ECONOMICS AND THE CITY
Wanted : real social contracts
Nicholas Davenport
One of the most ridiculous ideas of this rainy, washed-up silly season is that the City is generating gloom and despondency by marking down the prices of equity shares on the Stock Exchange. The City does no such thing. It merely answers the telephone and the telephones ring from the four corners of the realm — from the industrial North, from the industrial Midlands and from the industrial South — and also from the financial centres overseas. The City merely executes the selling orders of those equity share owners who have lost all confidence in our industrial future. These selling orders presently outnumber the buying orders, so that share prices fall. The CBI have explained why and the CBI does not speak for the City. Its members see no future when the controls have been taken off wages and kept on prices, so that profits are at the mercy of ministers without any industrial experience, and when the top 100 companies are threatened with state take-overs or state interference in investment planning. The City is desperately hoping that these despondent investors will change their minds and place a few buying orders on the telephone. With the turnover on the Stock Exchange dropping by 50 per cent or more most stockbrokers are not covering their expenses.
It is true that occasionally a City voice is heard uttering gloomy cries. Not so long ago Mr Jim Slater was advising his shareholders to get into cash and saying that cash was the best investment in the world. But this advice was recognised as the ugly noise of finance capitalism. When that firm friend of the capitalist mixed economy, Mr Harold Lever, Chancellor of the Duchy of Lancaster, recently affirmed his belief in the growth of the economy and the profitability of the private sector the jobbers did not wait for the telephones to ring; they marked up prices in anticipation of a better market. But alas! more selling orders dame rolling in on the rise. The sellers were not convinced by Mr Lever. They were still afraid that under his Government, now apparently dominated by the Marxist Left of his party, the profitability of private enterprise would be eaten up by rising wage costs and price controls. Their fears have now been deepened by the fact that Mr Len Murray at the TUC Congress committed the Labour Party to the eight points of the Scanlonesque or Marxist version of the social contract. These eight points include "a large scale redistribution of income and wealth" and a "substantial increase in public ownership and public, enterprise coupled with public supervision of the investment policies of large private corporations."
To prevent a further slump on the Stock Exchange if Labour wins the coming election — a slump which would bring industrial investment to a standstill, I suggest to Mr Wilson that he should consider entering into another social contract—a concordat between the Government and the City. The prime minister was careful to point out in his speech to the TUC Congress that the social contract was between "all our people ... at every level in industry who are prepared to put their backs into the task of restoring our lost production," He should then admit that the City has an important part to play in the 'regeneration' of British industry. Instead of taking swipes at the Stock Exchange he should recognise that it provides the capital market where the savings of the nation, collected by the life assurance companies, the pension funds, the savings banks, the unit trusts and the like, are channelled into the investments required by both public and private sectors, whether they are factories and plant or property developments and housing; 85 per cent of all households save through life assurance or pension contributions. The important point to realise, which socialists seem unable to do, it that the managers of the institutions which collect the savings would not be prepared to convert them into the securities of the capital spenders unless they were assured that they could convert them back into cash or switch one for another at any moment in the open capital market in Throgmorton Street. The Stock Ex change is therefore playing a vital part in making our mixed economy work.
Now it is admitted that from time to time when boom conditions obtain; that is, when favourable politics and economics are in. conjunction and the money supply is plentiful, speculators can abuse the Stock Exchange machinery, and make a killing. This happened during the Tory boom of 1971-72. I like to think that the prime minister
reads this column, for in his speech to the TUC Congress he referred to the argument I have repeatedly used — that by giving freedom to money-lenders in the Bank of England paper 'Competition and Credit Control' the Tory government allowed funds to be "funnelled into the maw of those concerned with property speculation, fringe banking and other manifestly unproductive operations." (Slag heaps excluded?) When Mr Wilson declares that these funds were "desperately needed for industrial modernisation" he should have added that the industrialists were not then asking for them, being desperately uncertain about the economic future. Let us, then, all agree that from time to time businessmen go on a mad rampage of speculation and make use of the capital market for their gambles. But don't blame the Stock Exchange. The way to stop it is to control the money supply and make sure that the money-lenders cannot facilitate the gamble.
Keynes once said that "speculators may do no harm as bubbles on a steady stream of enterprise. The position becomes serious when enterprise becomes the bubble on a whirlpool of Speculation." That is not the situation today. It is not likely ever to happen again if the 'prime minister were to take up the proposal I made recently — that the managers of the life and pension funds should discuss with the Bank of England the direction of the flow of the huge savings they collect — now about £2,500 million a year net — into the most desirable investment channels. I still hanker after a special Public Works Fund which could be re-cycled into the housing market. (Incidentally the suggestion I made last week that the OECD finance ministers and bankers should get together .to discuss the re-cycling and re-Investment of the Arab surplus fund seems to have anticipated the 'secret' world money talks in France last weekend.)
So the way is clear for Mr Wilson to announce another social contract between the Government and the City. All that remains would be a social contract between the Government and the CBI. This cannot be drawn up until the nonsense talked about "the supervision of the investment policies of large private corporations" and the "substantial increase in public ownership and public enterprise" is cleared away. The ICI is the test case. Their directors have recently explained to shareholders the vast extent of their remarkably successful world operations and investment. Does any sane man in this country outside the lunatic Marxist camp seriously believe that Mr Wedgwood Benn can improve their efficiency by introducing civil servants and workers into the board room of ICI?
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