MONEY FOR THE EMPIRE
By H. V. HODSON
CORRESPONDENTS of The Times have recently drawn attention to the vivid contrast between the fate of Britain's investments in the Empire and her investments in foreign countries. On the one hand, stability and a steady income ; on the other, almost universal depreciation or loss. The warning that in future we should " cultivate our garden " instead of investing in mushroom-beds abroad was almost too obvious to be uttered.
The moment was opportune for such a comment. A suc- cessful South African loan had been followed by a relatively unsuccessful Australian one, of which a large portion was left with the underwriters ; and the New Zealand Minister of Finance, Mr. Walter Nash, was in London to negotiate the conversion of LI7 million of debt which falls due later in the year. David Low, the famous cartoonist, drew a harassed Sit John Simon as an infant's nurse, feeding Turkey, Rumania and Poland from well-filled bottles, while Mother Montagu Norman fobbed off the New Zealand baby with a homily on slimming.
Yet the contrast is too sharp to be sound, and needs to be moderated before it can serve as a firm basis of policy. In the first place, much more British money has gone into private enterprise, financed by equity capital, in the Empire than into similar enterprise in foreign countries. Much of this capital—in mines, plantations, transport undertakings, and other commercial and industrial concerns—has been lost or has yielded a poor return over its whole life. This fact must qualify figures based on fixed-interest borrowings alone.
In the second place, as a further correspondent of The Times pointed out, the inability of foreign countries to pay their debts is partly our own fault. Protection and prefer- ence combined have made it extremely difficult for those countries to export enough to the United Kingdom both to pay for their essential imports and for the service of their debts. In order to give due weight to this argument, let us imagine what might have happened if, through some eccen- tricity of British policy, the Ottawa agreements had been reversed, and instead we had signed pacts with foreign countries giving them preferences over Empire countries in the United Kingdom market. What might then have happened to the vaunted record of those Empire countries, that with the exception of Newfoundland they have paid every penny of their public sterling debt, through thick and thin of economic life?
The fact is that international lending as a whole has received a shock from which it will probably never recover. Today the international loan-market is dominated by two factors: the shortage of money to lend, and the lack of political stability. In a year in which English people find it difficult to lay plans for their summer holidays because they fear that there may be world war before September is out, what an act of faith is needed to lend any money abroad, except merely in search of refuge from Europe!
But even if political nervousness could be overcome (and it will certainly fade in the later months of the year if that general war does not occur by October) there remains the other obstructive factor, the shortage of lendable money. This does not apply to the United States, which could lend on a very large scale if she were willing. But the sun does not rise in the West. In London, the demand for loan money is bound to exceed the supply as armaments come to be paid for. A capital shortage is on the way, so it is now- or-never for those Dominion Governments which want a cut at the capital cake. Mr. Nash did not arrive too soon.
His is not an enviable position. Earlier indiscretions by Mr. Savage and others had frightened the London market. But it is not deliberate default that the British investor now most fears in New Zealand. In the import restrictions he rightly sees reflected the fact that New Zealand has been living beyond her means. She has set herself a standard of consumption which she can keep up only by maintaining a correspondingly high level of production. And until the investor can see that balance in practice he is bound to say to himself : this thing will snap, and it will snap at the weakest point, which is the payments account with other countries ; the New Zealand Government may be religiously determined to pay its debts, but the money simply will not be in the bank in London.
Anti-socialist prejudice has nothing to do with this argu- ment. No one would deny that the big investors of London have a down on socialism ; but then, socialism also has a down on them. Sweden has a socialist Government, but her credit is high. Spain has an anti-socialist Government, but her credit is virtually zero in London. It is a matter, not of social theories, but of economic arithmetic.
New Zealand, there is little doubt, will get the conversion money she wants, at a price. Her re-funding transaction may well be the inaugural signal for a period of high interest rates all round. But this is not a constructive effort in the international use of capital ; it is only a patch on the exist- ing structure. Before we can proceed to a phase of creative activity, two conditions must be satisfied: the fear of general war must shrink into the background, and rearmament must slacken, to release lendable money for other purposes.
If we can imagine those two conditions fulfilled, where and how, in that blissful day, should the international flow of capital be directed? One general answer at least may be ventured. Capital should only go where trade can make it fructify and enable its service to be paid. To lend in terms of money when one is not prepared to take service of the debt in terms of goods is to ask for trouble. It is equally foolish to lend to countries or areas whose waterway of external trade is not deep enough at low-water to float the vessel of international debt. In other words, it is no use lending to economically nationalist countries. Nor it is any use lending at all if we are to pursue economic nationalism ourselves.
That applies to the Empire and foreign countries alike. On the whole, the Empire survives the test the more satis- factorily. But the effort to make everything at home will always defeat the hope of borrowing abroad (or, for the lender, of being paid his due), in the Empire as elsewhere. Perhaps the most likely area for international capital develop- ment, in a more stable future than we can foresee at this moment, is the British dependent empire, particularly Africa, the West Indies and the oceanic territories. If Great Britain and the Dominions, in so far as they are themselves colonial and mandatory Powers, are to justify their imperialism to the world, they must be active trustees economically as well as politically.
The class of capital that is most needed is " social capital ": investment in means of transport, development works, social services. This is the best form of capital because the asset it creates is a higher standard of life, and its service is paid from a larger human welfare. But here a difficulty arises. Social capital must needs be borrowed at fixed-interest. Economic factors, on the other hand, indicate a need for investment in equity form—shares, not bonds— so that when times are hard the debtor country need pay only a low dividend. A fresh form of colonial investment is needed to surmount this difficulty, a form in which, in effectA the imperial government takes the equity while undertaking to pay the fixed interest. It is not beyond the compass of man's brain to invent such a scheme, and so to irrigate the economic desert with welfare and enterprise.
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