TREASURY CONTROL AND OUR FUTURE
Hy NICHOLAS DAVENPORT
IT is a pity that Members of Parliament, when they were debating the second reading of the Finance Bill, had not had the advantage of reading the article by Mr. J. C. R. Dow in the May number of the Westminster Bank Review. I am not suggesting that the debate was below standard. Several members effectively brought home to the Chancellor the shortcomings of his control of the economy and rightly expressed the alarm which everyone feels at a Treasury policy which gives a boost to the home trade in the summer of 1958 and puts a restraint on it in the spring of 1960. Par- ticularly impressive was the contribution of Mr. Harold Lever, not because he quoted from this column, but because he made practical suggei- tions for stimulating exports, protecting the sterl- ing exchange and putting on a more selective control of investments—at home and overseas. But I think Mr. Dow's article would have given greater force to the critics' attack. Mr. Dow, now deputy director of the National Institute of Economic and Social Research, was once in the economic section of the Treasury—up to 1954— and knows from inside the sad story of Treasury attempts at economic control. The conclusions he reached after years of official experience were first, that while a steady rate of economic growth is the ideal, the government apparatus is hardly likely to attain it; secondly, that the control of a growing economy being a complex operation, the authorities should have not one simple
method of control but various methods capable of being applied selectively (as Mr. Lever argued). The economy, he says, is an organisation in depth and the Government needs controls in depth. Finally he thinks that it is beyond the scope of budgetary and monekcy policy to eliminate price inflation: it can only eliminate excess demand, which is not enough. All this suggests that Mr. Amory's present mild restraints on banking and on hire-purchase trading will have little more than a nuisance value.
In theory the rules for maintaining economic stability are simple enough. First, according to Mr. Dow, total demand should be less by a reasonable margin than the maximum which can be produced: secondly, demand should only expand as fast as the capacity to produce or as the capacity to pay for increasing imports, which- ever is the lower. The Treasury's difficulties arise in trying to apply these principles to an economy which does not follow a steady rate of growth. It is also handicapped by the fact that it cannot plan or even foresee the pattern of demand and can only guess as to how quickly the productive capacity is likely to grow. The Chancellor's attempts to achieve stability must therefore be bungling attempts—in greater or less degree. And if his present attempts are designed primarily, as he has suggested, to restore a proper surplus to the balance of payments the chances are that they will be unsuccessful.
In this connection I was intrigued by Mr. Dow's positive assertion that domestic policy could only hope to regulate the balance of pay- ments over a period of years. To ask that it
should eliminate an unwanted annuaf deliClivial to ask too much of it. Most short-term fluent,' tions in the balance of payments, he says. ha4 been due to changes in external conditions. I small part only has been due to fluctuations in° volume of imports. The present drop in the sat plus cannot be ascribed wholly to the rise in till level of home demand. It was caused partlY the fall in 'invisible' income and by the rise el government expenditure abroad. It is thereforc unrealistic on the part of the Treasury to attemPi to offset the effect of these external factors, Wi restraining home demand today. The effect 00 only be to restrain domestic investment and th adversely affect exports in the long run.
The proper objective of Treasury policy silo be the stimulation of the export trade on wig our whole standard of living depends. should take two forms; first, the provision of for the underdeveloped parts of the world a secondly, the settlement of the trade dispute wl the 'Six' of the European Common Market. believe the Government is doing' all it can in promote the first. This is highly commendable'll for there is no firmer guarantee for our exlic trade than a rise in the living standards of 1°1 poorer nations. More than two-thirds of the world's population live in the less-develoPed, parts. If India, for example, with a population °1 400 million now largely dependent upon agrictil' ture, can rapidly increase her industrialisation. vast new market will be opened up. The more we take from her, the more she will buy from us' Trade undoubtedly follows aid. The long-4041 future of our export trade virtually depends 00 a successful solution of the capital problems of thc ' needy nations. As for the settlement of the trade dispute %kith the European 'Six,' there were more hopeful signs over the weekend that Professor Erhard woo° act the honest broker and secure a slowing-doolt of the Hallstein proposals, which would mon the avoidance of any appreciable rise in the nor future in the external tariffs of West GermialY; It is vital for our export trade that we shoulo link up with the Common Market. even if means the gradual elimination of the Common" wealth preferences. The rate of expansion 111 Western Europe - is higher than in the United States and likely to remain so. The growing industrial power of France. Germany altd, Northern Italy, aided by the free movement ot surplus capital and labour, is a threat W our export position which we must take %led seriously. Between the first quarters of 1959 and 196(,) our exports rose by £43 million a month or 1° per cent. The greatest contribution to this in' crease was provided by our exports to Wester" Europe, which rose by 14 million a month or 19 per cent. Our exports to the sterling area over the same period were up by 13 million a month' or 12 per cent., and to North America by £10 million a month or 26 per cent. It would be dangerous to rely on the continuance of the boom in our exports to the US, for it is far too dependent on the motor trade. We must, there- fore, look to industrial growth in Europe and the underdeveloped parts of the world as the key 1° our future as an exporting nation. The present measures of restraint put forward by the TICS' sury seem pitifully lacking in imagination.
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