ECONOMICS AND THE CITY
Living on tick
Nicholas Davenport
As a Chancellor Mr Healey is not loved either by the left or by the Light but you cannot call him a Skinflint. He goes on borrowing gaily abroad to sustain our standard of living which we fail to sustain with our own output. This time he has gone cap in hand to the IMF. If he must borrow this is the best way to do it, for the IMF Interest charges are much lower than the market and certain disciplinary conditions are attached. For example, their permission must he sought before we can impose lrnport controls. Mr Healey has °OW applied for (i) the IMF oil facility £575 million (1000 in SDRs) and (ii) the first credit tranche of normal IMF borrowing £400 million (700 in SDRs) a total of £975 million, say, $2000 million. This brings our foreign borrowings under this prodigal Chancellorship to $11,450 million. Add this to our budget borrowing requirement at hone for the current financial year which is now twin
.g £12,000 million.
Mr Wynne Godley, the ex-Treasury monetary expert, has given this borrowing requirement a !lightening look by explaining that it is largely out of control. He told the House of Commons Expenditure Committee that if public expenditure had grown in real terms at the same rate as the GNP in the four years from 1970-71 to 1974-75 it would have risen by £16,500 million. Instead it rose by £22,000 million an excess of E5,500 million. And less than half that increase can be identified as due to policy changes. So more than half of it was unintended. Like .Ole Man River' public expenditure Just keeps rolling along, gathering volume and speed as it rolls. The reason lies in the underlying swell of the growing establishment cost of our bureaucratic welfare state. For example, between July 1972 and April 1975 the average pay in the civil service rose by 71.3 per cent against a rise in the index of retail prices of 50.8 per cent. Oh! to be a civil servant as we roll on towards financial ruin. The truth is coming out, slowly but inexorably. Mr Joel Barnett, the Financial Secretary of the Trea
sury, told the House that public expenditures had risen from 50 per cent of the GNP in 1970 to 57.7 per cent in 1974 and, probably, are now over 60 per cent. The actual increases in this period 1970-71 to 1974-75 were £3,200 million on social security, £2,900 million on education, £2,800 million on housing, 0,300 million on health, £1,900 million on roads and environment, £1,200 million on the nationalised industries, not to mention £1,500 million in debt interest, dearer money always adding to the inflation. On average they all increased by 98 per cent in this period. It would be manifestly unfair to describe the Chancellor as spending our money like a drunken sailor. He is simply sleepwalking down the corridors of public finance. Indeed, the whole nation is sleepwalking, dreaming that it can go on paying for higher salaries and bigger staffs in the public services while the men and women employed in actually producing and selling goods at home and abroad are diminishing in number and, one fears, becoming less competitive.
The risk of going to sleep as a nation is that our creditors abroad will wake up before we do and refuse to lend us any more money to maintain our fantasies. Fortunately there are signs that the more intelligent and moderate members of the Government are beginning to wake up and realise that the structure of the British economy is all wrong that the numbers of people engaged in making goods for sale at home and abroad are too small and still diminishing while those engaged in social welfare and education are too large and still increasing. The famous NEDC meeting at Chequers, which was chaired by the Prime Minister, the Chancellor of the Exchequer and the Industry Secretary, Mr Varley but not by Mr Tony Benn produced a new industrial strategy which gave priority to making manufacturing industry more important and more profitable. At the moment it accounts for only 30 per cent of the GNP but over 80 per cent of the visible exports which go to support our balance of pay
ments.
Manufacturing profit is no longer to be regarded as a dirty word by Mr Wilson's government, although it is still anathema' to the Clause 4 communist left of the Labour Party. It is easy for the intelligentsia I mean Mr Peter Jay to make fun of this Chequers meeting and especially of its cloudy communique, but if Mr Wilson is really moving away from his socialist manifesto and towards a mixed economy With a more profitable private sector he should be allowed for political reasons to hide his real intentions in a lot of verbiage. After all, he is being true to form.
I was fascinated by Samuel Brittan's confessions in last week's Spectator. It has taken these monetary doctors a long time to realise the truth about the English sickness a growth of wealth consumers fattening on the body of the wealth creators. The monetary medicines they applied in the 'sixties simply resulted in alienating the trade union movement from any sense of identity with the national economy. I believe I was the first among monetary writers to point this warning see The Split Society of 1964 and I regret that Britain does not give whole-hearted support to my thesis that the alienation of the workers will never be ended until we give the trade unionist a share in the capital profit
as well as in the dividends of the private enterprise sector. This can be done through the instrumentation of a public unit trust, the technique of,which I must reserve to a later article.
But to come back to the public borrowing of Mr Healey and the public expenditures which he pretends that he cannot cut. If the Government really understands that it is the malstructure of the economy which is at fault, which is the cause of the national decline, then the measures it is now taking to restore profitability to manufacturing industry may begin to arrest the decline. But it will take time. Restructuring is a slow process. No doubt the Government hopes that it will be allowed to go on borrowing for the next year or two — we still have another tranche of the IMF credit to tap — until the flow of oil from the North Sea makes us more credit-worthy. But let us all pray that in the meantime the price of oil will not drop so far as to make this expensive North Sea oil unprofitable and that Mr Benn and Lord Balogh will not frighten away the foreign oil companies whose money we require for its exploitation because we simply cannot finance at the moment our socalled 51 per cent "participation". Living on tick requires political restraint as well as economic judgement.
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