The Peak of the Boom ?
By NICHOLAS DAVENPORT
It4
T first sight one would not ordinarily regard the present Chancellor of the Exchequer as a happy or a lucky man but fortune has chosen to smile on his tenure of office at the Treasury with such a combination of good luck that a miracle has happened—Great Britain has been riding an American recession without losing her economic balance either at home or abroad, without even any loss of ' full employment.' Perhaps Mr. Butler would say that if you are a British Chan- cellor fortune tends to favour not the brave but the pain- staking, cautious plodder.. Certainly he deserves credit for his cautious, unspectacular budgets—the mild ' reflation ' budget of 1953 followed by the ' no-change ' one of 1954—and for his quiet and gradual dismantling of the state-controlled economy.
But • who would have thought it possible that, between July,
It is understandable that when Mr. Butler was reviewing the economic stability of the country at the recent quarterly meeting of the National Pro- duction Advisory Council he should end on an optimistic note. " Why should we not aim," lie asked, " to double our standard of living in the next. twenty years and still have our money as valuable then as now ? " The objective is fine but it is too far Sighted to be of practical use. The question is whether our luck can hold for the next twenty months. Let us see to what extent chance has entered into the attainment of our present prosperity.
There is no evidence that we over-
- exerted ourselves last year—indeed, the Queen's Coronation gave us an extra , week's holiday—but production
overed quickly from the 1952 reces- On and ended 6 per cent. up. For the st quarter of 1954 it was running per cent, ahead of the corresponding quarter of 1953 and the last two months it has maintained that lead, although
• e advance now seems to be losing its momentum. We were able to increase the volume of imports last year by nearly tO per cent. without upsetting the balance of payments because Import prices were falling steadily. (The index of import prices averaged 114 against 129 for 1952.) This was the first stroke of good fortune. We were able to feed better—food consump- tIon was 41 per cent. up—without getting into debt abroad although our exports were slightly down. But we cannot rely on this luck holding. The fall in the index of import prices seems to be.stopping--wholesale prices of basic materials rose ?bout 2-1 per cent. between February and April—and if there 1, to be a further fall in wheat prices it will be partly offset °Y the rise in the prices of tea, coffee, cocoa and other food- ,:;tuffs From now on it seems likely that larger imports will
accompanied by a bigger import bill. That at any rate is
r"le of view. Can we expand exports sufficiently to pay `Qr it ?
, I.2xports at the moment are boomingbcing 7 per cent. up °0 far on 1953. For the first four months of this year the returns---in Mr. Butler's words—are " not quite as high as ,1 the boom quarter at the beginning of 1952 but much better itlanced." Exports to North America are down about 10 per ent, but that is not as much as was feared and they have actually picked up in the last two months. The restoration of import cuts has enabled Australasian and European demand to rise and offset the fall in American demand. But the current export returns represent orders placed many months ago. If our exports in the last three years are put in relation to the trend of world exports it will be found that Britain's share of international trade has fallen while that of Western Germany has been increasing rapidly. Moreover, the fact that the terms of trade in the past twelve months have moved in favour of the exporters of manufactured goods, and against the countries importing them, is not a bull ' point, for it tends to he followed by a reduced volume of trade in manufactures over the next twelve months. However, the current rise in the prices of basic materials will improve the purchasing power of our customers abroad and help to keep our exports steady. Another stroke of good fortune which has come to our • rescue has been the off-shore ' pur- chases for European defence made by the American Government. These have solved for the time the problem of our dollar shortage. To quote the recent report of the OEEC economists' committee : The supply of dollars to Europe has been maintained by massive extraordinary expenditures overseas by the US Government." Last year these defence expenditures amounted to $2.6 billions and are expected to be at the annual rate of $4.2 billions in the first half of 1'954. We may thank our lucky stars, but we must not count on Ameri- can defence policy giving us this blessing indefinitely. It might be radically changed if EDC is not ratified. The long-term dollar problem still lurks in the background and will continue to do so as long as the American tariff system remains un- altered.
We must not therefore become too pleased about the surplus we are now - enjoying on our international account. Last year this surplus amounted to £225 millions after bringing in £102 millions of dollar defence aid and after benefiting to the extent of £285 millions from the improvement in the terms of trade. The surplus fortunately has been improved so far this year by the rise in exports, which in the first quarter reduced the visible trade gap to about £4Q millions a month against an average of £54.8 millions a month in 1953. Invisible ' earnings are also probably higher. But the growth in the gold and dollar reserves is a slow one.
Whatever degree of luck is inherent in the surplus we have now secured on our international account, there is no reason why we should not take full advantage of this period of relative stability, this freedom from balance of payment crises, to go ahead with our long-term plans for the modernisation of our industrial equipment. The present year presents a great opportunity for economic expansion. An increase in demand is waiting to match the increase in production. Personal con- sumption is rising, Government expenditures are still tending upwards, industrial investment -should respond to the Budget fillip of the investment allowances, house construction is unlikely to fall, house repairs will increase, our exports, in spite of the American recession, are moving upwards; in short, there are grounds for optimism in the business world. of the planned and controlled society has been almost corn- eted. The commodity exchanges of the City have been e-opened and even a gold bullion market has been restored. When Labour left office in 1951 Government buying was responsible for about half our imports—about three-quarters (4 our food and a quarter of our raw materials. By the end tit the year food rationing will have been abolished and the only foodstuffs imported by the Ministry of Food will be sugar and bacon, Since the middle of 1953 private traders have been .4 free to import grain in any quantity from any source. Of raw St,rnaterials jute is the only one still bought by Government *agency. All this is enough to gladden the hearts of the business community and speed the advance in national output and productivity. It is small wonder that industrial equity shares on the Stock Exchange have advanced by 32 per cent. on the average in the past twelve months._ The Capital Issues Committee may still be functioning but there is no ban on bonus issues, no frowning upon dividend increases. The equity share has been restored to its proper function in a capitalist economy—the risk-bearing capital that is entitled to its full reward in times of prosperity. The investment world has been quick to revalue it on a less sceptical, less political basis.
And yet—this might be the peak of our boom. A sweeping Communist success in -Asia might shatter capitalist confidence and prolong the American recession; American defence policy liMay change and Europe may find itself ;once again short of dollars; a collapse in wheat prices may halt the prosperity of Canada and reduce the buying power of Australia, Argentina and other. wheat-exporting countries. Coal production—our only non-expanding industry—may let the expanding steel industry down while engineering wage claims may price our Manufacturers out of the world markets. Our prosperity, I fear, is based on too slender margins. We are too dependent on the smiles of fortune.
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