13 APRIL 1985, Page 23

Letters

Fitting in with oil

Sir: Jock Bruce-Gardyne (The economy, 30 March) asks how North Sea oil would have 'fitted in' had we not had increased import penetration etc. His noble friend Lord Kaldor dealt with this in a recent speech: unless North Sea oil 'is combined with an expansionary policy — if I may use the dreaded word, unless it is com- bined with reflation — the new wealth from oil does not enrich the nation because it destroys existing sources of wealth to the same extent.'

The over-valued exchange rate helped to reduce our current account petro-surplus by destroying a sixth of manufacturing industry, and because this provided many more jobs than North Sea oil production, we had a 11/2 million net increase in unemployment. The cumulative current account surplus of £17 billion from 1980 and the corresponding deficit of our trad- ing partners who have to import our oil is a measure of our net contribution to the world recession — and their unemploy- ment. This 'remainder' of the gain from oil has been invested overseas, providing an inflow of income which will be quite inadequate to offset the enormous and growing trade deficit in manufactures, co- vered for the moment by North Sea oil.

The point is that North Sea oil could have enabled Britain to expand, invest in and modernise her economy without re- ducing consumption, i.e. imports would increase to balance oil exports but not at the expense of British producers. The investment required in Britain to employ all the latest technologies so that we can stay competitive will now require large cuts in living standards. But the real dilemma is that unemployment will increase even if we do all this, as machines replace labour in both manufacturing and services.

Since this is the prospect under Mrs Thatcher, the Mule's view that the alterna- tive of reflation and demand expansion simply leads to inflation should be less lightly accepted. For if demand expansion is ruled out, any long-term increase in `competiveness' will simply create jobs at home by destroying them overseas (our exports are other countries' imports); and since this is true for all countries and nearly all of the Western developed countries now have mass unemployment, a solution must involve reflation either collectively or by countries individually — who must then restrict the growth of their imports, or in America's case, simply ignore their trade deficit.

Alistair Miller

31 Stanmore Street, Burley, Leeds