeed — for “hot money” can at the slightest sign of risk be withdrawn — the servicing of this debt adds an annual £1,000m. to our balance-of-payments deficit and the high interest rate to attract it is undoubtedly a major disincentive to investment, a major factor accentuating all the ills of our economy.

Crisis deepens

Nor is this gloomy catalogue all. It must be seen in the context of a world capitalist crisis moving rapidly from recession to slump. In the words of The Economist of December 6, 1974:

"No forecasts are available for America, just gloom. In general, America is leading the world into the slump, with each successive forecast worse than the last. On Tuesday. Mr. William Simon, Treasury Secretary, admitted that this recession was likely to be the longest since the war. America’s g.n.p. has already been falling for nine months. In July-September it was a sizeable 3% down on October-December, 1973.

In Germany growth is only being sustained by exports, and this at a steadily declining rate. In Japan, stocks are at record levels despite the production slump.

There is a grave danger that the slide from world recession to world slump has begun.”

Faced with these undeniable facts, Wilson, Callaghan and Healey at the Special Labour Party Conference last November unleashed an attack on the “prophets of doom” and called for a declaration of faith in the ability of the government to avoid the holocaust by a simple cure-all, the newly-discovered wonder drug — the Social Contract.

Now we get daily reminders that the “lynch pin” or the “cornerstone” or the “core” or the' “basis” of Labour’s whole strategy, by which it stands or falls, is the Social Contract.

All its eggs are thus in one basket, just as they were in 1966 — only then it was called George Brown’s “Declaration of Intent”.

That is why it is so essential for the Labour Movement to be clear about what the Social Contract really is and what the consequences of relying on it would be.

What is the Contract?

There can be no serious discussion about the relevance of the Social Contract to the present serious crisis unless we are absolutely clear what the Contract is.

No amount of verbiage can disguise the simple fact that it is an undertaking by the TUC to restrain workers from using their bargaining strength to achieve wage and salary increases which they feel necessary, justified and attainable.

Instead, affiliated unions in national claims and workers at the enterprise level are expected to restrict claims, both with regard to amounts and frequency. to norms and defined guidelines laid down by the General Council of the TUC in its document Collective Bargaining and the Social Contract, dated June 26, 1974.

“In summary, the General Council’s recommendations to negotiators in the coming period are as follows:

1. although the groundwork is being laid for increasing consumption and living standards in the future, the scope for real increases in consumption at present is limited, and a central negotiating objective in the coming period will therefore be to ensure that real incomes are maintained;
2. this will entail claiming compensation for the rise in the cost of living since the last settlement; taking into account that threshold agreements will already have given some compensation for current price increases;
3. an alternative approach would be to negotiate arrangements to keep up with the cost of living during the period of the new agreement;
4. the twelve month interval between major increases should in general continue to apply;
5. priority should be given to negotiating agreements which will have beneficial effects on unit costs and efficiency, to reforming pay structures, and to improving job security;
6. priority should also be given to attaining reasonable minimum standards, including the TUC’s low pay target of a £30 minimum basic rate with higher minimum earnings, for a normal week for those aged. 18 and over;
7. a continuing aim is the elimination of discrimination against particular groups, notably women; improving non-wage benefits such as sick pay and occupational pension schemes: and progress towards four weeks’ annual holiday;
8. full use should be made of the conciliation, arbitration and mediation services of the CAS to help towards a quick solution of disputes.

The General Council will keep the developing situation under review, and will expect unions in difficulties in conforming to the spirit of this policy to inform the General Council of'the circumstances and to seek their advice, or to respond to an invitation to discuss the situation with them.”

These norms were reiterated in a circular letter sent out by Len Murray, its general secretary, to all affiliated unions on November 21, 1974. In fact, the November circular, despite Murray’s claim that it was intended merely as a reminder and didn’t stiffen the guidelines, is more restrictive, in that it specifically lays it down that the £30 minimum is a target to be aimed at, not necessarily in one go, and where it is attained it should not be used as a basis for maintaining differentials. Neither of these points were contained in the original document, as may be seen by comparing excerpts from the circular, quoted below, with the June statement:

“...The importance in general of a 12-month interval between principal settlements is one which the General Council still wish to emphasise. Unions which may be considering whether they should seek to negotiate an earlier settlement in order to anticipate and avoid a ‘freeze’ or the re-imposition of statutory controls over collective bargaining should note the specific assurance given by the Prime Minister, as well as by other ministers,'that there will be no freeze and no re-imposition of statutory controls over collective bargaining.

Another important recommendation contained in the statement Collective Bargaining and the Social Contract relates to low pay. The TUC’s target, which was adjusted at the time of congress to a minimum wage of £30 for a normal week, has featured in a number of negotiations, including some where the advice of the TUC has been sought. The General Council wish to emphasise that the figure of £30 is a target. Where very large percentage increases are needed to secure £30, or, to get near to it, this does not mean that percentage increases of the same order should be sought for other workers.

...The General Council counts on unions to continue to operate within the guidelines of the social contract, to seek advice when in doubt about the application of this policy to their circumstances or respond to an invitation to. discuss their situation, and to do all that they can to ensure success for the social contract’s positive approach to Britain’s economic, social and industrial needs.”

Keeping wages down

There can, therefore, be no doubt that the Social Contract is an instrument for exerting pressure on trade unions and groups of workers to frame claims, not in accordance with their freely determined views on what they should be, but within a framework determined by others. This is the very negation of free collective bargaining.

The fact that it is the TUC, and not the government, that has framed the norms, and that they are not binding in law, doesn’t alter the fact that they amount to an incomes policy as incompatible with free collective bargaining as the last attempt by the TUC to use a “Vetting Committee” to approve claims during the previous Labour Government. This had to be abandoned because of the trade unions’ recognition that it was an intolerable interference with free collective bargaining.

Nor can there be any doubt that the intention and effect of the Contract is to keep wages down. Indeed, Len Murray boasted at a press conference following the November General Council meeting that “in the main wage settlements were considerably below what they would have been but for the Social Contract.”

The consequences of wage restraint for workers’ living standards, security of employment, and the economy in general are the same by whatever means it is achieved — whether by voluntary restraint or statutory enforcement. And it is not all that long ago that the movement was crystal clear on that score.

After all, George Brown’s “Declaration of Intent” started as a voluntary incomes policy. Heath’s notorious N-1 version of an incomes policy was also “voluntary”. He relied on stiffening the resistance of the employers to claims above the “norm”.

The Social Contract is relying on moral pressure by the General Council on the unions not to ask for more than the “norm”, and in doing that is providing ammunition to the employers to resist the claims of those unions who are not prepared “voluntary” to restrict the living standards of their members.

A close examination of the arguments in support of the Social Contract reveals that many of them are in essence precisely the same ones as used in support of the half-dozen previous versions of “incomes policy”, ie. replacing free collective bargaining by the regulation of and a predetermined ceiling on wage increases.

A few “new” arguments have been added to sell the Social Contract to the official movement.

Mistakes on left

In the past the left were united, and in the forefront of the principled fight to reject all forms of wage restraint or incomes policy — whether voluntary or statutory. As their strength and influence grew, they succeeded in winning the whole movement in the ideological battle to reject “incomes policy” and to re-establish the principle of collective bargaining free of any outside interference.

Unfortunately that is not the case today. With a few honourable exceptions, most of the left trade union leaders, who played a key role in convincing the Trades Union Congress to reject unconditionally all forms of “incomes policy”, are amongst the foremost champions of the Social Contract. This was undoubtedly the reason why the AUEW’s challenge to the Social Contract at Brighton last September failed.

I do not question the sincerity and genuineness of these left leaders. In supporting the Social Contract they were undoubtedly motivated by the view that it would help Labour win the election, and now, after the Labour victory, that support for it is a gesture of solidarity with the labour Government and will influence Wilson & Co. to implement the radical elements of the manifesto for whose inclusion the left has fought — a sort of quid pro quo argument.

But it is not honest intentions that matter in politics; it’s the consequences of policies that determine the pattern of political developments.

That is why it is so essential to develop the dialogue in an effort to convince them that they are mistaken; that in advocating the Social Contract they are causing incalculable harm to their members, the economy, and helping the right wing core in the government to betray the Spirit of the manifesto.

Real causes of inflation

One of the most frequently used arguments in support of the Social Contract is that inflation, running at an annual rate of nearly 20%, with more price rises in the pipeline, is the biggest problem facing Britain; that unless and until the back of this problem is broken there can be no start in making the structural and social changes Britain so desperately needs; and that therefore wage restraint is essential to tackle inflation.

Of course inflation is a serious problem. No one is more aware of it, or more anxious to end the soaring prices of goods and services, than the working people. And understandably so. They suffer most from it and they have no assets to cushion them from its effects. Their only protection against inflation is. the trade unions’ struggle for wage increases. The Social Contract would deprive them of their only defence against inflation. They don’t need convincing of the threat to their living standards that inflation constitutes. There are two major and related flaws in the argument that inflation makes the Social Contract necessary.

The first is that it begs the crucial question. It assumes without a tittle of evidence, and contrary to the TUC’s own previous arguments, that wage increases are the major cause of inflation.

For unless it can be demonstrated beyond any reasonable doubt that wages are a basic, even if not the only, cause of inflation, then wage restraint, the core of the Social Contract, is irrelevant to a solution of inflation.

It is therefore worth while devoting some space to the causes of inflation to demonstrate the irrelevancy of wage restraint to its solution.

Inflation can-not be ascribed to any one cause, unless that single cause is the ever deepening crisis of the present stage of capitalism. For it is a fact that inflation is a phenomenon prevalent in every capitalist country, though the rate may vary, even in those capitalist countries where trade unions do not exist at all, eg. Spain, Brazil and, until recently, Portugal and Greece. Indeed, in Chile the rate, after wage cuts, is no less than 600% (Observer, December 15, 1974).

Capitalist problem

Indeed, when it suits Heath and Wilson to divert blame from themselves, they have on numerous occasions declared that inflation is a world problem; wrongly, of course. For it is not a world problem; it is a capitalist problem.

There is no inflation in the USSR, China and most socialist countries, as the following except from an article by Colin Williams, Moscow correspondent of the Morning Star, makes clear:

“Stability of prices has played a major role in ensuring a steadily rising standard of living. There have been no rent increases for ‘17 years, no fare increases since about 1935 on the Metro, no increase in electricity charges, and so on.

Let’s look at the prices of some basic food items. One kilo of meat costs today two roubles, a kilo of sugar 92 kopeks, a kilo of potatoes ten kopeks — the same as they cost in 1964.

This can be applied to the whole range of foodstuffs and the same applies to other consumer items. One yard of cotton material costs 77 kopeks today, as it did in 1964; a man’s bicycle 50 roubles, as it did in that year...

In fact, if there has been any trend — if we exclude luxury items like furs, caviar and spirits — it has been downward. In the last two years prices have been slashed by between 11 and 30% for some items of clothing, old TV models, and so on.

At the same time there has been a constant expansion of the education system at all levels, of the non-contributory health service

(there IS a charge — the only one — for prescriptions, set at the cost price of the medicines), and of cultural and sports facilities.

(October 21. 1974)

Cumulative effect

The present inflation in the capitalist world is caused by the cumulative effect of a number of factors common to all capitalist countries. aggravated in Britain by policy decisions over the whole post-war era. and only very marginally affected by the wages movement.

1. The collapse of the International Monetary system (based on the convertible US $ since the Bretton Woods Agreement of 1944) about four years ago was bound to have an inflationary effect throughout the capitalist world. For modern capitalism produces for a world market requiring a stable relationship between the various currencies. The collapse of such stability could not but have the same effect on many currencies as devaluation has had, leading to a rise in prices of goods in terms of money. And this was a major factor in the capitalist world which escalated a gradual inflationary trend — the normal effect of a prolonged period of relative growth in a number of major industrial countries — to the present abnormal rates.
2. The leap in world prices of most raw materials, food, and the exceptional increase in the price of oil was bound to increase all prices. For the cost of raw materials and energy constitutes a very big proportion of the total cost of all goods.
3. This rise in prices is the consequence of an irreversible change m the world balance of forces. It marks a stage in the development of economic and political independence of the “Third World" in their fight against their super-exploitation by world imperialism. The terms of trade are no longer as favourable to the industrial countries as they were. But it would be fatal to assume, as Barber did, that it is a temporary phenomenon due solely to market forces, and that they will soon start dropping and revert to the old levels. It is a permanent feature in the present developing world political situation. It should be added that the rise in commodity prices was considerably aggravated by the greedy speculators always on the lookout to exploit a situation to make a fast buck.
4. Undoubtedly the decade-long aggressive war by the USA against Vietnam and its huge armament expenditures, vast waste of scarce resources, and consequent increased demand for raw materials, played no small part in America’s economic difficulties and the subsequent breakdown of the International Monetary system — both of which, as I have argued, contributed to inflation.
5. Then there was the rapid development of the multinational companies, which on a world scale had the same effect as national monopolies in raising prices to maintain and increase profit at a higher level than in conditions of more international competition.

These are some of the world factors causing inflation throughout the capitalist world, and very much affecting Britain’s spiralling costs.

Then there are a whole number of factors inherent in the policies of all post-war British governments, Tory and Labour alike, which are responsible for our inflationary rate being higher than in some capitalist countries, though still lower than in Japan and Italy.

I will list them, not necessarily in order of importance. It is important to realise that it is the cumulative total effect of all these factors that is responsible for our unprecedented, persistent inflation, and that it is illusory to think that tinkering with one or another cause in isolation can bring inflation down to any acceptable level.

British policies

(i) The 1967 devaluation, followed by what is in effect a further devaluation of nearly 22% since the £ was floated by Barber in 1970, was bound to push all prices upwards in a country so dependent on imports as Britain.

(ii) The high unit costs of output, due to almost continuous under-capacity production as a consequence of 30 years of a growth rate which was ‘probably the lowest of any modern industrial state, and was largely the result of deliberate government policies.

(iii) The lowest investment rate in the industrialised world, as illustrated by the following quotation from an official government source: “In 1971 investment for each worker in British manufacturing industry was less than half that in France, Japan or the USA, and well below that in Germany or Italy — it was significantly less in 1972 and in 1973 than it was in 1970.” (The White Paper on “The Regeneration of British Industry.”)

Since that White Paper was published, and even after the give away of £1,600m. in tax reliefs and extra profits by Healey’s Budget, the Financial Investment Monthly Survey published on December 1, 1974, states that investment will be even lower in 1974 and 1975. Low investment means low productivity and higher unit costs of production and higher prices.

Contrary to the conventional wisdom, any signficant increase in productivity can only be achieved by higher investment and improved technology, not by more sweat and intensified exploitation of the workers.

(iv) High interest rates. Britain has the highest interest rates in the Western world to attract “hot money” from abroad to cover her balance of payments deficit, and that has been so for a very long time indeed. High interest rates are not only a disincentive to investment, and therefore indirectly inflationary as shown above, but also directly push up costs. By increasing the cost of capital — a vital factor in prices — they push up the cost of living and increase hire purchase prices, mortgages, rents and rates.

(v) Government taxation policies which directly increased the cost of living at various times, through increased purchase tax, insurance stamps, cuts in social service (eg, stopping free milk and increasing the price of school meals), VAT, or the most recent increases in Healey’s last two budgets — on tobacco and drink in March and petrol in October, and again in December.

It is the combination of all these factors, added to the general world capitalist ones, which is responsible for the British inflationary rate being higher than in many other countries.

Effect of pay rises

Does that mean then that wage increases have no effect on prices at all?

Of course not. Any cost of production must have an effect on the ultimate price.

What I am arguing is that, by and large, wages have been chasing prices, and some sections of working people have at times after bitter struggles (eg, the miners in 1972) succeeded in improving their real wages and living standards and opened the way for others to achieve similar advances.

No doubt these wage increases were passed on in higher prices by the employers to maintain profit, and often made the pretext for getting more profit. The real question of whether the Social Contract will have any relevance at all to the problem of inflation is whether wage increases have been a major cause of inflation.

The answer must be an emphatic no. At most they are a very marginal factor, and then only because the employers were allowed to put the wage increases on to prices. For it is not the level of wage increases that is relevant to prices but the uni-t costs of labour.

And the facts are that, low as the rate of productivity is in Britain (for reasons I outlined above), if you take the last 100 years (1861-1971) as Professor Phelps Brown, the leading capitalist authority on wages in Britain, did in a pamphlet published for Aims of Industry (not exactly a friend of the workers), wages have risen only in line'with productivity, ie, unit costs of labour in real terms have not risen at all and therefore can-not be considered an inflationary factor.

Or, if you think 100 years is too long a period, then I would refer you to the Sunday Times of September 29, 1974, which examined the statistics over the last decade, 1963-1974, and reached conclusions which are even more devastating for those who describe wages as an important cause of inflation: “Over ten years, despite big pay deals, real net earnings have moved slowly, an increase of 16.3%. Over the same period GNP has gone up 32% in real terms, and profit by only 24%.”

Thus, if we take the last decade, covering the period of the most rapid inflation, earnings have risen more slowly than the rate of productivity and could not have been the cause of rising prices. They put more into the kitty than they took out; the extras they put in went to extra profit a 50% higher increase than earnings — and the rest presumably to the Exchequer.

With the evidence piling up that, whatever else may be the main cause of inflation, wages are certainly not, and therefore incomes policy or wage restraint is no cure, some of the top academics and theorists who have put forward incomes policy as the remedy for inflation are beginning to have second though-ts. At least one of them, the well-known Cambridge Professor Wilfred Beckerman, a former adviser to the Wilson Government, had the courage to admit his past error:

“On the whole, I have tended to tell them that (a) while the evidence is terribly difficult to interpret, my own hunch, for what it was worth (not much), was that the machinery of wage negotiation was a much more important cause of inflation than full employment; and (b) hence, the best policy, in theory, was some form of incomes policy and a reform of the wage negotiation machinery. I have now changed my mind on both these points...

...Nor is the acceleration of domestically generated inflation a uniquely British phenomenon. Although there are still differences between individual countries with respect to their inflation rates. nearly all of them have experienced fairly steady acceleration over time, irrespective of the extent to which their labour forces are highly unionised, or of the particular structure of their wage-bargaining systems, or of the militancy of their unions, and so on.”

New Statesman, November 1. 1974

Wages and profits

Finally, it is worth quoting an extract from the TUC-Labour Party Liaison Committee document on the relationship of wages to inflation and a strategy to deal with inflation. For it is this document that both the TUC and the government claim laid the basis for, and gave birth to, the Social Contract:

“It must be a strategy which takes full account of the one irrefutable fact which has been so clearly highlighted by the freeze — namely that wages and salaries are very far indeed from being the only factor affecting prices. It has not been the farm worker. for example, who has been responsible for rising food prices, nor has he shared» in the higher farm profits which have resulted. Likewise it has not been workpeople and their families who have been responsible for rising rents. And it is surely time it was properly understood that in the composition of consumer prices as a whole, wages and salaries account for only 40% — with profits, rent and other trading income accounting for 25%, and imports and taxes on expenditure each accounting for between 15 and 20%. Moreover, the level of wages and salaries in Britain is no more than about average for industrial countries — and their' rate of increase for the last decade has been below the average."

The employers are as well aware of these facts as anyone. The fact that they are putting the heat on the unions and government to keep wages down, and their welcoming of the Social Contract as an instrument to achieve this objective, has nothing to do with stemming inflation, but everything to do with increasing profits. There has never been a time when they weren’t trying to keep wages down.

Apart from the fact that there is no need to pass on wage increases, as they should be more than covered by the annual productivity rate of 3%, even if they are passed on, they represent a very small and very marginal part of the 18% increase, rising to over 20% in the coming year, of prices and services generally.

Indeed, wage increases have a smaller impact on the retail price index (the official yardstick of the cost of living) than Healey’s March 1974 Budget which, on his own admission, raised the retail price index by 21% and most experts think by nearly 4%.

And yet the Social Contract projects and elevates this least relevant factor — wages — as the main target for attack in dealing with what is indeed a major problem — inflation.

Con-man’s trick

Faced with this overwhelming evidence and especially the TUC’s own documented case throughout the prolonged struggle over the years against wage restraint, and yet compelled to justify making wage restraint — or the Social Contract (for that is what the Social Contract is all about) — the “lynch pin” of his whole strategy to combat inflation and economic policy, Wilson resorts to the typical con man’s trick.

He admits what cannot be denied, relies on the public’s short memory, and proceeds with a new version of the same patter to sell the same poisonous medicine bottle with a new label on it.

It’s quite clear, he now argues, hoping that we will forget that he said the exact opposite in 1965, 1967 and 1968, that in the past wages didn’t cause inflation. But from now on they will be the main cause of inflation.

This is the way he put it to the Special Labour Party Conference at Central Hall on October 24:

“A year ago, as the country was moved into that disastrous confrontation with the miners, the political battle about inflation was to some extent an argument about wages and prices: which was the causal factor, wages forcing up prices, or prices forcing up wages? Since then, more and more it has been acknowledged that at that time it was prices which gave the twist to the inflationary spiral, with wages, statutorily controlled though they were, struggling to keep pace...

But, just as we emphasised a year ago that it was prices and rents that were forcing up wage claims, so we warned even then — as we have warned in two elections — that as world prices other than oil began to moderate, the inflationary threat here in Britain would come more and more not from external prices but from our own incomes and wages.

In public and private industry now, it is wage costs which threaten to provide a new inflationary twist."

Just a plain assertion without any attempt to prove why, if wage increases didn’t cause inflation in the past, they should do so now, We are asked to give up the only defence against inflation, the only weapon the workers have to maintain and improve living standards — the unfettered right to use their collective strength to get the best bargain they can — on the say so of a man who on his own admission was wrong in the past, attempted to put legal chains on the unions, and whose disastrous policies, not all that different from the kernel of the Social Contract, led to the Heath Government.

There is no credible argument at all for Wilson’s and, presumably, the TUC’s case that, while wages were irrelevant to inflation in the past, somehow they will become relevant in the future.

And, if that is so, then the whole case for the Social Contract as essential to tackling inflation, as the precondition for implementing all the other pledges in the manifesto, falls to the ground.

Sharp practice on “pledges”

In arguing for the wage restraint element of the Social Contract, which it is not denied that it contains, great emphasis is laid on the pledges made by the government, some of which have already been implemented as part of its obligations under the Contract.

Indeed, the document itself — Collective Bargaining and the Social Contract — devotes a large part to listing the government’s achievements as well as future promises — the repeal of the Industrial Relations Act, the rise in pensions, the abolition of the Pay Board, food subsidies and the freezing of rents.

Of course, all these measures are welcomed by the whole of the Labour movement. But it really is a bit of sharp practice to present them as the government carrying out its side of the bargain.

They are nothing of the sort; they are acts of elementary justice, fought for by the working class and called for by Labour Conferences long before the Social Contract was even heard of, and when the movement was still committed to unconditional free collective bargaining and against any form of “incomes policy”, statutory or voluntary.

The Industrial Relations Act was effectively killed by the mass struggles of the working class. The near general strike which forced the release of the five dockers from Pentonville prison, the threat of a general engineering strike by the AUEW in defiance of the Industrial Court’s sequestration of their funds, the miners’ historic challenge to the Counter Inflation Act’s Pay Board, made the Industrial Relations Act and the Pay Board to all intents and purposes dead letters.

Labour’s repeal of the Industrial Relations Act and abolition of the Pay Board was merely the signing of the death certificates of corpses already in a state of rigor mortis due to the heroic struggles of millions of workers.

It is ironic that the workers who fought so heroically and successfully to get rid of instruments whose main purpose was to prevent them from using their organised strength to fight the wages struggle, should be expected to show their gratitude for the formal recognition of their demands by giving up the fruits of their victory.

The ruling class would have no need for the Industrial Relations Act or the Pay Board if they could rely on the Social Contract to achieve the same objective — the inhibiting of strikes and industrial action by workers to improve their real earnings.

To cite but one more example of this type of argument — the raising of pensions to £10 and £16. To use this as a justification for the Social Contract is unworthy of the General Council and the government.

They know full well that this demand for elementary justice has been campaigned for, and the Labour movement won for it, long before the Social Contract was even a gleam in the eyes of either Wilson or Len Murray. The introduction of increased pensions from last July was an implementation of the letter, but certainly not of the spirit, of that pledge, for by the time the pensioners started to receive the increase it had already been eroded by inflation.

Eight key points

But what the TUC document does not mention is the considerably longer list jointly agreed to by the TUC and the Shadow Cabinet in the statement of the Liaison Committee of the TUC-Labour Party, referred to earlier and now claimed to have been the basis for the Social Contract. For example, family allowances for the first child, restrictions on profits, and the eight key points quoted in the TASS-AUEW’s resolution before the Brighton TUC last September:

1. “a large-scale redistribution of income and wealth;
2. a massive increase in housebuilding with the emphasis on homes for those in need and those on lower incomes;
3. municipalisation of rented property;
4. public ownership of the land required for the housing programme;
5. a wide-ranging and permanent system of price control;
6. vastly improved social services by the injection of the necessary resources;
7. substantial increases in public ownership and public enterprise, coupled with public supervision of the investment policies of large private corporations; and
8. substantial cuts in defence expenditure in order to release resources to help carry through this programme.”

Len Murray, in replying to the debate on this resolution, didn’t deny that the implementation of these eight points was part of the government’s side of the bargain, and indeed pledged the TUC to exert pressure on the government to carry them out.

Supporters of the Social Contract, when presented with these facts, often use two arguments:

1. The government finds itself in the midst of the “greatest crisis ever”, inherited from the Tories, and this must be overcome first through the “wage restraint” side of the Social Contract;
2. Give the government time; after all, Labour has only been in government eight months.

Neither of these arguments will stand up to any serious examination. When these pledges were undertaken, the Shadow Cabinet were well aware of the sort of crisis they would find if and when they became a government.

In fact, the most enthusiastic cheers at the 1973 Labour Conference at Blackpool were in response to Tony Benn’s reply to the policy debate on behalf of the platform dealing precisely with this contingency:

“One delegate said that we shall inherit a crisis when we come to power. Everybody knows that, and certainly the spending priorities will have to. be determined in the light of what we can do...

We are saying, at this conference, that the crisis that we inherit when we come to power will be the occasion for fundamental change and not the excuse for postponing it. That is what we are saying in this debate today."

(1973 Labour Party Report, p. 187)

To wait for the solution of the crisis before these measures are tackled is to confine them to the dustbin of history, as happened to previous Labour programmes and pledges for precisely the same reason.

The whole point of the analysis is that only a radical alternative policy can start coping with the crisis.

The greatest harm of the Social Contract is that, instead of compelling the government to make a break with the past and start breaking new ground, by supporting wage restraint it is an encouragement to resort to the old policy of trying to solve the crisis of capitalism by cutting the workers’ living standards.

Nor is the time factor argument any more valid. Short though this government’s life has been, already the evidence is clear enough for anyone who wants to see that it is not the shortage of time that is the problem, but the government’s intention of treading the same old bankrupt road that it has in the past — toadying and capitulating to big business, while bullying and threatening the class whose interests it was elected to represent.

Healey’s budget

Instead of “irreversibly changing the balance of wealth and power in favour of the working people”, Healey’s budget has done the exact opposite.

“Instead of tightening the control of prices, he has relaxed price controls, and “at a stroke” added £800m. to prices and profits.

Instead of tightening up the control of profit margins and profits in general, he capitulated to the CBI lobby and allowed them to keep another £800m. profits out of their taxation bill.

But when it came to the workers, Healey found the courage to threaten them with deliberately-created mass unemployment unless they behaved and were prepared to accept cuts in consumption (jargon for living standards). Wilson repeated the same threat at the Labour Party Conference, as did Michael Foot at the Tribune meeting the night before, though he and others condemned such talk not so long ago, when Heath, Keith Joseph and Enoch Powell preached the same gospel — either wage restraint or mass unemployment. I’ll come back later to expose the fallacy of this argument.

Instead of increasing the social wage as compensation for money wages being restrained by the Social Contract, which so many advocates of the Social Contract, including Len Murray, have argued was part of the “contract”, Healey’s budget will accelerate the deterioration of the social services and amenities, and thus reduce the social wage, as well as the money wage. The increase in the price of school meals by 25% is an example of this.

Nor can anyone have any real confidence in the longer term. The National Enterprise Board was presented as the big hope for a new future, and as the instrument for fundamental change. The lack of time to put it on the Statute Book was the argument which Healey used to con the Special Labour Party Conference into endorsing the Lever Bank idea of helping the business fraternity with facility loans without accountability.

Fast one by Wilson

The first doubts about the NEB should have been aroused when Wilson, completely out of the blue, announced in his Special Labour Party keynote speech that the functions of the old Industrial Reorganisation Corporation would be resurrected, and added to the functions of the NEB when it is set up.

The main function of the IRC was to use state money to speed up capitalist rationalisation and to accelerate the “shake out” demanded by Wilson in 1966, which succeeded in creating 150,000 redundancies.

And to kill any lingering illusion that the NEB was to be the midwife of real change and usher in the new era of “irreversibly changing the balance of wealth and power in favour of the working people”, came the announcement that Sir Don Ryder is to be the chief architect of the NEB.

Sir Don Ryder, to take this job on to look after the interests of his class, gave up his £55,000 a year job as head of Reed International, listed as amongst the 25 top companies. He has a reputation second to none as a tough, old-style capitalist, and made his reputation by his treatment of those who stood in the way of maximising profit, as the Southwark Print workers can testify.

The reactionary commentator, Norah Belofi, in The Observer on December 8, 1974, was literally bubbling with joy at the fast one pulled on the left by Wilson’s personal appointment of Sir Don Ryder, whom she described with approval, quoting a fellow tycoon’s opinion, as “one of the last of the capitalist entrepreneurial types”.

Unemployment blackmail

Fearing the coming revolt against the government’s breach of its side of the Contract, its supporters are assuming more and more a threatening tone, approaching blackmail.

As I pointed out earlier, they are making the threat that the alternative to wage restraint is mass unemployment. Reg Prentice has joined the chorus of Wilson, Callaghan, Healey, Heath and Sir Keith Joseph.

It is important to note that while some argue that increased wages would cause an increase in unemployment, Wilson and Healey in their speeches to the Special Labour Party Conference did not argue that mass unemployment would be the natural consequence of wage increases in breach of the Social Contract, but that they would take special deflationary measures through taxation and cuts in government expenditure to deliberately create mass unemployment.

Both theory and experience have proved that this is a fraudulent argument, designed to bludgeon the unions and workers into submitting to drastic cuts in their living standards.

It was during Selwyn Lloyd’s “wages pause” in 1961 that the million mark in unemployment was reached for the first time since the 30s, and it was the movement’s successful struggle to defeat it that reversed the growth in unemployment.

It was Wilson's notorious wage freeze of 1966 that led to the “shake out" in employment and established the half-million unemployment level as a permanent feature of the post war years.

It was the successful miners’ 1972 strike, which defeated Heath’s N-1 incomes policy, that led to a spurt in employment.

No mystery

Healey and many economists express bewilderment that unemployment has not risen as fast as was anticipated following the March budgets attack on the workers‘ consumption. There’s no mystery behind the fact that it hasn’t so far reached the million mark. It was. the workers’ determined rejection of the appeals for restraint, and their energetic struggle in defiance of phase three and later the Social Contract, that kept up consumption above Healey's calculation and has slowed down the rising rate in unemployment. And only a continuation of such struggles, and continuing to ignore the Social Contract as so many workers are doing, can prevent the rapid increase of unemployment.

Common sense confirms this. On the most favourable interpretation the Social Contract lays down that there should be no increase at all in real wages. In reality it actually means a cut in real wages. Certainly that is Michael Foot’s interpretation, for he calls for keeping gross wages, not take-home pay, in line with rises in the cost of living. And only a fight by the left on the General Council prevented the inclusion of this in the Social Contract document, leaving it vague and open to this growth well above that rate can increase employment as well as productivity and have an effect also on slowing down the inflation rate.

Since the TUC calls for a growth rate of 4% (a retreat from every version of incomes policy” has been presented as a call for its previous demand for a 6% growth rate) and the government calculates only on a 2% growth rate, it follows that if the Social Contract is adhered to, production will outstrip home demand, leading to a cut in production and an increase in unemployment unless there is an alternative market for the excess output.

In fact, the estimate has already been overtaken by events, since the latest figures show a 2% drop in industrial output compared with the previous year.

Indeed, the government is planning for a drop in home consumption in breach of the Social Contract and drastic cuts in public expenditure, and is basing all its calculations on the consequent decline in the home market, in the vain hope of diverting the surplus production to a big spurt in exports.

All the forecasts — whether they are from US sources, Western Germany, the EEC or the OECD (which includes all industrial companies) — are that we are moving fast into world recession and a downturn in world trade, and consequently we must expect cut-throat competition for the dwindling world market. We will be lucky to hold our present share of world trade, let alone increase it. Last autumn's figures showed a decline in exports.

Threat comes from Contract

In fact, there has been only marginal growth in the volume of our exports in the recent period. The improvement in the trade balance was largely due to higher prices made possible by the 20% devaluation of the £, and advantage now eroded, unless there is a further devaluation — which would give a further twist to inflation at home.

To improve our competitiveness abroad requires maximum capacity working, impossible without a strong, growing home market, which can only be maintained and expanded by increased consumption at home through increased wages and benefits.

It follows, therefore, that in the present state of the world crisis those who argue that the alternative is the Social Contract or mass unemployment fall into two categories: those who have been bamboozled, and those who are verging on criminal deception to frighten workers into acquiescing in the Social Contract, which would actually lay the basis for a catastrophic rise in unemployment. The Social Contract accepts the basic assumption that there can be no improvement in living standards over the next few years, and thus encourages that strategy. That is tantamount to acquiescing in a stagnant economy and is bound to lead to increased unemployment, as there is inbuilt productivity growth of at least 3% a year. Only rapid growth well above that rate can increase employment as well as productivity and have an effect also on slowing down the inflation rate.

Every version of the “incomes policy” has been presented as a call for equal sacrifices from both sides of industry, as helping the low paid and less well off, the pensioner and the disabled. And so with the Social Contract.

Common sense and experience have proved this a fraudulent argument in the past and are doing so now. If the relatively better paid, employed by the big profit-making firms, forgo wage increases, this can only result in more profits for the employers. What they forgo cannot be transferred to the lowest paid in capitalist society.

Had the Ford, ICI and banking and insurance workers not insisted on increases in breach of the Social Contract, it would have meant more swollen record profits for Fords, ICI, and the banks. They wouldn't and couldn't have passed the differences on to the farmers to pay more to the low paid farm workers, just as they didn't during the wage freeze and Tory “phases incomes policy” period. Nor could the increases be passed on to the pensioners so long as the firms are privately owned.

A particularly despicable slander is that workers seeking wage increases are unconcerned about the plight of pensioners. It was the campaign of the trade unions, which included industrial action, which led to the increases in pensions an the pledge to relate them to earnings, thus ensuring that the pension is increased to at least a third of the average earnings, with one half for married pensioners.

Nor can we ensure that the extra profits made out of foregone wage increases will be invested to provide more employment. Investment, contrary to conventional wisdom, is primarily determined by whether it will maximise profits. A contracting home market caused by reduction in spending capacity is a disincentive to investment, and likely to encourage investment abroad, where most of Ford's and ICI's investments actually go.

Worker v worker

Incomes policy is now recognised as having distorted wage structures and created anomalies, storing up troubles for the future. The same is true of the Social Contract. It specifically spells out in its guidelines that increases for the low paid towards the £30 minimum should not be used to obtain similar increases for those above the minimum. This is bound to lead tow a distortion of the accepted differentials, as previous incomes policies have done, causing friction between worker and worker and a spate of strikes to restore differentials. It is a policy of redistribution not between the workers and the bosses, but within the working class, the better off workers, instead of the bosses, paying for improving the lot of the worse off.

Prelude to compulsion

Voluntary wage restraint always has been the thin edge of the wedge of compulsory wage restraint. George Brown’s Prices and Incomes Act, Part I, which was voluntary, led to the activation of Part II, which was compulsory wage regulation. Heath’s N-1 incomes policy of 1970 soon led to the compulsory Counter-Inflation Act.

There are already signs that the Social Contract will tread a similar path.

Shirley Williams’ White Paper on the Prices Code floated the idea that employers conceding awards to workers which exceeded the Social Contract norm would face legal penalties. True, she withdrew it after an outcry, but she hasn’t excluded some form of statutory penalty in the future. Thus the ground is being prepared for statutory control of wages. For that is what it amounts to; whether the penalties are to fall on employers or the unions makes very little difference, it amounts to state regulation of wages by other means. And any assurances, whether from Len Murray, Wilson or Michael Foot, that the Contract will be abided by and there is no need to fear statutory control, are worthless.

It is the logical next step of any voluntary wage restraint, and understandably so. In arguing for the Social Contract its advocates are reinforcing the false idea that wages are the main cause of inflation and wage restraint the only cure.

And when the working people refuse to be the scapegoats of the capitalist crisis, when they engage in struggle to maintain and improve their living standards, the government will use this as the excuse for introducing some form of statutory freeze or controls, and with hand on heart will claim it had no alternative because of the intransigence of sections of workers.

Public sector workers

The argument that foregone wage increases result in increased profits doesn't, it is true, apply to the millions of workers employed in local and national government and public institutions. They have in the past suffered worst from wage restraint and regulation.

But they do provide a service to the community as a whole and are forced to carry the burden of providing cheap services to the private sector.

They are entitled to, and are more and more insisting on, parity with workers in the private sector, refusing to be subjected to moral blackmail.

The community, and in particular the private sector, must pay for these essential services to improve our quality of life and keep the economy functioning.

The private sector should be made to pay adequate prices for these services in higher taxation, and the government should out such wasteful expenditure as inflated military costs and prestige products, raise extra funds through a really effective wealth tax, and enable local authorities to charge private industries for the amenities which service them, using these funds to pay adequate wages and salaries in line with those in the private sector.

The Social Contract, like previous incomes policies, will create divisions between workers and their trade union leaders, and bitterness and disunity within the movement. Committed to the Social Contract, the trade union leaders will condemn, and refuse to organise, workers’ struggles for legitimate wage increases and we’ll see the return to the situation of the ’50s and early ’60s when workers fought the bosses, the government and union leaderships, and when 95% of all strikes were unofficial.

The successful road haulage strike last autumn which broke the Social Contract was unofficial, the Fords, Chrysler and BLM strikes were unofficial, and the victories achieved without official support.

But the best example of the sort of bitterness and alienation of the leadership from the rank and file created by the Social Contract was the recent struggle of the bakery workers. Their militant struggles were betrayed by the leadership’s adherence to the Social Contract.

This same struggle illustrates the incompatibility of the Social Contract and free collective bargaining without state interference.

Previous incomes policies destroyed any belief in conciliation and arbitration, for all these bodies ceased to have an independent role and were bound to implement government — dictated norms.

Sham of “independence”

The creation of the Conciliation and Arbitration Service, demanded by the TUC, was intended to end government interference, and it was set up as an “independent” institution, not under the influence of the government. The Social Contract contains a call for the use of this independent institution.

But the sham of its “independence” of government policy was exposed in its very first arbitration case in the bakers’ dispute. Jim Mortimer, the “independent” head of this “independent” body, unashamedly appealed to the bakers’ executive to accept the miserable award of his arbitrator (a professor used in the past by the government in similar disputes), not because he thought it fair or just, but so as not to undermine the Social Contract and the government’s wages policy... not very different from the Pay Board, which was specifically bound by government guidelines.

As we can see, the consequences of the Social Contract are the same as of any other form of wage restraint, and the arguments against it are the same.

The fact that we have a Labour government is irrelevant; the policy has been tried and has failed when we have had previous Labour governments. Loyalty to Labour, instead of correct policies, has been the primary cause of the failure of previous Labour governments, and is a major factor in our present crisis.

It is true that some policies campaigned for the left were included in Labour‘s election manifesto. But the whole burden of my argument has been that the Social Contract is an obstacle to the implementation of the basic pledge to achieve fundamental change; it is an encouragement to disregard the programme and to revert to the discredited policy of making capitalism more profitable for the capitalists at the expense of the workers, of appeasing the capitalists and chastising the workers.

Only by defeating the Social Contract can we force the Labour Government to take a new direction, to seize the economic and political levers, plan for the fullest and most rational utilisation pf our resources, and provide a continuous improvement in our living standards.

True loyalty should be towards such policies and not to individuals or to a Labour Government bent on propping up capitalism.

There is an alternative

There will be many readers of this pamphlet — especially on the left who have fought and won the argument in the past against incomes policy — who will not have strong disagreement with my arguments so far. And yet, perhaps not enthusiastically, they are nevertheless acquiescing in, and therefore objectively encouraging the government and the majority of the General Council to persevere with, the Social Contract.

The reason usually given to explain this “reluctant acquiescence” (a phrase reminiscent of the past, when the TUC also fell for the blandishments of capitalist propaganda with disastrous consequences for the movement), is the question “what is the alternative?”

This concluding section will attempt to answer this question, which is undoubtedly worrying many workers and left trade union leaders.

There is an alternative way of tackling the problems facing the people — soaring inflation, mounting unemployment, the degeneration of our social services, and getting further and further into debt to the rest of the world.

The implementation of such an alternative solution requires a radically different strategy. Its essence must be the recognition that the problems stem from the contradictions of capitalism and their solution, therefore cannot be sought in policies which shy away from measures which interfere with the basic power structure of capitalism, as the Social Contract does.

The need is to tackle the immediate problems in a way which simultaneously weakens the economic and political grip of big capital, and opens the way for the advance to socialism.

1. The first prerequisite of an alternative strategy must be the retention by a British government of the sovereign power to initiate and implement economic policies of its choice, unencumbered by the need for thin approval by foreign institutions and governments. The Common Market deprives Britain of the right to decide its own policy on major questions affecting trade, the export of capital, aid to industry etc. That is why withdrawal from the Common Market is a matter of urgent priority. All the signs are that Wilson is preparing the ground 'for staying in, which is why an intensive campaign to win a massive NO in the Common Market referendum is essential immediately.
2. The second prerequisite is to rid ourselves of the burden of foreign debt which has in the past, as now, frustrated every plan to achieve growth and without which full employment and. rising living standards are impossible. This can be achieved by a combination of a number of measures:
1. An end to military expenditure abroad;
2. Strict control of imports, which should be limited to raw material, food and essentials.
3. Rigid control of the export of capital, now running at the rate of over £1,300 million a year;
4. The sale of sufficient share and bond holdings abroad (big business has over £7,000 million worth), with compensation in sterling, to eliminate our current balance of payments deficit.
3. Halt inflation by a freeze on all prices for at least six months, a drastic reduction in domestic interest rates, and the abolition of VAT, except on luxury goods.
4. Plan for growth now. The magnitude of productive investment necessary to achieve sustained growth can only be.achieved by the state taking over the major resources available for investment — the huge monopolies, banking and finance institutions. So long as they remain in private hands, there can be no certainty that they will used to meet the long-term requirements of a modern, restructured Britain.
5. The management of the newly acquired profitable enterprises, industries and institutions should be entrusted to men and women who believe in public ownership and are accountable to the workforce, communal and government representatives on the management board, and with ultimate accountability to Parliament.
6. Expand demand at home, by having no restriction on wage increases, increased benefits and the expansion of all social services, especially housing and health.
7. Cut out waste: drastic cuts in arms expenditure and wasteful prestige projects.

This is an alternative policy that could tackle inflation and secure jobs. It is a programme which, while tackling immediate problems, also challenges the power of the monopolies.

It is this strategy, largely accepted in the movement, and the basis of the Communist Party’s election manifesto, which has to be fought for. The Social Contract is incompatible with such a strategy; it is an obstacle to its achievement and a diversion from the struggle for its implementation.

That is why the defeat of the Social Contract is a priority, not only to ensure adequate wages, but to realise the political objective to which the Labour Movement is committed.

The rapid increase in strikes in the last few months, and the many successful struggles which have made serious dents in the Social Contract, show that at enterprise level workers, and even in some whole industries (mining, motors, road haulage) the rank and file are determined to ignore the Social Contract and thus make it inoperative.

But it is also necessary to win the organised Labour Movement to reverse this disastrous policy. It will require the full united strength of the movement to force a change of direction on the Wilson Government and avert a repetition of the 1966-70 tragedy.

That is why, while encouraging and supporting every struggle and action against the Social Contract, it is also necessary to conduct the ideological argument inside the movement in the branches, district committees, executive committees and national conferences, and finally to reverse the attitude of the TUC itself.

Strengthen the Communist Party

In this ideological dialogue the Morning Star is of enormous help. It is the only daily newspaper which has from the beginning warned of the dangers of the Social Contract to the movement and is daily providing ammunition for the debate, just as it was first in the field and against all earlier versions of wage restraint and restrictions on free collective bargaining.

I hope this Communist Party pamphlet will be seen as a contribution to the debate.

The capitalists and their spokesmen have recently stepped up their venomous campaign against the Communist Party. It is not accidental. It is a measure of their fear of the effectiveness of the Communist Party in the fight against capitalism, and in explaining the dangers of the Social Contract to the Labour Movement. They fear the growth in numbers and influence of the Communist Party

That is a good reason for all those who want to see a Socialist Britain to see that our party does increase its membership and influence. I would earnestly appeal to all readers of this pamphlet to seriously consider joining our party.