The Lloydian Image
By NICHOLAS DAVENPORT IN the course of the Com- mittee debates on the Finance Bill, Mr. Lloyd will no doubt be presented by his colleagues as the most successful Chan- cellor of recent times—the man who slowed down the annual rise in wage rates, who caused an incomes t■a•c, policy to be seriously tried, who set up the first rudimen- tary planning body (NEDC), who broke the ex- change crisis, solved the balance of payments Problem and prepared the way for the coming boom in exports (and the general election next year). Far be it from me to deface a beautiful Public image—we are so short of them—but I venture to suggest that there is a danger of this Picture being overdrawn.
The great achievement of Mr. Lloyd's Chan- cellorship was the rescue of the l—threatened with devaluation in 1961—and the wiping out °f the deficit on our international trading ac- count. It was done by putting hard money before growth—in other words, by committing the eco- nomy to a period of stagnation. The excessively high Bank rate of 7 per cent. discouraged busi- ness people, not only from stocking up—to the relief of the import bill—but also from investing ;fl new factories and extension to plant. At the same time, higher indirect taxes restrained con- silniption and the severe credit squeeze curtailed business activity. Apparently Mr. Lloyd accepted the questionable thesis of Professor Paish, which is that the only way to steady growth is to keep a certain margin of unused industrial capacity— which he alone seems capable of measuring. (In his latest book, Studies in an Inflationary Eco- lion)Y, he puts this unmeasurable margin at between 5 and 7 per cent.—equal to between 2 and 21 per cent, unemployment.) If it is true that Professor Paish has had as great an in- fluence on Mr. Lloyd as Professor Robbins had oa Mr. Thorneycroft (who also put hard money before growth and had Bank rate cocked up to 7 Per cent.), it. is very deplorable, for the spare- capacity theory is old-fashioned and outmoded, unlikely to cure the ills of the modern industrial State (which are mainly psychological) and almost certain to perpetuate industrial strife and the dangerous division in the nation, But I ant not arguing the merits of this theory here; I am merely stating that Mr. Lloyd restored the £ to international favour by stopping national growth. That was probably the price demanded by the IMF last July when he had to borrow from them £536 million.
Certainly Mr. Lloyd can claim that .his great financial operation worked according to plan. he excessively high interest rates attracted so much foreign money that our gold reserves since last July 'have risen by £350 million to £1,240 million, enabling us to pay back £250 million to the IMF. The current trading account, which Was in deficit by £288 million in 1960, improved by £218 million in 1961, leaving a deficit of only £70 million. This year Mr. Lloyd expects to see a f9mparable improvement—in other words, a surplus of nearly £150 million. He even fore- casts a small surplus on capital account. That comes about largely because of the big increase in foreign portfolio investment in the UK. But is this not part and parcel of the influx of 'hot' money attracted by our excessively high interest rates? Is not the surplus on current trading account as much due to the decline in imports (so far) as to the advance in exports? The Chan- cellor and his colleagues keep talking of the coming boom in exports which is going to right the balance this year, but, apart from the steady increase in exports to the European Common Market, it is difficult to see where the boom is coming from.' According to the National Insti- tute of Economic Research, exports to the US arc probably near their peak for the time being. The important question is—has Mr. Lloyd really improved the competitiveness of British manu- factures?
Certainly Mr. Lloyd's policy slowed down the rise in wage rates. In the first quarter the average increase in wages rates in the major settlements was 3.9 per cent. against 5.1 per cent. a year earlier and the average number of months elapsing since the previous increase was fifteen against thirteen. Certainly wages in Germany and France have recently been rising at a faster rate than ours. Yet Mr. Lloyd has not stopped our creeping wage-cost inflation. Prices of British manufactures went up another per cent. in the first quarter. Costs per unit of out- put have continued to rise because output and productivity have fallen. According to the latest bulletin of the National Institute output per man fell by nearly 3 per cent. , between the second quarter of 1961 and the first quarter of 1962, labour costs rose by 51 per cent. and total costs by about 4 per cent. An upward pres- sure on prices is still being exerted, in spite of the Chancellor's wage pause. In other words, the competitiveness of British exports has only been relatively improved for the time being.
And the incomes policy which Mr. Lloyd is trying to impress on the trade union movement has not yet been accepted. His colleague, Mr. Henry Brooke, confessed in a recent speech to the Nottingham Chamber of Commerce that it is no use dreaming that an incomes policy will be accepted for wages and salaries if it is not applied with equal fairness to profits.' But no means have been devised for applying it to profits. If it could be applied to profits it would probably have such a depressing effect upon business enterprise that plans for extended in- vestment would be cancelled wholesale. Stag- nation would be permanent. Under the capitalist system you cannot have growth without profit- ability and growth in profits.
So what does Mr. Lloyd's success at the Treasury really amount to? In carrying out the traditional policy so aptly described as 'Stop- Go,' Mr. Lloyd has been more successful than any other Chancellor in getting the economy to 'stop.' He has yet to prove that he can get it to `go'—and keep going.
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