"Natural limits" of social democracy

In his review of Tony Judt’s Ill Fares the Land, Oliver Kamm says that “social democracy appeared to have reached natural limits“ in the 1970s:

The quadrupling of the oil price in 1973 by the Opec cartel and wage claims by powerful unions caused accelerating inflation…[Keynes] had little to say about inflation resulting from upward pressure on wages and earnings in an economy close to full employment.

This, I fear, is only part of the story. Inflation was accelerating before the oil price rose; between 1967Q3 and 1972Q3 it rose from 1.7% to 6.5%. And this didn’t happen because the economy was “close to full employment”. It was actually moving further away from full employment. During this period, employment dropped by 2.1% and unemployment rose from 535,400 (three people for every Job Centre vacancy) to 798,100 (over five for every vacancy).*
What happened, then, wasn’t so much a move along the Phillips curve as a sharp move of the Phillips curve; the unemployment-inflation trade-off worsened.
You can blame this upon powerful trades unions. But this only raises the question: why did trades unions exercise their militancy in the later 60s rather than in the 1950s, when unemployment was lower**?
One possibility is that, in the 50s, people had a vivid memory of the 1930s and so were scared of unemployment, and this restrained wage militancy. By the early 70s, though, workers who remembered the 30s had retired, to be replaced by those who had only known full employment and so expected it to continue.
What we saw in the late 60s, then, wasn’t a mere cyclical inflation, but rather the fact that workers became accustomed to near-full employment. Social democracy had indeed “reached its natural limits.“ This is consistent with what Michal Kalecki wrote in 1943:

Under a regime of permanent full employment, the sack would cease to play its role as a disciplinary measure. The social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension.

Kalecki inferred from this that capitalism, whether tempered by social democracy or not, could not create lasting full employment.
I think events of the 1970s - and indeed of today - prove him correct. But then, I’m a Marxist. What’s Oliver’s excuse?
* Table 3.4 of this big pdf.
** Thanks in no small part to the de facto exclusion of women from the workforce.

Comments

[Matthew]

Would not one explanation be this: that after 1945 for trend GDP growth increased dramatically over the 1930s, a) because of reconstruction and catch-up, and b) because of greater international co-operation, better government, trade etc. Of this (a) is only temporary whereas (b) is more permanent.

But by the end of the 1960s (a) had run its course, but policy-makers and wage earners/companies didn't realise this, or thought (b) was a larger component than it was, and so allowed/demanded/gave larger wage increases than was justified?

[john Terry's Mum]

Isn't the real underlying issue that we have reached the ""NATURAL LIMITS" OF DEMOCRACY" itself?
"

[Chris Williams]

Once, a long time ago, Sidney Pollard pointed out to me that in 1974ish the rate of profit fell to an all-time low: essentially, the benefits of capitalism were being consumed by the workers, rather than the owners of capital. The implied sequel (which I've worked out for myself, given that SP din't talk about it) was that the capitalists felt this state of affairs to be unfair and proceeded to do something about it.

[James Bloodworth]

'One possibility is that, in the 50s, people had a vivid memory of the 1930s and so were scared of unemployment, and this restrained wage militancy. By the early 70s, though, workers who remembered the 30s had retired, to be replaced by those who had only known full employment and so expected it to continue.'

Just as the increasing union militancy is now occuring a little over a generation after the last round of union militancy - and at the worst possible time: reaching it's peak probably under a new conservative administration this could essentially be the union's last gasp. While Cameron may be no Thatcher, the unions are not the powerful unions of the 1970s. Their future certainly looks extremely bleak.

When the Tory cuts really start to kick in (presuming they win the election, which I still think they will), we will probably see just how weak the unions have actually become.

[Grumpy Optimist - Andrew Richardson]

What about the argument that persuades me and which I have written on my blog that at this level of government - which is more than GNP spending, and includes regulation, laws and oversight, a subtle corruption of the spirit takes hold and a sense of empowerment and responsibility fades away. There is a tipping point where corruption becomes endemic. I sense we are now at that tipping point