ECONOMICS AND THE CITY
Mr Wilson and the economy
Nicholas Davenport
If the Government is to spend £2 million on advertising its anti-inflation programme it is going to be wasted if Mr Len Murray of the TUC rejects the first sentence: "The £6 is intended as a maximum and not an automatic rise for everyone. Some firms may not be able to afford the full £6." It is my humble view that the £2 million expense can only be justified if the advertising were to teach the public some good sound elementary economics. We did not, of course, get the whole economic truth from the Prime Minister's grim broadcast. It was received on the Stock Exchange — and probably in most homes — with apathy.
What is the economic truth about the crisis? Mr Wilson made three points. First, the world recession — "the most virulent since the 'thirties". The loss of jobs, he said, until recently was smaller in Britain than in other countries but now it is getting worse each month. Second, the failure to invest — governments and industry must share the resPonsibility. Third, inflation is now definitely causing unemployment. This year, he added, it is our Internal prices and costs, including Pay, which have aggravated inflation and hit industry as well as the housewife.
As regards the world depression, I have long held the view that the cause of trade cycles is psychological. It derives from the alternations of business greed and fear brought about mainly by changes in government monetary policies. The present recession broke upon the business world after a phenomenal rise in raw material prices ending With the quintupling of oil prices by the OPEC cartel. This brought price inflation to a critical point. But there were strongly diverging trends in the industrial countries. YThy has price inflation been worse In Britain than in the others? Why has the rate of inflation slowed already in most industrial countries but not in Britain? The Prime Minister did not ask or answer these questions.
• Between the last quarter of 1974
and the first quarter of 1975 inflation:.
slowed down in Europe to an annual rate of 9 per cent — in the
United States to 7 per cent — but in Britain it rose to over 20 per cent. Measured between June 1974 and June 1975 our retail prices have now risen by 26.1 per cent. As it cannot be said that we suffered more than other countries from the rise in the prices of raw materials and oil it is obvious that we have allowed wages to rise far too fast and government expenditure far too much. The first was by force majeure, the second was folie de grandeur socialiste. So the peculiar British inflation is due to wage push from the strong trade unions and demand-pull from the Spendthrift Labour Government.
None of this economic truth was disclosed in the Prime Minister's broadcast. Nor did he explain how it came about that we could indulge in this extravagant way of life in spite of the fact that we were in debt to foreign countries on our trading account in 1974 to the extent of £3,800 million. (Now reduced by half thanks to the recession.) The explanation lies, of course, in our huge borrowings abroad, which most of us will agree, cannot be sustained much longer. These borrowings steadied the fall in sterling (which has now depreciated 271/2 per cent against the world's major currencies to $2.10 against the dollar) and must be in part responsible for the fact that we have not suffered so far so much unemployment as other industrial countries.
It has always been assumed that floating currencies would help countries to face up to and correct their imbalances on world trading account. But as Dr Emminger, the deputy governor of the German Bundesbank, explained in a paper delivered to an IMF committee, "floating alone cannot do the job unless a deficit country accepts the adjustment effect of a depreciation in its currency in real terms, that is, a relative lowering of its standard of living as compared with other countries. If this primary effect of depreciation is immediately compensated by increases in nominal wages (as happened in Britain) the country concerned will end up in a vicious inflationary spiral". Mr Wilson and his Cabinet woke up at
long last to this danger but he is still hiding it from the people.
Corning to Mr Wilson's second point, it was generous of him to make the Government share responsibility with industry for the "failure of investment" but he omitted to mention that the trade unions subscribe to the Labour Party's constitutional Clause 4 which proclaims their objective — the socialisation of all the means of production, distribution and exchange. This means that the unionised workforce of Britain, unlike the workforce of America, is not interested in making investment productive, is not even constitutionally allowed to enter into productivity agreements. By continually eating into profits it has cut the company surpluses which have financed investment. This is the basic cause of the "English sickness" and it will never be cured until first, the Labour Party's constitution is changed and Clause 4 abolished — as Hugh Gaitskell intended it to be — and, secondly, the work force is given a share in the trading and capital profits of economic growth. This can be done tomorrow by setting up a public unit trust and giving the workers a modicum of units in it, to which they can add by purchase out of their savings. Throw in worker participation on boards by all means if it can be arranged without making chaos of the management.
The final point which the Prime Minister failed even to mention in his broadcast is that inflation is probably endemic in the British welfare state. The endless increase in government expenditure for schools, hospitals, roads and social services has now been given an extra push by the extension of the public sector to comply with the new Marxist socialism of the Labour Party's manifesto. The idea that new offices and staff must be provided for Lord Kearton's British National Oil Corporation and for Lord Ryder's National Enterprise Board, not to mention the colossal salaries appropriate to these ex-tycoons, is preposterous in this inflationary age. The Prime Minister should have announced in his broadcast that until the rate of inflation had been brought clown to his target of 10 per cent by next autumn the 'government is stopping any further increase in the public sector. Mr Wilson has uttered many jibes about the "candy floss" economy created by business men during speculative booms but there is also danger of a new type of candy floss economy emerging froni the monstrous regiment of ink-spilling clerks staffing unnecessary new public offices.
The Stock Exchange may have listened to Mr Wilson's broadcast with boredom, knowing that capitalism is not dead and that the efficient managements will survive whatever he does, but it should be grateful if the Prime Minister can persuade the trade unions that excessive wage increases are now responsible for the increase in unemployment and must be curbed. Next year, he -said, must be a year for Britain. Did he mean that thereafter the strong-arm unions can revert to their selfish policy of grabbing what they can at the expense of the rest of us?
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