Leading Article: A psychological breakthrough

THESE ARE extraordinary times for British workers. Wages, after years of racing ahead of prices even during high unemployment, are being held steady. Workers are accepting pay freezes and even pay cuts to keep their jobs. It is all the more surprising given that last year's 15 per cent devaluation

of sterling raised the cost of imports. In the past, an immediate response would have been wage pressure to restore purchasing power. But the devaluation has gone virtually unremarked upon by negotiators.

Job losses have terrified people in a way perhaps unseen since the Thirties. Gone are the days when unemployment happened only to others, while those in work bargained fiercely for their inflation-plus rises. As people from all sections of society find themselves in the dole queue, the unemployed and those in jobs seem to have discovered a community of interests.

This is the realisation of the Thatcherite dream that wages should be flexible both up and down, rather than just upwards. Ministers hope that the psychology of wage inflation has finally been broken. It is for them vindication of the swath of anti-union legislation in the Eighties and subsequent moves from collective to individual wage bargaining.

However, the acceptance of wage freezes also marks a commercially more realistic, long-sighted view by trade unions, which in some cases have taken the lead in negotiating these packages. The development suggests progress towards a more efficient labour market in which lower levels of unemployment are required to hold down inflation.

Some argue that there has not been a fundamental transformation in the labour market; that the trade union phoenix is, in fact, biding its time before it rises from the ashes. Sceptics can point out that real wages have remained robust until very recently and could quickly run ahead of productivity growth if the economy recovered.

There is a strong argument in favour of more fundamental change by institutionalising flexible wages through profit- related pay settlements. These schemes are growing in popularity, having failed to win supporters during the Eighties. They would allow workers to share in economic recovery while not paying the price of recession with their jobs. Profit- related pay would offer flexibility in steering wages downwards when recessions hit and upwards during good times.

Extending these schemes will require imagination from workers and management alike. They rely on good faith from both sides and confidence that the burdens of both boom and bust would be fairly shared. This type of mutual trust is not characteristic of British industry, but perhaps times are changing.

It may be too early to claim that Britain has experienced a historic transformation in labour relations, but the Government can rightly claim to have achieved much of what it sought from workers. Now they can fairly expect dynamic economic policy in return.

Ministers can no longer automatically blame trade unions or workers for spoiling the recovery by extracting higher wages that should have gone into investment and jobs. They, in turn, must now accept responsibility for the task of creating the conditions for stable growth that are the prerequisite of a high-wage, high-productivity economy.