About a century ago in Britain, the opposing forces of capital and labour reached an accommodation in a legal framework that provided a structure within which collective bargaining between employers and unions could flourish.
Apart from periods of wartime emergency measures, this process of collective bargaining fixed rates of pay and other benefits for up to 80% of the workforce. Even for those workers outside collective bargaining structures, Wages Councils tried as far as possible to imitate collective bargaining in order to fix minimum rates of pay.
This legal framework, comprising principally the Trade Disputes Act 1906 and the Trade Union Act of 1913, provided what came to be regarded as more than just a temporary political accommodation, but rather as a kind of constitutional settlement or social contract between capital and labour. It established industrial pluralism, which, in its essentials, was the deal that in return for the trade unions recognising the legitimacy of private ownership of the means of production, employers would concede to unions both a say in the management of the enterprise and the right to bargain as a cartel on behalf of their members for better wages and conditions.
The details of the legal framework were contested between the political parties, but my view is that despite significant changes sought by conservative governments in the 1970s and 1980s, the key elements of the industrial pluralist settlement remained in place. The law certainly placed greater restraints on the actions of trade unions as a result of changes introduced by the Thatcher government, which served to weaken their bargaining power and influence in the workplace, but collective bargaining remained as the principal determinant of pay rates (other than ordinary market forces).
The real break with the political settlement or social contract of the early twentieth century came, I suggest, with the Blair government. By the close of the century, changes in the economy such as the decline in manufacturing industry and the associated rapid decline in union membership appeared to render the old political settlement irrelevant to the majority of the working population. Whilst not dismissing the old social contract entirely, the Blair government offered a new deal, which, I suggest, comprised three main elements.
The real break with the political settlement or social contract of the early twentieth century came with the Blair government.
First, the government promised measures to ensure social inclusion: the key goal in this policy was to try to enable all adults to enter the workforce. Implementing measures included the raising of educational standards, thereby enhancing employability, making social welfare payments conditional on searching for work, imposing minimum wages and in-work benefits to eliminate ‘poverty traps’, promoting flexible working arrangements especially for parents, and outlawing a wide range of forms of discrimination.
Second, the government promoted partnership in the workplace. Although collective bargaining could be regarded as a form of partnership, the government rather emphasised that there should be dialogue in the workplace about working conditions generally, not necessarily including wages, and that the purpose of the dialogue should be to improve both competitiveness and a sense of fairness in the workplace.
Third, a dominant aim of all labour law legislation became one of enhancing the competitiveness of business. Every initiative had to be justified on the ground that whatever other objectives it might have, it had to satisfy the test that it would improve competitiveness or profitability. For instance, anti-discrimination laws were justified both by arguments about social inclusion and also by an insistence that businesses would become more competitive if they tapped into all the talent in the workforce, regardless of skin colour, sex, ethnicity, religious belief, age etc.
In my view, this Third Way agenda was radically different from the early twentieth century political settlement in three respects. First, it was largely uninterested in the distribution of wealth in society. The collective bargaining model supported an endeavour to raise the living standards of the working class by enabling them to obtain a greater share of the profits of private enterprise. There was not such egalitarian agenda in the Third Way. It is true that it was expected that by enabling everyone to obtain work and by fixing a minimum wage, the government would eliminate the worst instances of poverty. But the main distributive agenda was identified as eliminating child poverty and pockets of low pay, not to increase wages more broadly.
Second, the Third Way agenda had no hesitation in direct regulation of working conditions where that was believed necessary to support policy goals. Instead of leaving matters to be negotiated through collective bargaining under the old approach of ‘collective laissez-faire’, the government intervened to influence in detail the terms and conditions of employment. As well as the minimum wage, for instance, there were minimum hours laws and rights to flexible working arrangements.
Third, there was an acceptance, inherited from the preceding conservative governments, that individual bargaining in the context of competitive market forces would be the primary determinant of pay and conditions, subject only to minimum standards fixed by legislation. Wages were not regarded as a matter for group or collective determination, but essentially a matter of individual choice and effort. This aspect of the Third Way could easily be mistaken for support for a simple free market in labour.
These radical developments in recent years seem to me to abandon most of the key elements of the social contract of the early twentieth century. A radical change was perhaps inevitable owing to major changes in the economy of Britain. But there is surely room for further discussion about how the social contract between labour and capital should be reconfigured.
These radical developments in recent years abandon most of the key elements of the social contract of the early twentieth century.
To many people, what seems to be missing are certain guarantees to prevent a return to the simple free market in labour of the nineteenth century. This concern can be expressed as a need to reinvent the social contract, to rebalance the economic constitution, or to constitutionalize labour law. Whatever the label, the central ambition is to renew guarantees to individuals and groups that their basic social and economic rights will be respected.
The necessary concern of governments to promote competitive markets in order to increase economic growth needs to be balanced against guarantees that this growth will be shared fairly by all. The new social contract should comprise the constitutionalization of such rights in return for the continuing promise to accept private ownership of the means of production.
This agenda is not unique to Britain, but indeed can be heard all over the European Union. As a result of the success of the Single Market and the pressures it exerts towards a deregulatory agenda, there are many calls for a ‘rebalancing of the economic constitution of Europe’, so that as well as protecting economic freedoms such as free movement of capital and labour, it also provides fundamental guarantees for the dignity of labour.
This Op-Ed is based on a lecture delivered by Hugh Collins, Professor of English Law at the London School of Economics.
Professor Collins was speaking at a conference organised by the Foundation for Law, Justice and Society on 29 October 2008.