The capitalist crisis

Nicholas Davenport

Capitalism in Britain is once again in a state of crisis, as we all know.

It is not necessarily approaching its end. Indeed, if it remains true to form it can yet emerge from this crisis in a sounder, if much changed, shape. The Marxist, of course, hopes that it never will. The Labour Party, pledged to the Marxist clause 4 of its constitu tion, must share the Marxist hope.

It is therefore charming to hear Mr Joel Barnett, chief secretary to the Treasury, denouncing the

recent prognostications of the

Economist about the coming slump. He has declared this to be

"dangerous nonsense," and has hinted that the Government is looking at reflationary plans, should they prove to be necessary.

The ordinarily cynical Chancellor has supported him. Speaking at the monthly meeting of the NEDC Mr Healey went out of his way to reassure industrialists about the economic prospect, predicting that the UK was in for a period of sustained growth with fewer fluctuations than in the past. What he had in mind was that the appreciating asset in North Sea oil would enable us to go on borrowing abroad if we had to pump more money into the economy. It seems to me that when the oil starts to flow, its revenues will be diverted for many Years to help pay off the huge debts we are now accumulating at some risk overseas.

The CBI does not share Mr Healey's or Mr Barnett's optimism about 1974. Nor does the Department of Industry which now expects investment in manufacturing to rise by only 5 per cent this year instead of the 15 per cent Which was forecast before the energy crisis. Its latest survey of investment intentions revealed that since the last survey 48 per cent of the firms canvassed have reduced their investment Programmes and only 25 per cent have stepped them up. This apparently is one of the most abrupt changes in investment planning ever recorded by the survey. It is Obvious that Mr Healey's interim budget, laying greater burdens on industry and reducing its liquidity, was a shock to industrial confidence. The CBI now fears. a downturn in the economy in 1975. What Mr Healey and Mr Barnett Will have to admit is that the investment intentions of business

men depend not only on the estimates of future demand but on the confidence they feel in the political weather. If they think that the government of the day is likely to over-tax them or strike at their liquidity or interfere in their planning, as Mr Tony Wedgwood

Benn intends to do, then they will not be inclined to step up their investment in spite of the tax allowances, grants and other subsidies offered by the Government.

In the greatest crisis capitalism ever had to face, which was in the 'thirties, investment only revived when Roosevelt restored demand by the use of Keynesian principles of deficit spending. This gave the businessmen confidence that he intended to make a reformed capitalism work and produce profits. In the nineteen-seventies Edward Heath, railing at the ,businessmen for not investing, had to pump £3,000 million into the economy by the relief of taxation and then, according to Mr Benn's statistics, hand out another £3,000 million by way of industrial subsidies, before he induced the business world to increase investment. As soon as they had done so, pushing the growth rate of the economy up to more than 5 per cent, he stup:dly allowed a confrontation with the striking miners to develop to the crisis stage, which caused him to order the three-day working week. So confidence was lost again in the business world and, as soon as the stocking-up period is over, heaven .knows whether we shall see many more factories built and

much new plant installed. Business confidence in this minority Labour Government is plainly non-existent.

I must confess that Mr Jim Slater did not help to restore business confidence by declaring at his annual general meeting that "cash was the optimum investment" for his company. He has been busy turning his industrial investments into cash. CrittallHope, Norcros, etc, etc — they have all gone and the industrial investments acquired abroad have also been liquidated. It may be right for an investment-banking house to accumulate all the cash it can, seeing that it is holding loans to property companies which are frozen by the collapse in the property market, but the impression Mr Slater has given is that he believes a slump is round the

corner and that industrial investment is too hazardous to contemplate. He is playing himself into the hands of Mr Wedgwood Benn who has already called attention to Mr Slater's mania for cash. This, he says, justifies his plan to interfere in the business world and make the top companies consent to joilit planning agreements for investment under the new Industry Bill which he is now drafting.

Mr Slater is not an industrialist and no industrialist should pay much attention to the hunches of a financial wizard. But he should pay attention to what the Economist says about the approach of a major world trade recession. The economic argument is that the quadrupling of oil prices by the Arab producers reduces real demand which can only be offset by reducing indirect taxation to reflate demand. But no country has done this. Most of the industrial countries seem to think, like Mr Denis Healey, that they can keep up incomes and output by an export-led growth. But one country's export-led growth is 'another country's import-led deficit leading to import restriction and trade recession. The payments deficits, it is said, can be financed without trouble by recycling the Arabs' money surpluses but these money surpluses tend not to go to finance reflation in the poor developing countries but to get stuck in deposits in the rich countries — witness the boom in our gilt-edged market and the swelling of the Euro-dollar market. It is a disturbing fact that there has been no general agreement on recycling the Arab surplusesto avoid a recession in world trade. The 1973

boom having blown itself out, leaving a lot of financial trouble for property companies and fringe banks, there is now the prospect, according to the Economist, of the rich countries digging the foundations for a major world slump if they don't quickly take the right steps to avoid it. It is an argument that must be taken seriously, even in booming Germany.

Added to this fear is that when the trade unions discover that things are not going too well and that they can expect no rise in their real incomes there will be more strikes and hold-ups. This could happen in France as well as in Britain.

The Stock Exchange has made investors aware of this crisis in capitalism by bringing the FT 'thirty' index of industrial shares down by nearly 50 per cent. The fact that the market has recently picked up about 8 per cent from the bottom (264 on April 1) suggests that many investors are inclined to think that the worst has been seen. But I think their optimism is premature. They must . not be misled by company profits being inflated by the rise in stock values or by a rise in exports which may not be sustained. The capitalist world is still in turmoil. The Arab hurt to European and ; Japanese economic growth is not yet overcome. Italy is in dire trouble. The floating exchanges have brought huge losses to many ! banks already shaken by the )' collapse in property values. No y wonder the Slater barometer has fallen to grande tempete — sauve qui peut.