This is why the rail strikes are really happening

Grant Shapps, the jaunty secretary of state for transport who treats politics as a branch of showbusiness, keeps telling Keir Starmer to condemn the rail strikes, as if the RMT, a union which has disaffiliated from Labour and hasn’t much time for the leader of the opposition, would meekly obey the order of a man they probably despise more than Shapps.

Equally absurd, I have to say, is the shadow cabinet asking Shapps to “get management and unions around the table”, as if that’s in itself going to solve anything. Tables and chatter are all well and good, but what’s really wanted is a strategy, a policy to deal with a 25 per cent drop in rail traffic that probably isn’t coming back. Labour does not have any suggestions about what it would do in Shapps’s place. It would be faced with the same dilemmas and the same hard choices that the government, unions and Shapps are unable to face up to.

There is more of this to come. As if we haven’t had enough strife in the past few years, there will be many more strikes to come – teachers, nurses, local authority workers, and many more. For the first time in decades, industrial action is being taken on a national and sustained scale. The government is also becoming aggressive, proposing to legalise agency labour to make strikes ineffective – scab labour as it used to be known – except there’s a shortage of scabs.  It is all going to get very, very ugly.

Perhaps we need to see what is going on here. One obvious reason for the effectiveness of the strikes is that there is a national shortage of labour. Partly, this is caused by the aftermath of the pandemic – some 400,000 people leaving the active labour market through Covid. Partly too, it is caused by the effects of Brexit, substituting a smooth and flexible free movement of workers of all sorts within a liberalised labour market with nearby nations for a clunky and arbitrary points-based visa system, supplemented by a small and inadequate flow of undocumented economic migrants.

Broadly speaking, if you reduce the supply of anything suddenly and leave demand more or less unchanged, then you tend to get a shortage and the price goes up. In such circumstances, unions don’t have to flex much muscle to extract higher wages, and indeed many employers are desperate to hire at almost any rate and with any bonus to keep running. Eventually automation, AI and technology help to substitute capital for labour, ie machines for workers, under such pressures, which is sort of what the rail companies are trying to do, but it takes investment, time and money to work. Meanwhile they’re stuck. Such trends affect the public and private sectors, and the unionised and non-unionised workforce.

Second, the British economy is blighted by slow growth. Here’s a variation of “cakeism”, Boris Johnson’s preferred political philosophy. When the size of the national “cake” isn’t growing year on year, and people want more cake, then the only way they can try to have their cake is to fight for a bigger slice of the existing cake.

The battle occurs where incomes try to keep pace with inflation, or even exceed it. Those with more bargaining power, unionised or not, will succeed. Those who work in areas with closed shops, such as lawyers, or have statutory guarantees linked to inflation and real wages, such as state pensioners (unusually, and assuming they get their “triple lock” reinstated) have the extra strength. Those whose wealth is in real assets or claims to them – property, shares, land, commodities – are also more protected in the long run.

The people who come off worst are the ones who lack the power, such as those on fixed incomes from cash savings, or those who depend on the state to honour its obligations, such as NHS workers. It’s the difference between lawyers who work for wealthy private sector clients in, say, tax or civil litigation, and those who depend on their clients’ legal aid or work in public prosecution. Both are in privileged closed shops protected by competition from others; but those who depend on public funding will tend to do relatively worse.

In the economy as a whole, we will witness some quite arbitrary and unfair redistributions of income and wealth over the next few years, because that is what low growth and high inflation does. It will almost certainly make Britain an even more unequal society, because those at the top tend to be more immune from inflation, and a more divided one, constantly on the lookout for scapegoats for stagnant living standards and poor public services – the unions, migrants, people on social security.

Even if there’s a house price crash, those at the bottom will still lack the funds and confidence to be able to take advantage of it. There will be few winners in such a situation. Internationally, Britain and the British will fall further behind in the league tables, and feel poorer next to more dynamic, more competitive countries.

So we’re all blaming everyone else for holding each other to ransom, or for being greedy or selfish. It’s nonsense. It’s just supply and demand, and a completely rational desire to look after one’s own interests and those of one’s family when inflation is taking over in a way most people haven’t seen before in their adult lives.

The reason why we have low growth and high inflation – stagflation – is because everyone has a right to withhold their labour in a free society. It only suddenly burst out in an orgy of “militant” industrial unrest and inflation because the economy is deeply sick. It simply cannot produce the annual increase in goods and services to maintain and improve living standards in the manner we’ve grown to expect. So we all have to fight for what we’ve got.

It is a global phenomenon, this slowdown in growth and upsurge in inflation, and there are global-scale factors at work – post-pandemic disruptions, more anti-Covid lockdowns in China, the war in Ukraine, the trend to protectionism. It’s also true that Britain has long had a problem with productivity and investment. But the special factor now, the one that has uniquely contributed to the labour shortage, depressed exports, shredded business confidence and investment, and thus compounded poor productivity growth and stagnant living standards, is our old friend Brexit. How many healthy private businesses would invest in Britain when there’s widespread talk about a trade war with the EU, still the closest and biggest market for exporters, and source of supply for industry?

The really uncomfortable truth is that Britain wouldn’t be quite in the state it is in today if it was still in the EU. All the same problems we faced before we joined Europe in 1973, and which were still making their presence felt well into the 1980s, derived from being outside what was then the world’s most dynamic trading area, outside of Japan.

Three factors helped turn Britain around between the 1970s and the 1990s: the European single market; Thatcherite economic reforms; and immigration. As a result we enjoyed a long run of strong growth with low inflation and increasing prosperity. The “sick man of Europe’’ was transformed into a model others began to envy.

Now we seem set against all those three factors – Europe, Thatcherism and immigration. We have a government that throws money around like a medieval king appeasing his barons – the lottery of “levelling up”. A country with a labour shortage sends young men of working age to Rwanda. Europe is a new economic enemy rather than a partner in prosperity.

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For those of us old enough to remember life before, it feels like being in a time machine. We are going back to older habits, and ones that served us ill. Before joining Europe and being forced to compete and painfully adjust our economy, we had tried to live beyond our means and ended up with persistently higher inflation than our counterparts.

To the extent we did maintain living  standards when we were spending more than we earned as a nation, it was because of the kindness of strangers – the financial markets lending us money to cover the trade and public sector deficits, in the faint hope of better days and at suitably high interest rates. When we couldn’t get anyone to lend us the funds, we “printed money”. No one much wanted to invest in Britain, and structural unemployment grew stubbornly high.

We tried to get unions and management to exercise pay and price restraint to get inflation down, keeping them to 10 per cent or 5 per cent. Sometimes we even passed laws to try to make them do so. It never worked for very long. The Trades Union Congress, Confederation of British Industry and government decided the maximum pay rise anyone in the UK could have (allowing for a few exemptions).

Forcing the British to be nice to each other failed. There were strikes and riots. The far right and the revolutionary socialists fed on the division and decay. We fought like rats in a sack, and it’s all happening again. It’s hard to stomach.