Can a European-style "social compact" work in today's complex U.S. economy?
That's the crux of the debate over President Carter's new wage-price guidelines plan. Although the plan is far more elaborate than any previous program short of controls, Carter essentially is proposing to strike a bargain between government and business and labor. The question is whether the extra trimmings will make this one more likely to work than those tried before.
There is little dispute that the guidelines are well-crafted. From a basic 7 percent wage guideline, Carter has evolved a complex price standard, calling generally for a half-percentage-point "deceleration" from 1976-77 price increases, with additions or further cutbacks depending on costs. And there's enough flexibility - in the right places - to avoid any crunch.
And cleverly, Carter has offered workers a tax rebate as "insurance" if the plan doesn't work. Under the proposal, if inflation outpaces the 7 percent wage limit, workers who agreed to stay within the guidelines would get a tax credit or refund to offset their loss in real income. For business, Carter promised to hold down federal spending and the cost of government regulations.The dilemma is that except for providing a new framework, the plan really doesn't change things for the major unions negotiating next year - the issue most essential to the program's success. From their point of view, they are being asked to based their bargaining on hopes for an improvement in 1979 rather than on what has happened in 1978. And analysts say Carter's arithmetic is flawed.
The calculations work this way: The guidelines ask unions to hold contract settlements to a flat 7 percent next year - including not only basic wages, but fringe benefits and cost-of-living increases as well. Carter says if they do, it could help hold price increases to between 6 and 6.5 percent. And that would put workers one-half to one percentage point ahead.
But if labor agrees to go along, it will mark a turnabout in union bargaining practices. For one thing, the 6 to 6.5 percent inflation figure is only Carter's forecast - and is hardly a certainty. And most unions peg their wage demands to "catch up" with the previous year's inflation, not to match the current year's. That figure is 7.5 to 8 percent.
Almost as important, even if Carter's forecast worked out, the one-half to one percentage point "real" wage boost still would leave labor way behind its usual gains. Ever since the Kennedy-Johnson wage-price guidelines of the 1960s, American unions consistently have calculated their wage demands to cover both inflation and a now-outdated 3.2 percent increase in productivity. Carter's plan would deny that.
The mathematics is more realistic on the administration's price standards, where Carter has provided more flexibility, but there's considerable question among some analysts over how effectively the price guidelines can be enforced. Carter said last Tuesday he plans to use a number of economic sanctions to pressure violators - from denying government contracts to lifting import curbs.
But analysts point out that, in practice, these sanctions will be difficult to wield. In the first place, the White House doesn't always have the clout to influence actions by other arms of government - say in the case of urging independent regulatory agencies to refuse to allow businesses to pass on costly wage increases.
Second, the opportunities to use these sanctions won't always correspond with the administration's needs. The White House may have a clear shot at refiguring Davis-Bacon Art requirements for affecting construction wages, for example, but the real problem may lie in some other sector. So the administration's options will be limited, even if they all work out.
Indeed, the biggest uncertainty involves Carter's plan to use federal procurement policies to enforce his price standards - the plan to prohibit firms that flout the price guidelines from bidding on federal contracts. Without question, this is the biggest club the White House has stashed in its closet. But there's a major question over whether it will survive the courts.
Although officials contend they're satisfied the procedure is legal, the plan is almost certain to be challenged in court suits questioning both the president's authority to impose such restrictions and the administration's decision in any one case that a particular would-be government bidder has violated the guidelines.
Strategists say they have an attorney general opinion arguing that the practice is legal, but insiders concede the underpinnings are shaky. The legislation providing the "authority" for the new restrictions merely allows the government generally to act as "a prudent buyer." If the courts rule it is being stretched too far, Carter's biggest "stick" is gone.
Admittedly, there are a good many strongpoints on other aspects of the wage-price program. As officials point out, unlike previous guidelines plans, this one isn't being superimposed on an already overheated economy. If the president can win a few early victories, it could create a climate that will help dampen inflationary psychology somewhat.
And in the minds of some observers, by far the most hopeful element of the plan is Carter's confirmation that he has accepted the advise of his top economic aides and decided to try seriously to hold down federal spending next year. (Because of the smaller-than-expected tax cut, the $30 billion deficit figure isn't as tough as officials implied earlier. But the direction is down.)
Analysts note firmly, however, that no matter how elaborate and well-crafted the guidelines are, the wage-price program won't work at all unless Carter also rides herd on other inflationary government actions not covered as huge agricultural set-aside programs and spiraling government health-care costs.
For all the administration's cheerleading over the new anti-inflation plan, there's a broad feeling among economists that a major reason the new effort is needed is that Carter plainly had been unwilling to take the inflation fight seriously before. (This is Carter's third attempt at an anti-inflation program. The other two never got off the ground.)
In his first 20 months in office, the president drew widespread criticism from nearly all quarters for sitting by idly while Congress passed huge farm-subsidy legislation and other inflationary bills increasing payroll taxes, sugar prices, the minimum wage and dozens of other costs. His first major veto didn't come until just this fall.
Analyst say Carter not only must act aggressively in convincing the nation that he means business on his wage-price guidelines, but also must begin taking the inflation effort seriously in these other areas. One sector where observers see presidential help needed is in mustering a Panama Canal-style effort to enact a medical cost-containemnt bill.
Whether the president really can put together a workable social compact under these sorts of pressures remains to be seen, but so far the doubters are far and away in the majority. The notion of a social compact has proved fragile enough in Europe, where conditions are better-suited for it. It rarely has worked before in the U.S., where the economy is less homogeneous and more complex.
What Carter has done with his new anti-inflation plan is provide an elaborate and well-crafted framework fo the social compact to work, but he hasn't changed the economic and social fundamentals that have stymied such efforts in the past. Business and labor don't trust the government - all with historical precedent.
If the oddsmakers were to take their cue from the currency and stock markets last week, the new presidential program might be dead before it ever got started. Organized labor has been less pessimistic, but understandably skeptical.In the final sense, however, the inflation buck stops at Carter's desk. Whether even this elaborate a social compact can succeed may depend mostly on how hard Carter tries.