Business: Europe’s Contentious Winter

Europe’s workers this winter are in their angriest, most aggressive mood since the contentious 1930s. After three postwar decades during which they became cozily accustomed to rising wages and proliferating fringe benefits, the unions are now being asked to tighten their belts to hold down inflation. All over Western Europe, workers are striking, protesting and grabbing authority away from management.

Dutch union members, after staging the worst wave of strikes in three decades, won the right to have a voice in the investment policies of their companies. In neighboring Belgium, which just had its first rail strike in 17 years, a series of five 24-hour walkouts is scheduled to dramatize labor objections to rising sales taxes. In Italy, unions are threatening to block any further progress on Premier Giulio Andreotti’s austerity plan. Even in West Germany, normally a bastion of labor harmony, Trade Union Chief Heinz Oskar Vetter warned that “the honeymoon is over” with the government of Chancellor Helmut Schmidt.

Social Contract. But nowhere is the mood so bitter, or the consequences of labor’s unrest so ominous, as in Britain. Two years ago, the ruling Labor Party persuaded British trades unions and industry to join a massive campaign to combat runaway inflation (then 26%) and restore the confidence of Britain’s foreign creditors. The result was a drastic tightening of the so-called social contract, which held wage increases for all British workers to a flat $10 per week in the first year’s Phase 1 and to $7 in Phase 2. The voluntary wage controls enabled the country to halve the inflation rate to a still unacceptable 13% last summer before it rebounded to its present 16.6%. On July 31, Phase 2 expires. Unless the government can persuade the workers to go along with another year of restraint in Phase 3, Britain’s vital gains will be shattered by a new spiral of inflation.

The majority of Britain’s 26 million workers appear dead set against an extension of wage restraint. Their unrest is illustrated by a wildcat strike of 3,000 toolmakers that has brought most auto production to a standstill at the plants of British Leyland, makers of Morris, Austin, Triumph, Rover, and Jaguar cars, and idled 33,000 workers. The toolmakers are striking over the erosion of their “differential”—the margin by which the wages of skilled workers exceed those of the less skilled. Since the social contract held all increases to a flat monetary standard and ruled out raises in Phase 1 above a $14,000-a-year ceiling, the effect was to push low wages upward and restrict higher ones. A machine-tool operator in British Leyland’s truck and bus division now makes more a week ($118.84) than his supervisor ($116.55).

British Leyland is a microcosm of British industry’s illnesses, including a reckless and desperate attitude of the workers toward their own company’s welfare. “I can’t pay my bills now,” said one toolmaker. “So what difference does it make if I go on strike?”

The answer, clearly, is a lot. British Leyland was saved from bankruptcy only two years ago by a government takeover. Now the company, which should be using a $1.7 billion government grant for retooling to make much-needed new models, is dipping into the fund simply to meet current expenses.

Equally serious, the British Leyland workers are failing to measure up to guidelines for productivity increases that have been set by the government as a prerequisite for additional investment in British Leyland. In general the productivity of European workers is substantially lower than that of their U.S. counterparts at the workbench or assembly line. Though European growth rates in output per man-hour are often increasing at a faster rate than those in the U.S., Europe’s best worker, who happens to be French, produces only 80.6% as much as a U.S. worker. The British worker, who is Europe’s worst, turns out only 54.4% as much.

In Parliament, Industry Minister Gerald Kaufman said that British Leyland is “in danger of bleeding to death.” Warned Prime Minister James Callaghan: “The biggest differential is between the man who is in a job and the man who is out of one, and some of them [the strikers] could be out of one.”

On the broader policy front, British union leaders have so far avoided being specific about the wage limits they are prepared to accept in Phase 3. Apparently, they do not want to commit themselves to any policy until they are certain of controlling the rank and file. Nonetheless, the powerful Trades Union Congress last week served notice about what should be included in the new budget that Chancellor of the Exchequer Denis Healey will present on March 29. The unions’ price for going along with a third year of slim raises: a $4 billion expansionary packet to be allocated by the government to pep up the economy through a large income tax reduction and job-creation plans.

Conservative Strategy. In the next budget, Healey is expected to allow a limited degree of stimulus. But he cannot sanction too much until he knows whether voluntary wage controls will be in existence after July. If no Phase 3 agreement is reached, Healey warns, Britain faces “catastrophe.”

The odds still are that the T.U.C. and the government will succeed in hammering out some sort of agreement, if only to prevent the political calamity of an open breakdown of the social contract. The question is whether Phase 3 will be effective enough to serve as the government’s main weapon against inflation. If not, the Labor government will find itself in the ironic position of having to rely increasingly on the conservative strategy of holding down inflation by restricting the money supply. Healey, in fact, has already said as much, arguing that “wages can only rise above the level permitted by the supply of money at the cost of throwing people out of work.” Or as Callaghan has put it, “The choice this year is a slight decrease in our living standard or a large increase in unemployment.” Unfortunately, there is little sign that workers are getting the message.