The six and the market
Nicholas Davenport
IfI were Mr Healey I would still be very indignant at Mr Wilson's abrupt abdication. Here was the poor Chancellor recovering his poise after a vicious attack from the left O n his expenditure White Paper, working day and night on the most delicate budget of his Treasury reign, counting at least on strong support from his chief, only to find three weeks before his ordeal that his chief had ratted on him. It is rumoured that two members of the stunned cabinet, on hearing the Prime Minister's resignation, burst into tears. (Short and Mellish, if the gossip columns are right.) Not so Mr Healey. I Would have expected him to storm out of the room.
It is, of course, possible that the lines of the budget had already been agreed and drawn—namely, no general reflation, some income tax relief for the lower income groups by way of raised allowances, no general wealth tax, no general import levies, the slowing-down of public expenditure confirmed—in fact, all the economic points Which would satisfy citizens of common sense but would fail to satisfy those lacking it on the extreme left. The support of Mr Wilson would have been decisive in a new Political dust-up but that of a new prime minister might not. Naturally the City has been dismayed by it all. The bull market has been halted, dealings have dwindled to a mere trickle and the FT index has tumbled below 400 again.
Why did Mr Wilson resign now instead of waiting a few weeks to get the budget debate settled ? As he always thinks two or three jumps ahead of his colleagues it may be that he feels that the Labour coalition cannot be held together very much longer or that the long economic decline of Britain cannot now be halted by a Labour governtnent. The Economist and that young prophet of doom, Mr Peter Jay of the Times, have both produced the figures which point to the steady economic deterioration under Labour's regime. They compare the thirteen Years under the Tories-1951 to 1964—and the thirteen years to 1976, although these included the brief monetary reflation of the Heath-Barber partnership. In the thirteenYear period under the Tories retail prices rose 55 per cent; in the second under Labour they rose 192 per cent. In the first, Productive employment went up 44 per cent; in the second it went down 16 per cent. ln the first non-industrial employment, (i.e. civil service) declined by 24 per cent; in the second period under Labour it increased 38 per cent. Unemployment in the first Period rose 25 per cent; in the second no less than 200 per cent. In real terms post-tax living standards advanced 56 per cent under
the Tories and only 36 per cent in the Wilson epoch in spite of a rise of 80 per cent in public spending which raised the social wage. Economically the Wilson period was a retreat.
It is now generally admitted—certainly in the Oxford school of economics—that the root cause of the industrial sickness of Britain has been the fatty growth of its welfare state. This can be measured in the rise from just over 36 per cent to 60 per cent in the proportion of the gross national product taken by the public sector which does not make and sell goods for the world markets. One might have expected that a Labour government which deliberately set out to enlarge the public sector at the expense of the private manufacturing sector would have put controls on wages and imports to avoid an increasing deficit on the balance of payments but no such action was taken. Instead, after the Heath confrontation with the unions it deliberately allowed wages to run amok—far in advance of productivity —and so produced raging inflation and rising unemployment.
It was the belated recognition by the trade unions, under the beneficent lead of Mr Jack Jones, that printing money like confetti to pay higher wages than was justified by the rise in productivity was a mug's game, which got Mr Wilson off his economic hook. The vital importance of continuing the alliance between our real bosses, the trade unions, and the nominal government in Westminster, so that the £.6 a week wage restraint can be followed by a lesser rise in the next round, has no doubt been swinging support towards Mr Michael Foot, the unions' favourite minister, in the coming election for a new Labour Party leader. His victory would cause a further slump in the FT industrial share index, for the City regards Mr Foot as the Robespierre of the British revolution.
This, I think, would be a mistake. When I first began to write for the Spectator Mr Foot told me that he always read this column, although he rarely agreed with it. It showed at any rate that he was interested in finance and economics and that he is capable of realising that with a huge deficit on the balance of payments, a colossal
borrowing requirement and a weak and still vulnerable pound—now down to a depreciation of 33.9 per cent—there is a limit to insular Marxist socialism. Although he might agree with the. left proposals for the nationalisation of the clearing banks he has enough intelligence to see that while we do not pay our way abroad such ideas have to be pigeonholed. In fact, he might even agree with my contention that it is impossible for a Labour government which is so heavily in the red to finance any further nationalisation.
There is no doubt that if Mr Callaghan were elected the FT index of industrial shares would recover at least 10 points. He is regarded in the City as a safe man, a stabilising force. There is also no doubt that if Mr Jenkins or Mr Crosland were elected there would be a rise of 20 points in the FT index, for both these intellectuals are aware that any further nationalisation is financially impossible, indeed, they have stated that their brand of socialism or social democracy does 'tot envisage any further enlargement of the public sector. Both could be relied upon to eliminate in due course the borrowing requirement and the deficit on the balance of payments. When Mr Jenkins was at the Treasury he was determined to balance the budget and did so in a couple of years. I am sure that he would stand firmly on the orthodox principle of economics—that we will never eliminate inflation until we have balanced the budget.
I have been looking at past bull and bear markets under a Labour regime. When Mr Wilson entered office in 1964 he brought to an end the second of the great Tory bull markets, but after a decline of eight months the market picked up for nearly a year in anticipation of a devaluation of sterling which he had been stubbornly postponing. After a correction of five months the market turned sharply upwards when the pound was finally devalued in November 1966. Then followed a bull market lasting two years and two months. The FT index scored a rise of 83 per cent. Nothing like that is ever likely to happen again under a Labour government which is still committed to Clause 4 Marxist socialism.
Mr Heath's bull market pushed the index from 305 to 543, but the return of Labour and the Marxist threat to the private enterprise system knocked the index down to 146. It is remarkable that with Mr Healey's budgetary help the index recovered so sharply, but we must remember that at the end of 1974 we never had a market so oversold and so demoralised. My conclusion is that even with Mr Foot as prime minister there is no reason for the market to become so demoralised again. Thanks to Mr Jack Jones Labour is learning its economic lesson —that runaway wages do lead to runaway inflation, that Marxist socialism does depress the pound sterling in the international market and that the profitability of our private manufacturing industry has got to be restored.
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