Published online by Cambridge University Press: 17 September 2009
The only reason we have unemployment is that governments are using it to contain, or to reduce, inflation.
(Richard Layard 1986: 29)In essence, the viability of the growth regime of the post-1945 era depended on the ability to contain inflation without recourse to sharply restrictive macroeconomic policies. In practice, this meant increasing reliance on income policies, since the price and quantity controls of the immediate postwar period could not be continued indefinitely. Yet, relying on income policies is always a precarious strategy. Ultimately trade unions are organizations designed to benefit their members in wage bargaining and not to function as an additional instrument in macroeconomic policies. During the sixties the strategy of relying on microeconomic policies to contain inflation increasingly came into conflict with the organizational logic of the trade unions, especially so because many countries experienced a further reduction in unemployment rates during that decade. The wave of labor unrest that spread across Western Europe in the late sixties therefore was not the prelude to a further strengthening of the left but rather the first announcement of the end of social democracy's ideological hegemony. The disintegration of income policies as an instrument for containing nominal wages spelled the danger of an inflationary spiral. As in the early twenties, the only feasible policy in such a constellation, for social democratic and non–social democratic governments, would be to reintroduce unemployment in order to contain inflation.
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