How the bosses used the ‘inflation crisis’ to weaken workers’ power – lessons from the 70s

In 1974 inflation, led by high fuel prices and an “energy crisis”, was roaring. Nothing epitomized the end of the long post-war boom years more than long lines of North Americans waiting to buy rationed gasoline.

Then as now pundits, politicians and media blamed rising wages and workers’ living standards for inflation. Then as now corporate profits were actually running ahead of wages, although the gap was not as obscenely obvious as it is today.

There are also comparisons to today’s political landscape. Pierre Trudeau had a minority government backed by the NDP, led by David Lewis and holding 31 seats. Following that 1972 election Lewis decided the time was right to purge a rising left faction within the party, called the Waffle, and disbanded the youth wing of the party. In 1974 the NDP aligned with the Conservatives, led by Robert Stanfield, to bring down the government. Although they offered different solutions, they agreed the Trudeau Liberals were not doing enough to control inflation.

The Tories pegged their campaign on a plan to impose wage and price controls, and early polls said the election was theirs to lose. The NDP could offer no solutions. And Trudeau ran a crafty campaign, veering sharply to the left, out-flanking the NDP and constantly ridiculing the concept of a wage and price freeze. Their message resonated with a still strong and well-organized working class.

The Liberals won a majority, the Conservatives ended losing a dozen seats, and the NDP was wiped out and reduced to a 16 seat rump.

Betrayal and pushback

It is important to recall that in this period the Canadian working class was among the most combative in the world, leading in annual numbers of strike days. In the lead was the Quebec workers’ movement.  Post-war living standards were at their peak. It is also noteworthy that the corporate profit tax rate ­– excluding the loopholes of the time – was 48%.

Inflation is essentially a mechanism to transfer wealth from the mass of workers to the corporate class. But it doesn’t work if workers are confident enough to strike for wage increases to keep pace, and negotiating Cost of Living clauses in their contracts.

Backed by a parliamentary majority, and having lulled trade union organization into complacency during the election, Trudeau’s job was to break the confident combativeness of Canadian workers, especially public sector workers. Just months into his government he betrayed his campaign promises and introduced the Anti-Inflation Act. The core was draconian “wage and price controls”, limiting wage increases in the public service and in private sector businesses employing more than 500 workers. Predictably price controls were almost non-existent. It was all about legislating wages, and weakening labour’s ability to negotiate.

At the same time federal corporate taxes fell sharply to about 30%. 

The reaction from working class organizations was outrage. The Canadian Labour Congress called a one-day general strike. On October 14, 1976 over a million workers walked off the job, still the biggest labour action in Canadian history. But beyond the show of strength there was no plan to carry on the fight. Labour leaders, like their NDP cousins, were almost as afraid of unleashed workers’ action as the corporate class.

Trudeau called their bluff. Opposition fractured and melted away. Strike days began to decline, and by decade’s end “concession bargaining” became the order of the day. 1976 remains the high-water mark of workers’ living standards. Since then, wages have declined, anti-union legislation and global trade deals have weakened and confused union organizations, and corporate tax rates have declined to all-time lows.

Inflation did decline, having been replaced by other mechanisms to transfer wealth out of our pockets into bosses’ offshore accounts.

Echoes of Solidarity

Of course the fightback didn’t just end overnight. Provincial governemnts of all stripes played a role in backing Trudeau’s project and defeating local outbursts of working class anger. From Manitoba’s NDP government to BC’s Social credit regime, workers had no friends in government. Foremost was the defeat of BC’s Operation Solidarity, when labour leaders and far-right politicians literally huddled behind pulled curtains to betray a rising movement.

You can read more about how Operation Solidarity became Operation Soldout in this pamphlet written at the time,

For several decades, inflation almost disappeared. It was no longer necessary. But the corporate class wasn’t out of the woods. It had reached the outer limits of international expansion and exploitation as global trade deals dragged the last corners of the world into capitalist production. Briefly, to keep the rate of profit rising capitalism relies on two things: expansion of markets and technical innovation. Both are contradictory. 

Expansion draws more workers in at lower wages, but once organized to serve production they begin to turn that organization into means of self-defence. Meanwhile innovation throws workers out of the equation so that they can no longer be consumers. The very forces at the heart of the economy also slowly choke it to death. So while corporate profits are astronomical in absolute terms, globally the rate of profit has been trending downward for decades.

Through the 1990s until now ruling classes looked to other means to concentrate society’s wealth in the hands of a few. In Canada the attack was led, as usual, by a Liberal Government. In the winter of 1995 PM Jean Chretien and his finance minister Paul Martin brought down a budget that ushered in the era of austerity and privatization. Government transfers mandated for health and education were savaged. A huge surplus in the Unemployment Insurance fund – money contributed by generations of workers – was literally stolen and given to the banks to pay down the so-called national debt. The vaunted social safety net was frayed or eliminated. 

The Financial Post called it, admiringly, the “Day that Changed Canada”. 

And now the “safety net" is all but gone. Healthcare is in crisis – in fact it was already in crisis before the pandemic pulled back the curtain. Education is essentially two-tiered with the wealthy sending their kids to private schools, and working class kids crowded into underfunded public schools. Our disabled community is living in poverty so abject that some are turning to medically assisted death as an alternative. Speculators have made the buying and selling of real estate a lynchpin of the economy, making even substandard housing unaffordable. The myth of kinder, gentler Canada is a cruel joke.

How today is different

Enter a global pandemic that almost brought the capitalist system to a screeching halt. Governments in industrialized states were forced to give back – at least temporarily – to keep their workforces intact. I have written elsewhere of how they bought time to figure out how to “normalize” the death and destruction of COVID.   

Having succeeded with that, corporations began to jack up prices. They used the excuse of supply chain disruption and energy shortages caused by war, but these are smokescreens. The rate of inflation far exceeds these costs, and any energy shortage is artificial as suppliers limit production. Corporations are using inflation to fatten their wallets simply because they think they can.

As in the 70s they try to blame inflation, in part, on workers’ wages. But wage gains have been so flat for so long that no one buys it. Rather than dampening workers struggles, as in the past, inflation is sparking a new round of fightback and militancy to threaten a faltering system. 

The future isn’t written but we can gain lessons from the past. And the history of past 50 years proves 2 things: that we cannot trust the words of political parties, which means there is no way to vote ourselves out of this crisis; and that when workers go into action, flexing our muscles is not enough. We have to fight to win, and that means bringing the system to a stop.