Business: A High-Level Call for Guidelines

INCOMES policy” has been the ghost haunting the Nixon Administration’s economic debates. It will neither go away nor, usually, assume any definite shape. The idea that the Government should try to guide private wage and price decisions into noninflationary paths has been urged on reluctant White House leaders by Federal Reserve Chairman Arthur Burns, Assistant Treasury Secretary Murray Weidenbaum, many private economists, some foreign central bankers, and a growing number of President Nixon’s big-business supporters. Few of these advocates have specified what form an incomes policy should take or how tough it should be.

Last week this debate finally took a needed turn toward clarity with a detailed proposal for a relatively hardline incomes policy issued by the Research and Policy Committee of the Council for Economic Development, a group of corporate chieftains and economists. The sponsorship of the report was as impressive as its precision. The C.E.D. recommendation was approved by 25 chairmen and other senior executives of major companies, including Jersey Standard, IBM, TWA, General Foods, Continental Can, Pillsbury and Federated Department Stores. These business leaders could do much to make or break a wage-price guidelines policy by cooperating with it or defying it.

New Speedup. On the day that the C.E.D. spoke up, the Labor Department disclosed that in October, for the second straight month, consumer prices rose at a seasonally adjusted annual rate of 6%. The Administration’s strategy of slowing price rises by deliberately slowing down the whole economy has yet to show any important success visible to the consumer. The preliminary wholesale price index went down fractionally in November, but that erratic index also declined three months ago —with little impact on consumer prices. After a hesitation in late summer, consumer-price inflation has speeded up again almost to the fast pace of last winter. The C.E.D.’s analysis is that prices are no longer being pulled up by excess demand, which the Government has effectively attacked by holding down federal spending and the increase in the nation’s money supply. Instead, prices are being pushed up by the wage-cost pressures that an incomes policy would be aimed against.

The C.E.D.’s principal proposal is that the President create a three-man Board on Prices and Incomes to draw up broad guidelines as to how rapidly wages could rise without causing inflation and under what circumstances business would be justified in hiking prices. That would revive the Kennedy-Johnson approach of establishing “guideposts,” which in the mid-1960s called for wage increases to be held to 3.2% a year. The Democratic guidelines, however, were simply proclaimed by the Government. The C.E.D. would have a new board draw up the standards in consultation with business and labor leaders. The board would be empowered —indeed, it would be expected—to denounce by name the companies and unions that flagrantly violated the guidelines, thus arousing public opinion against them. In order to give the board even more clout, the C.E.D. suggested that it issue reports spotlighting in advance forthcoming major wage and price decisions, and outlining what a noninflationary resolution would be.

The C.E.D. called for still more drastic action in the “special case” of construction, where inflation has been especially virulent. It urged the National Labor Relations Board to compel building employers and unions to bargain in larger units, so that unions could no longer force inflationary settlements on small local contracting groups one by one. President Nixon, the C.E.D. said, should demand repeal of the Davis-Bacon Act, which requires payment of “prevailing” local wages on most federally assisted construction projects. In practice, that really means payment of the highest rate that any union has been able to wring out of any contractor in the area.

Even within the C.E.D., these tough and sweeping proposals are controversial. Several executives, notably Vice Chairmen Richard Gerstenberg of General Motors and Herman Weiss of General Electric, dissented from the incomes-policy recommendation, largely on the ground that it would be unworkable. Nevertheless, the majority argued that, at worst, the plan would do little harm; at best, it might reduce by half a percentage point the rate of unemployment that the nation must suffer as the cost of curbing inflation. Hypothetically, a 5.5% jobless rate would do as much to slow price increases as a 6% rate under present policy.

The C.E.D. statement outlines the sort of approach that President Nixon has felt is an interference with free-market principles. But the Administration’s policy is now in a state of flux. Nixon advisers are disconcerted by the amount of unemployment that their policies have helped to cause, and are debating in their budget-drafting sessions how far they dare move toward restimulating the economy without stirring still more inflation. The President has been moving grudgingly toward an incomes policy. In June, he set up a committee to study how productivity could be increased, and commissioned periodic “inflation alerts” documenting significant wage-price developments. The first inflation alert was little more than a list of recent price increases, but Press Secretary Ronald Ziegler last week promised that the next report, due early this week, will be more specific and “pointed.”

The President plans to make a major economic speech this Friday. He would do well to adopt the C.E.D. proposals. He could point out that an elite group of the nation’s highest executives are willing to accept guidelines on price increases. With that, he could challenge organized labor to accept guidelines on wages —and there would be tremendous public pressure on the unions to do so.