Unchallenged inflation will make strike action the norm in a new labour market
Last Friday, London once again muddled through the inconvenience of yet another Tube strike. Another one is planned for the middle of December.
They are just as much a feature of the metropolitan scene as Big Ben. Until more of the trains are automated, Tube staff will retain the capacity to cause disruption.
But this time, they are not alone in their militancy.
Refuse collectors in Coventry, for example, are being balloted about striking over Christmas. A bin strike in Sheffield was called off thanks to a generous last minute pay offer. Last week, Stagecoach workers in South Yorkshire balloted for strike action. Even university lecturers are getting in on the act, with a three day strike planned for later this month.
In the 1970s, nearly 2 million days were lost through strike action almost every year, culminating at almost 5 million in the notorious Winter of Discontent in 1979.
Immediately before Covid struck, the numbers had fallen into the low tens of thousands – figures not previously seen since late Victorian times.
This labour militancy is also on display across the Atlantic, documented in an interesting piece in the New Left Review. A five week strike at John Deere, a massive manufacturer of agricultural equipment in the US, has just been settled with a 10 pay cent pay increase plus an immediate bonus of $8,500.
The wave of strikes across the country have stretched from nurses in Buffalo, New York to coal miners in Alabama and hospital workers on the West Coast. Even in the City of Angels, Hollywood technical workers authorised a strike with a 99 per cent vote on a 90 per cent turnout.
This newfound confidence in the labour force should come as no surprise.
The bargaining power of labour has been gradually strengthening during the late 2010s. In the 1970s and early 1980s it was too strong for its own good, not just in the UK but across much of the developed world. The disruptions from strikes, costly though they were, paled into insignificance compared to the squeeze on profitability caused by high pay increases. Lower profits mean lower investment, which in turn means lower economic growth.
A dramatic tightening of monetary policy led to sharp rises in unemployment.
In Britain and America, unemployment by the early 1980s was more than double the rate of the early 1970s. In Germany, it rose to 8 per cent compared to a mere 0.8 per cent ten years previously.
This sharp shock curbed much of the enthusiasm for labour militancy. And then, of course, from the late 1980s onwards the re-integration of both China and India into the world economy massively increased the effective supply of labour.
But, gradually, these effects have faded. All this has important implications for inflation.
There has recently been a sharp upward blip in inflation, to an annual rate of 3.8 per cent in the UK and as much as 6.2 per cent in the US, the highest for over 30 years.
The labour force is in a stronger position than it has been for decades to match inflation with wage increases. These in turn will feed into costs, and into subsequent further price rises.
It is wishful thinking, particularly on the part of the Bank of England, to imagine that the rise in inflation is purely temporary.
Decisive action on interest rates is needed now.