A strike at the heart of Nirvana

Low inflation, full employment, record stock markets - but, says Mary Dejevsky, American workers are footing the bill. Are they about to stop paying?

The United States, which is currently acknowledged to have the strongest and soundest economy in the industrialised world, has, since Monday, been in the grip of its biggest strike for 14 years. The transport and courier company, United Parcel Service, whose ubiquitous brown vans with their subdued gilt lettering deliver 80 per cent of the US small package freight, is at a standstill. Some 190,000 unionised workers - two-thirds of the workforce - have withdrawn their labour; more than 12 million packages and mail-ordered goods (which, because of the distances and paucity of local shops in the US, account for a massive volume of business) are piled up in depots. An estimated 5 per cent of the country's gross national product, according to UPS , is "not moving".

In the US, as in Britain, a strike of this magnitude and disruptive potential seems a historical throwback to a pre-Thatcher, pre-Reagan era - before unions were tamed, managers learnt to manage, and workers understood that times had changed. And this is one way the UPS strike is viewed: as an aberration, a last gasp of the Teamsters, one of the few strong trade unions in the US, in one of the few sectors - haulage - where it still has clout. If this is true, the strike will be short-lived, a little more of the Teamsters' remaining power will have been spent, and the strikers - with a few meagre gains and much lost pay - will return to work, grateful still to have a job.

But another interpretation is also possible. According to this, the UPS strike would not be a vestige of the past, but a harbinger of the future and a warning that not all is as right with the country's economy as mainstream economic analysts and most US politicians would have us believe.

At present, the very strength of the economy seems to argue against this. Over the past year, the US has achieved a combination of positive indicators that had hitherto been regarded as virtually impossible for any developed country. Unemployment falls by the month and is currently at its lowest since November 1973. Welfare rolls are also falling as rules in many states are tightened. The inflation rate, meanwhile, is negligible and - despite repeated predictions to the contrary - still shows no sign of budging. Interest rates are at their lowest for many years, encouraging mortgage borrowing and consumer spending. Company profits are by and large at record levels, so are exports, and the dollar is strong against all major currencies.

Perhaps the most surprising indicator has been share prices, which are still breaking records almost daily. As they rose, one analyst or other would forecast that they could go no higher - but they did. And now, the word is that they could rise higher still. The logic is that there are simply no serious negative factors to dent market confidence. On top of all this, President Clinton has just finalised an agreement with Congress, which has a Republican majority, on a budget plan designed to help the boom continue and eliminate the domestic budget deficit by the year 2002.

All in all, the US economy in 1997 seems to many to have reached a state akin to Nirvana, where all the variables are in balance, harmony prevails, and each positive indicator reinforces the other. So strong does the US economy appear, that even the professional Eeyore of the financial establishment, the Chairman of the Federal Reserve, Alan Greenspan, was compelled to sound a rare note of optimism when he appeared before a Congressional committee last month - helping to push the stock market even higher.

Perversely, it seems that only a surfeit of good news is capable of clouding the picture, and that only temporarily. The last unemployment figures, which showed a further fall to a national rate of 4.8 per cent, caused a brief fall in the stock market as, not for the first time, dealers feared that a shortage of labour could increase wages and so inflation.

The stock market, though, may have a point. It is pay, or at least one aspect of pay, that lies behind the UPS strike, and this is why the strike could be at least as much a pointer to the future as a throwback to the past. UPS workers are protesting about the increasing use by UPS of part- time, temporary staff, who are paid half as much as full-time employees and qualify for fewer benefits, including the all-important health insurance. The Teamsters union wants UPS to increase the number of full-time jobs and improve benefits for part-timers. Behind the demand is not just the issue of fairness, but the fear of full-time employees that UPS will reduce its full-time payroll and make up the numbers with part-timers, who comprise 35 per cent of workers.

UPS says that it needs the flexibility of part-time working. It also says that pay for part-timers, at just short of $10 an hour, almost twice the minimum wage, is respectable. (Full-timers earn twice that.) But although UPS is regarded as a good employer, a single breadwinner would still find it difficult to support a family on this salary. For a part-timer working - as the full-timers claim - almost full-time hours, it is impossible - especially as the temporary nature of the employment makes it difficult for the individual to obtain a mortgage or any other form of the credit on which so many Americans run their lives.

The workers' complaints are sharpened by the contradiction they perceive between their own situation and the paeans to the US economy (as well as record company profits), they hear and read of every day. Essentially, inflation remains low, in part, because wages - despite the very low unemployment rate - are barely rising, and they are rising least of all for the lowest paid.

This is producing a groundswell of resentment and a readiness to strike that is uncommon for the US. Last month, General Motors had to suspend work at several plants because of a strike by parts manufacturers over layoffs. The company's policy of "just in time" production, where a minimum of components are stored, made the strike more effective than it might have been in the past, and a settlement was agreed within days.

Optimists about the US economy stress that the car and haulage industries are unusual in having strong unions and that widespread labour unrest is highly unlikely. The recent tightening of welfare regulations will make unemployment even harder to bear than it was before, so most low- paid workers will probably just grin and bear it.

This will not, however, prevent frustrations being vented in other ways - none of which would be good either for the social climate or the prosperity of the US. There is already a tendency to blame immigrants (legal and illegal, and mainly from south of the border) for depressing wages, a trend that brought the referendum vote in California two years ago to abolish benefits - including health and education - for children of illegal immigrants. This year the same tendency almost caused legal immigrants to be excluded from health benefits until they became US citizens.

The much-contested North American Free Trade Agreement - Nafta - is also being blamed, for having encouraged US manufacturers to shift production to Mexico where labour is cheaper, so reducing wages in the US, especially in border areas. The official Administration line is that Nafta has had no perceptible effect on wages in the US. Figures supplied by states bordering Mexico, however, tell a different story, and - even as President Clinton was celebrating his "balanced budget" agreement with Congress - he quietly signed over additional financial assistance to those states to safeguard jobs.

Elsewhere in the US, hostility is growing towards former welfare recipients who are increasingly being made to work for their benefits, for pay which works out at less than the minimum wage. Again, despite official denials and insistence that safeguards are in place, there is evidence of a "displacement" effect, with employers letting full-timers go because "workfare" recipients are cheaper. Mr Clinton's call for states to ensure that this does not happen indicates that the situation is far from satisfactory. Overall, there is the likelihood of increased sullenness in the low-paid, unskilled workforce that could impair productivity, quality and reliability.

These are not the only dangers that may be foreshadowed by the UPS strike. The cause of the protest - low wages and growing "casualisation" of the workforce - illustrates that the supposedly perfect balance of the economy is, in fact, precarious. If labour becomes even scarcer, wages may have to increase, with the accompanying risk of higher inflation. If, as a result, production costs rise, companies - reluctant to cut profits - could decide to cut staff. Despite all the "downsizing" of the past decade, there still seems plenty of slack in many sectors compared with Britain.

More people have been employed in the US, up until now, in part because hiring and firing is easier and unskilled wages are low. But productivity (per employed worker) is also relatively low. Despite new technology, it has not increased nearly as rapidly in the past 25 years as it has in Europe. This discrepancy, which has tended to be masked by different methods of calculating productivity - with Europe counting only those employed and the US counting everyone of working age - is suddenly the subject of much specialist debate in the US.

If there is another wave of "downsizing" - and this was the cause of the recent General Motors strike - unemployment could also rise. This might not just damage the economic picture; it could also sorely test the welfare reforms whose success so far has relied on the economic boom and the availability of jobs.

These are hypothetical scenarios. The US economy may continue to boom, companies and consumers may continue to benefit from cheap imports and cheap labour, and low-paid workers may have no choice but to accept what they are given and strive, in the all-American way, for something better. What the UPS strike does illustrate, however, is that the economic boom has not spread its largesse nearly as widely as is often believed and that a small push from below could bring its Nirvana-dreaming economists crashing back to earth.