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PROFESSOR Friedrich von Hayek, Nobel prize-winner in economics, has no doubt about the main cause of Britain's problems: trade unions, he declares "have become In Britain the chief cause of unemployment and the falling standard of living of the working class."[1] So the coercive power which he says was given to unions 70 years ago should be withdrawn.

Hayek has been highly esteemed by the political Right ever since he wrote The Road to Serfdom,[2] his onslaught on communism. He is a powerful influence on Tory leader Margaret Thatcher and the group around her chief economic adviser, Sir Keith Joseph. His philosophy, then, is of considerable relevance to the contemporary political scene.

HAYEK'S analysis of the economic consequences of union power is not faulty.

Unions which wield coercive influence (they are in a minority) can adversely affect the labour market, as Hayek says. By pushing wages above their competitive level, fewer people are employed and firms are firced to turn to capital-intensive methods of production when labour-intensive methods would otherwise have been just as good.

But it is the professor's interpretation of the general consequences of this which has serious implications for policy formation. He says that unions are the chief cause of our high unemployment, a conclusion which reinforces the prejudices of a large number of politicians and academics. Other causes of the recession - which, upon objective examination, may turn out to be of greater importance than union power - are consequently neglected.

MONOPOLY power distorts the free market to the disadvantage, ultimately, of the consumer.

Our thesis is that land monopoly is the chief cause of Britain's high unemployment; unions became aggressive in their wage bargaining after Edward Heath's Chancellor of the Exchequer, Tony (now Lord) Barber boosted the money supply to inflation-inducing proportions in 1972. Can our competing explanation stand examination?

The world-wide slump in the mid-'70s is popularly attributed to the huge increase in oil prices. This is a dramatic example of the way a cartel (OPEC) can exploit the monopoly control over a natural resource without, reference to the economic well-being of the rest of the world community. But the oil effect, following the rapid rise in prices from October 1973, was just an additional influence on top of pre-established trends. . . .

The boom and speculation in land values during the 1960s reached a crescendo in 1973 - the recession was about to occur even without the intervention of oil producers!

During the 1960s financial institutions had sprung up to fuel land speculation: real estate investment trusts (USA), fringe banks (UK), Sicomis (France) and property trusts (Australia) to mention a few.

So the crash was inevitable and predictable. In Britain it was signalled by the collapse of the first of a string of fringe banks (London & County Securities) in Nov. 1973. The effect on employment was felt immediately in the construction industry, whose fortunes are directly influenced by land values. As we can see from the following index (1970=100), the number of employees in the industry began to shrink rapidly in advance of unemployment in other sectors (even those heavily dependent upon oil).

1974	January	99.2
1974	April	96.6
1974	July	95.9
1974	October	95.8
1975	January	93.7
1976	January	92.8

SO THE speculative exploitation of the resources of nature-first by land monopolists in the industrialised nations, then by oil owners in the Third World-crushed the world economy.

The consequences of land speculation were" analysed by Henry George in Progress & Poverty. He proposed that industrialised economies should adopt a single tax - one which fell on land values - which would prevent speculation and redistribute socially-created income to the whole community.

What does Hayek think of George's solution? He finds it attractive. In The Constitution of Liberty[3] he states:

If the factual assumptions on which It Is based were correct, i.e., if it were possible to distinguish dearly between the value of 'the permanent and indestructibte powers of the soil,' on the one hand, and, on the other, the value due to the two different kinds of improvement - that due to communal efforts and that due to the efforts of the individual owner - the argument for its adoption would be very strong.

Powerful endorsement - potentially- for land value taxation. But Hayek concludes that the policy is an impractical one, for "no such distinction can be drawn with any degree of certainty."[4] Thus, he says, it would be necessary to grant leases (which would have to be freely transferable) at fixed rents for such long periods as to become little different from private property, "and all the problems of individual property would reappear."

Hayek, then, concedes the importance of land value taxation, but withdraws from it because of the alleged empirical problems. Only a few objections to his analysis need be made here. First of all, location advantages (which he chooses to ignore) - not soil fertility - are the main source of land values. There can surely be no ambiguity as to either (a) who causes these values, or (b) how to separate them from values arising from capital improvements upon the land? This exercise is performed; daily by professional surveyors and valuers!

But Hayek appears to be anxious to create artificial problems. For example, it is not necessary to distinguish between the value arising from natural soil fertility (which is a feature only of the agricultural sector) and values arising from communal effort. For practical purposes, these can be considered one and the same thing.

As for separating values created by individuals from those which are communally-created, this is - again, for practical purposes - an exercise performed daily by bargaining in the market on behalf of labour and capital.

AND YET, when it comes down to brass tacks, Hayek ignores land monopoly in favour of promoting the trade union threat to liberty. Boldly, he asserts that "the whole basis of our free society is gravely threatened by the powers arrogated by the unions."[5]

Socially Important Industries, such as building, will be greatly hampered In their development and will conspicuously fall to satisfy urgent needs simply because their character offers the unions special opportunities for coercive monopolistic practices.

Yet the professor has ruled out. on the basis of faulty logic and a deficient appreciation of valuation techniques, the policy which would wipe out the land monopoly which directly undermines "socially important industries, such as building."

No doubt the market would operate just that little bit more smoothly if unions could not enforce restrictive practices. But the cyclical problem of unemployment, and the ever-present scandal of low wages for many people, would still be with us.

As with the power of capital, which was derived from the imperfect market conditions existing at the time of the Industrial Revolution, trade union power arose as a result of pre-existing exploitative conditions. Only after a radical transformation of the monopolistic distribution of natural resources can we reasonably expect to deal with secondary problems like union power.

REFERENCES

1. The Times, 10.10.78.
2. Routledge & Kegan Paul. 1962; first published 1944.
3. Rout]edge & Kegan Paul. 1960. p. 352.
4. Ibid., p. 353.
5. Ibid., p. 269.