Labor Builds a Stumbling Block

IF the Phase II program of wage-price restraint breaks down, the destructive force most likely will be a rebellion by organized labor. Union chieftains are most apprehensive about Phase II, and their anxiety is being fanned by Administration refusals to let contracted wage increases be paid during the freeze. A.F.L-C.l.O. President George Meany has threatened noncompliance with post-freeze policy, and the United Auto Workers have scheduled a special convention on Nov. 13, the last day of the freeze, to decide their stand.

Labor could balk in many ways. At a minimum, Meany could refuse to appoint the labor members of any tripartite wage-price review board or labor advisers to any other Government board. That would gut any attempt by Nixon to put across his wage-price policy politically as one that had the consent of both labor and management. At the extreme, the labor movement could support a test-case strike by some union demanding a larger pay raise than the review board deemed justified. The Government would then have a choice of buying peace by overruling its own board --a practice that eventually destroyed Britain's Prices and Incomes Board in the late 1960s--or seeking to break the strike by injunction. The latter move might arouse enough labor hatred to wreck a wage-price policy that in the end will have to rest largely on voluntary compliance and that cannot be fully policed from Washington. sb

Whether such a showdown can be averted depends largely on how serious union chiefs are in some of their demands. At present they are loudly insisting, among other things, that post freeze controls apply not only to wages and prices but also to dividends, interest rates and profits. Nixon could perhaps satisfy them on the first two points.

Dividend restraints would have little economic effect and would raise no great howl from corporate managers since they would not affect profits. Commerce Secretary Maurice Stans already has won pledges from 1,211 big U.S. corporations that they will not raise dividends during the f'reeze. As of last week, the Nixon Administration planned to put some limits on dividend increases during Phase II, depending on voluntary compliance and continued Government pressure on violators. Administration officials have opposed guidelines for interest rates because they fear that bankers would use any such standard as an excuse for not cutting rates that otherwise might go down. Treasury Secretary John Connally, however, is prepared to jawbone bankers into holding interest rates steady or reducing them without setting any formal ceilings.

The unions' demand for an excess profits tax is a far stickier matter. To A.F.L.-C.I.O. Economist Arnold Cantor, the issue is simple equity. "The income of wage earners is the wage; the income of business is profits," he says --and if one is limited the other should be too. By almost any measure, however, profits are not now excessive but depressed. U.S. corporate earnings after taxes, at an annual rate of $46 billion in this year's second quarter, were actually lower than in 1965. Many economists agree with Walter Heller that "an excess profits tax is a silly tax." It did not work well at all during the Korean War. Such a tax now might only prompt executives to hide their companies' real earnings by accounting sleight-of-hand, or to squander in expense-account living the money that they otherwise report in profits. Moreover, businessmen use earnings for a large part of their investment in plant expansion and modernization--and any reduction in that would not only make the U.S. less competitive in the world but reduce the number of new jobs. The Nixon Administration is against controls on profits in Phase II.

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Labor's greatest fear is that post-freeze restraints will come down harder on wages than on prices, so that workers' real income will continue to be gobbled up by rising living costs, while profits boom as business recovers. One of the main jobs of a wage-price board will be to prove that that fear is unfounded by leaning hard on any corporate violators of the price guidelines. If that is done, unions may yet cooperate reluctantly with Phase II. If not, the Nixon Administration, which has often underestimated the rising disgust that many working people feel about the outrageous demands of some union leaders, may have to take off the gloves and appeal for broad public support in a knockdown confrontation between the Administration and big labor.

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