MONEY AND THE CITY

Wilson, Heath and the Stock Exchange

Nicholas Davenport

The Stock Exchange did well last week to ignore for the most part the goings-on at Blackpool, seeing that Mr Heath will now hold on to office for his full term. After all, it had heard it all before. Take this from the statement issued by the National Executive of the Labour party to the Blackpool conference of 1968: " The traditional socialist critique of private enterprise is based upon our opposition to the concentration of ownership and control of the means of 'production, distribution and exchange' in a few powerful hands. For nearly a century the British labour movement has therefore called both for public ownership of large scale industry and in the widest sense for the control of these industries to be vested in a more democratic fashion upon a wider social base. No one will deny that great strides have been made in securing the transfer of the ownership _ of basic industries into public hands. In the post-war years we took over the mines, the railways, airlines, electricity and gas and since 1964 steel has been returned to public' ownership and a substantial sector of public road haulage re-created. But progress in devising new forms of popular control has been scant. Yet the growing complexity of today's technological society makes the case for industrial democracy stronger and more urgent than ever before."

In the light of this five-year-old statement of Labour policy I cannot see that the Labour Party has made such a violent lurch to the left. Under the clever direction of its leader — Harold Wilson was certainly at the top of his form at Blackpool — the party is now committed to a limited take-over, namely, the ports, shipbuilding, parts of the pharmaceutical, machine tool, construction and road haulage industries, building land for development, gas, oil and minerals off our shores, and, as a matter of spite, whatever Mr Heath has sold back to private industry. It seems to be a normal extension of their old traditional policies.

Of course, the Stock Exchange would dive into a slump if the Labour Party were returned at the next election. I see that Woodside-Burmah Oil fell by 20 per cent in the Sydney market when the new Labour prime minister of Australia announced that he was going to take over the marketing of their new oil and gas fields. Similar or worse falls would overtake the market in the shares of the British companies earmarked for expropriation by Labour if Mr Wilson wins the electoral day. But it would not mean the end of capitalism or the Stock Exchange.

From the City point of view it was a pity that Mr Wilson used his dominance of the party conference to throw out the ridiculous programme for the immediate take-over of twenty-five or 100 of the top companies quoted on the Stock Exchange. As I pointed out in this column on March 30, the takeover of the top 100 companies then valued at £29,000 million, which was 57 per cent of the total value of all quoted equity shares, would involve the issue of government stock of a huge amount — actually 50 per cent more than the total amount of government stock presently quoted in the gilt-edged market. So the proposal would cause a big slump in the gilt-edged as well as in the equity share market. Indeed, in a new takeover frenzy government paper would have very little value in the stock market and the £ sterling very little value in the exchange market. Such a folly would give Mr Heath a victorious return at the polls. Even the stupidest voter would realise that nationalisation improvised on that scale would mean fewer goods in the shops and at much higher prices. The fate of Chile is still fresh in everyone's mind.

The Labour Party is, of course, committed by its constitution to the ultimate destruction of the capitalist system. Mr Wilson has merely seen to it that the next step towards that long-term aim is reasonable enough not to frighten every voter away from Labour. But it will frighten quite a lot who understand the real position. Mr Wedgwood Benn let the political cat out of the bag when he said that if they come to power in a crisis they will use it "for fundamental change," in other words, that they will not try to save the economic system but destroy it. This is precisely what the Marxist left wing is lying in wait to do. They have doubtless led Mr Benn to believe that they will bring about enough dislocation in industry through prolonged and senseless strikes to cause the capitalist crisis Mr Benn is waiting for, the crisis which will enable him, he hopes, to seize Mr Wilson's seat.

Incidentally. I disagree entirely with Mr Ronald Butt who claims that this conference put an end to Gaitskellism under which Mr Wilson's last government operated.

Gaitskell was a social democrat who put all his cards on the table. He was against Clause 4 and the much further extension of na tionalisation. Mr Wilson never put his cards on the table; he had most of them up his sleeve. No one ever knew how he was going to play them. He failed because he deflat ed the economy and threw people out of work in order to save the £ as the old Tories would have done.

And he failed in that. It was this financial Toryism which caused the Left wing to revolt, not Gaitskellism.

The Stock Exchange was right to disregard for the present the potential threat from the Left not only because Mr Heath will now soldier on to the end but because

there is a fair chance that he will succeed in pulling off his gamble — maintaining industrial growth without over-heating the economy or destroying sterling. I do not suppose that the trade unions will agree to his Phase 3 proposals, starting in November for twelve months, but his Phase 2 came off politically well with a price rise since April of only 2 per cent against a rise of 6.4 per cent in wage rates. Who would want to rebel against such a performance in the trade union world except the revolutionary Marxists?

Two events have recently occurred which could work in Mr Heath's favour. There has been a sharp drop in American interest rates which could mean that the monetary squeeze there is not go• ing to be carried any further. This could bring interest rates down generally and stop any further rise in our mortgage rates. It could also improve our exports to the

American market. The lasing of

American interest rates has already brought some recovery to our gilt-edged market which has had to stand the jolt of a new tap issue of £600 million Treasury 1976 stock with a coupon of 10 per cent at 98.

Secondly, there is the chance of world commodity prices coming down and the terms of trade moving in our favour instead of against. In August the rise in im port prices was 3; per cent. It cannot go on at that rate. Any sign of the rise in our import bill slowing down will redound to Mr Heath's credibility. Thirdly any chance there was of getting an agreement on world monetary reform was abandoned at the Nairobi meeting of the IMF. This means that the world will concentrate on improving the technique of floating exchanges. The floating £ will be nursed by everybody. Last month we were in the red to the extent of $963 million and to meet this deficit we borrowed $329 million abroad and drew $134 million from the reserves which now stand at $6,382 million. We are not bust and happily the world seems readier to lend money to Mr Heath than it did to Mr Wilson.