ECONOMICS AND THE CITY
The war outside the hustings
tiicholb Davenport Our electoral debate becomes more ahd more irrelevant and unreal as the reality of a world recession begins to darken our future. Have anY of the candidates told their voters that 'there is an economic war going on outside which could take away ay their jobs? The war started, as we all know, when the Arab oil producers quadrupled the price of their oil and fired the tnflation. This put a debit of about $60,000 million on the trading accounts of the industrialised nations. As for the developing nations the cost of their oil imports has risen by about $10,000 million. This, together with a slow-down in the growth rates of developed countries, said Mr Robert McNaMara, president of the World Bank, at the annual meeting in Washington last week, would have a serious impact on the developing world and would force a billion of the world,s poorest people to face a desperate future." It is an economic war of a magnitude Previously .associated only with rhajor wars and depressions. Mil,;ions, he added, would face risk. of 'eath. Yet most of our ranting candidates, certainly the Labour candidates, are telling their voters that the crisis will not hurt them and that threshold agreements on top of their wage rises will enable them to maintain their comfortable standard of living. Win with Labour at home and get beaten in the war outside.
The trouble about this economic War is that the defence — the oil Importing countries — have no common strategy designed to withstand the attack. This was made painfully obvious at the recent Washington meeting of the International Monetary Fund. One strategy was proclaimed by President Ford and Dr Kissinger for the
United States, another by France, another by Germany, and another by Mr Healey for an increasingly isolated Britain. The only common ground is a plan drawn up recently in Brussels by twelve of the major oil-consuming countries for the sharing of oil imports during actual emergencies.
The American attitude is that unless the price of oil is brought down there will be an economic collapse in the developed and developing worlds and that as the oil producers seem unwilling to move — they (except the Saudi Arabians) have even advanced the price of crude oil by 31/2 per cent at the last OPEC meeting — there must be some political action to persuade them to oblige. "What has gone up by political decision," said Dr Kissinger at the UN General Assembly, "can be reduced by political decision." President Ford in a speech at Detroit even used words of menace. "Sovereign nations," he said, "cannot allow their policies to be dictated by artificial rigging and distortion of world commodity markets. Nations have gone to war over natural advantages ... but God forbid that anybody should think of such a thing nowadays." We must assume that as a new boy at his job the President did not mean what he said but the clever Sheikh Amami of Saudi Arabia was quick to take up the political point. If America will get the Israelis to go back to their pre-1967 lines, he said, there will be plenty of oil at lower prices. If not, I suppose, the price will go up again and then the Americans will say that the prices of the armaments which the Arab states and Iranare buying will go up too. It is all very dangerous and silly talk. The French have adopted a more
reasonable attitude. They have confined themselves to commercial measures which would cut down oil imports. They have rejected petrol rationing but domestic oil heating is to be cut to 80 per cent of what consumers used in the year to last May, which included a warm winter. As heating and other household fuels account for 37 per cent of French oil consumption the government may achieve its target of a 10 per cent cut in oil imports which will limit their oil payments to around $10,000 million a year. Is it not extraordinary that the British, Government has made no effort to cut our own oil consumption? Even a 50 mile speed limit on the roads would help to reduce our petrol imports. Mr Healey appears to have accepted the worst — that a politically contrived high price of oil is a fact of life and that we must accept it until we get our own oil from the North Sea and cock a snook at the Arabs. But has he thought that in a few years the price of oil might drop by 25 per cent or more and rob us of the profit from these very costly underwater fields? At the IMF meeting in Washington he proposed a big extension of the Fund's arrangements for re-cycling the huge Arab revenues. If the IMF, he said, were to set up a new security, guaranteed by all members of the IMF in proportion to their quotas, with a coupon somewhat below the market rate, the Arabs might take up to $30,000 million — half the extra annual cost of their oil — and agree to its being re-cycled in medium-term loans to oil consuming governments. He warned his audience that the private banking system could not absorb the huge amount of Arab surpluses. There were already difficulties in the Euro-dollar market and commercial banks could not accept more Arab deposits without upsetting their capital ratios.
But his proposal was not warmly received. The Americans were sceptical, if not hostile. The Germans, who had suggested an international investment bank for channelling funds into specific investment projects, were lukewarm. The German view is that the oil producers should find their own outlets for their surplus earnings and that the oil consumers should reduce their payments deficits and only run them if they can re-cycle the deposits. Peter Jay in Washington quoted one German official as saying that the surplus dollars should be left to burn in the Arabs' pockets.
What remained of the Washington meetings was first, a formal request to the managing director of the IMF to consider the Healey plan and prepare a scheme which would develop the present restricted facility for channelling oil funds to the less developed oil consuming countries into a bigger facility for the industrialised countries; secondly, an informal request to the central banks to take some action to strengthen public confidence in the commercial banks —the Germans said that they had already taken such action after the failure of the Herstatt Bank but other central bankers tartly added that they would do nothing to help commercial banks which were grossly mismanaged or faced insolvency as a result of fraud — and, finally, a general impression that the capitalist world was on the brink of disaster which could only be averted if the powers took concerted action.
Alas, the chances of concerted action disappeared with the departure of the delegates. The Americans and the Germans were dead against measures which would "accommodate" the dangerously high oil prices and help the Arabs to get away with economic murder. The French would accept some sacrifice consumption in order to cut down the cost of their oil imports. The British would start reflating in the autumn to avoid the recession and unemployment which would follow on the Arab oil explosion. It was Mr Healey who stood out as the appeaser and compromiser — with his eye on the British election.
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