Asking for a Slump
By NICHOLAS DAVENPORT
WHAT a mess our economic policy has become! It is pathetic to think that Mr. Selwyn Lloyd can go blithely down to Liver- pool and tell their Society of Chartered Accountants a whop- ping lie without being remotely aware of it. The alternative to the present credit restriction measures, he said, was massive machinery for government regu- lation, licensing and rationing. No doubt he believed it, but his advisers at the Treasury should have warned him that it was simply untrue. All the new controls he needs are two—a building licensing system and a capital issues control for overseas investment. That is all. The general pub- lic would not even know that they existed, if they were restored, and our individual freedom would not be impaired in the slightest. Probably the only people who would feel the pinch are the property tycoons, who would have to get a licence before they built the next office block or luxury flat or erected skyscrapers in New York. The rest Of our economic direction could be done by fiscal measures and existing Treasury monetary con- trols.
To explain in more detail. There were only two industries which had caused dangerous pres- sures on the labour market, which made it pos- sible for the present (delayed) round of hefty wage increases to proceed without much struggle. These were the motor and building industries. The motor pressure could have been dealt with easily and effectively in the last Budget—by rais- ing the purchase tax on motor-cars by 50 per cent. for a year. Most private people would have immediately deferred their orders for twelve. months: only commercial and other urgent demands would have remained. The labour pres- sure would have been immediately eased. The home manufacturers would not have objected because foreign imports would have been equally affected. As it was, Mr. Lloyd allowed foreign cars to pour into the country to the great detri- ment of our balance of payments and the British manufacturer.
As for building, the Government allowed private building to go merrily ahead, even if it involved luxury flats and houses and office blocks, and shamefully fell back on the cutting-down of local authority housing and the new towns. This was the most scandalous part of their 'free economy' policy for it meant that no attempt was made to control building costs or to prevent poor people being pushed down the housing queues. The shortage of building materials, bricks in particular, and the shortage of labour cried out for some control, for some system of licens- ing. A reasonable building control has worked well before and could have been applied today without creating an elaborate Whitehall machine.
The height of this freedom folly was seen when the property millionaires—the Cottons and the Clores—were allowed to participate in skyscraper building projects in New York, involving millions of dollars, when the whole nation was being sub- jected to monetary restraint for the sake of the
£ and the balance of payments! If we are over- investing abroad, that is, incurring more commit- ments overseas than we can finance out of our current surplus, then we should subject overseas investment to the scrutiny of the Capital Issues Committee.—a control mechanism still in existence.
The burden of my constant criticism of govern- ment economic policy has been that in order to deal with a few specific pressures, which could be eased by a few specific controls, the Treasury prefers to rely on general monetary restraints which slow down the whole economy, reduce the national output (and ultimately investment), put up the costs of manufacture and harm the export trades. It is a stupid policy derived from illusions about economic freedom and the working of monetary measures. It is a lunatic policy because it sets out to deflate the whole economy in order to deflate a few over-extended industries. It is an immoral policy because in order to restrain the aggressive property developer and the expansive motor manufacturer it has to cut down useful public investment (even the railways) and hit the down-and-outs like the poor municipalities struggling to build council houses, extend local amenities and improve public health on very dear money.
In defence of their policy the Treasury pundits will no doubt reply that sacrifices have to be made all round in order to defend the £. Here lies another folly. As we all know, to defend the £ at a time when the surplus on the balance of payments is running down to below safety level—which I put at £100 million, half the amount that private enterprise is still investing overseas—the Treasury is now deflating the whole economy through dear money and credit restric- tions, hoping to reduce imports and not to hurt exports, hoping to attract 'hot' foreign money until it is safe to reduce interest rates. Does it not realise that too sharp a general deflation can cause a real depression, that the slump in motor-
cars and other consumer durables can spread quickly through the ancillary trades to the whole economy and that a domestic depression in the UK can coincide with a depression in the US and a decline in world trade? It will then find that exports can fall more steeply than imports, that our balance of payments can run off to a deficit, and that 'hot' money can fly out as quickly as it came in. How does it propose to deal with that dread eventuality—an external deficit and a weak £ combined with a domestic depression? By devaluing the £ it was trying to save?
All this folly springs from the current delusion about 'hard' money—that you can save the £ by making traders bankrupt, that you can prevent a wage-price inflation by throwing workers whole- sale out of employment. The truth is that the strength of the £ depends on the health of British industry; on the competitiveness of our traders in the world markets. The avoidance of wage- cost inflation depends not on monetary measures but on an understanding between Government, management and trade unions aimed at tying wage increases to increases in production and productivity. This involves joint planning in which labour must have an equal voice with capital. When the recent conference organised by the FBI concluded, rightly enough, that industry and the Government must get together—go assess the needs and plan the objectives of economic growth over the next five years'—did they realise that this is utterly futile without the co-operation of labour? My advice at this late hour, when a real trade recession is creeping over the Atlantic, is to call in organised capital and labour quickly to help clear up the mess which the Government has made of our economic policy. The situation is too threatening to be left to the monetary `experts' alone.
Previous page
