FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT IT looks as if industrial production in this country in 1954 will be about 6 per cent. higher than in 1953. In the first half of the year it was over 7 per cent. higher but com- parison with 1953 is vitiated by the Corona- tion holiday spree. The buoyancy of pro- duction in some industries this year is ex- plained by the coincidence of increasing demand and more plentiful supply of raw materials. Coal is the one disappointing exception but if a coal shortage looms up we can raise imports of foreign coal without running into a balance of payments crisis. In the first half of the year it is estimated that we had a surplus on our international account of £146 millions—if we include net defence aid of £26 millions. It would not be surprising if we finished the year with a surplus of over £300 millions. The terms of trade have moved slightly against us but they are still favourable. Indeed, it would probably be to our advantage if the terms of trade moved more in favour of our cus- tomers overseas. At the moment exports to the Dominions have risen sharply—especi- ally in motor cars and textiles which had previously suffered from the import cuts of 1952—and these have offset the sharp decline in our exports to the United States and Canada, which in July and August were 20 per cent. below those of the corresponding period of 1953. In the first eight months of the year total exports were about 61 per cent. up while our import bill was virtually unchanged. Thus, our visible adverse balance in this period was £110 million less than in the first eight months of 1953. It is encouraging to see that the rise in personal consumption is not having any ill effects upon our import bill. We do not appear to be consuming more than we are entitled to by virtue of our higher output. Personal' savings have advanc6c1 sharply.
More Industrial Investment Expected The only depressing feature of the national trading account which the official figures reveal is the low level of industrial investment. I do not know whether the latest blue book reached Brighton in time last week to influence the TUC discussions but it was available to support the General Council's contention that industrial invest- ment must be speeded up. If the deprecia- tion figures are taken away from the esti- mates of gross fixed capital formation, and if the results are revalued at 1948 prices, it will be found that the net capital additions made by companies in the past four years have actually been declining—from £350 millions in 1950 to £233 millions in 1953. The increase in the total national investment in this period went into houses and the nationalised industries. The latest blue book does not, however, support the more con- troversial argument of the General Council that company dividends and bonuses must be restricted in order to foster investment. 4 will be found that of total company in- come in 1953 (before depreciation) less than a third went in dividends and interest, nearly a third in taxation and more than a third was saved. Equity dividends took 20.8 per cent. of the total against 19 per cent. in 1950 and if this share were restricted by law the whole system of risk capital finance would break down. But the TUC should not despair. There is a spate of new capital issuesson the Stock Exchange.
Equity Values The rise in Stock Exchange valuations of equity shares has been in keeping with the improvement in the national economy revealed by the dull statistics of the blue books. I notice that the authors of the London And Cambridge Economic Bulletin (September supplement to The Times Review of Industry) describe it 'as a belated adjust- ment towards a post-war "normal".' They point out that share prices are still less than double the level recorded in 1938 which was a relatively depressed year. Of course, the rise cannot go on for ever but, as my col- league pointed out the other week, if the interim dividends in respect of the 1954 profits, which are running ahead in many cases of 1953, exceed market expectations, then another advance in share prices can hardly be resisted. But British and European prosperity depend more than ever upon the continuance of American military expend': tures abroad which, with other dollar 'aid, still amounts to some $4,000 millions a year. 'Such receipts,' add these dry economists! 'provide a precarious basis for future plans.
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