RESCUING THE ECONOMY
The economic malaise this country has suffered since the war, usually summarised in the stop-go myth, supposes a contradiction between a healthy balance of payments and a thriving domestic economy : if, the argument goes, the domestic economy booms, balance of payments problems ensue; and to cure these there must be domestic deflation of an increasingly savage kind. True as far as it went, this old orthodoxy has obscured the real trouble — that, since the war, the economic and industrial character of this country, the expectations of its citizens, its foreign policy and defence responsibilities, its judgement about the most effective form of the relationship between private and public enterprise, and its international competitive Position, have all been out of synchronisation with one another. We have not been intelligent enough, or realistic enough, to take fundamental decisions about how to order our affairs. The Prolongation of that disorder to which our uncertainty has given rise has caused a decisive deterioration in the economic morale of the country : for the fear of loss which restricts investment, and the cynical disbelief in the value of work and money which causes Price inflation, are at bottom problems of morale.
The first point to make is that the Government has by no means abandoned the conventional economic wisdom of recent years in dealing with unemployment. Taxation has been cut by about £1,400 million a Year; national insurance benefits have been increased; an extra £160 million has been provided for development in the intermediate and development areas; housing improvement grants, especially in the regions, have shot up; an extra £70 million has been allocated for naval Shipbuilding; and now prices are to be further restrained. This is the conventional medicine in almost excessive dosage : but the economy has not responded. It requires the most remarkable barefacedness for Labour Spokesmen like Mr Jenkins to attack the Government for not dealing with unemployment, when so much of the present situation is part of the Labour heritage, and when Mr Barber has adopted the solutions favoured by Labour to such an exceptional degree. Nonetheless the economy is in a spin, and possibly out of control.
It is especially encouraging that the Prime Minister and the Chancellor have kept their heads. The kind of public spending which the conventional response to unemployment envisages is inimical both to established Tory ideas on economic management, and, since it prolongs the life of the post-war system, inimical also to radical reform. The Chancellor's public spending programmes all share one characteristic — expenditure in each case takes place over the next couple of years and then tails off. They are thus deliberately short-term and deliberately palliative measures, which cannot and will not inhibit the coming into effect of the structural reform programme itself. The reforms themselves are well under way : in taxation, personal, indirect and company; in industrial relations; in pensions; in defence spending; in housing.
There is however one major area of economic decision where the Government has looked hesitant and indecisive : and that, alas, is an area of the greatest importance. It is in the relations between the state and industry in regard to large-scale investment and industrial efficiency. The Department of Trade and Industry has obviously failed in the character, the flexibility and the clarity of its responses to the crises it has had to deal with. This is not because Mr Davies has been insufficiently right wing in his approach to his job. No simple private enterprise approach is now likely to cure our deep-seated difficulties. Some form of rational partnership in investment and planning between the state and private industry must be worked out. The most fundamental fact to be faced now is that any major industrial enterprise — like, for example, Concorde — is going to require an initial investment of between 15 and 30 per cent of ultimate capital expenditure before it is clear whether it will be viable. Private enterprise frequently (and increasingly) cannot undertake such programmes. The problem is to work out an unsentimental and effective formula for the relation between state and industry, in the field of investment. It is most unlikely that so unhappy and disorganised a Ministry as the DTI, with a chief who, far from being a hard-nosed capitalist, is an oldstyle Macmillan-type interventionist. and junior ministers who are more ideological than practical in their approach, will be able to produce such a formula. Mr Heath will have to show the courage of his convictions in discarding people as much as in changing policies, and admit his own failures as much as those or his predecessors, if he is to be ultimately successful.
Fortunately, there are already signs of sensible second thoughts within the Government. Before the election it was clearly stated that monetary union in Europe was a Tory aim. Now the Chancellor says, more cautiously, that "We shall certainly want to be associated with any further studies of closer integration." Likewise, in contrast to Mr Heath's erstwhile commitment to rigidly fixed exchange rates, Mr Barber has moved towards cautious support of limited currency floating. Both of these are important trends : they are likely to free this country's currency in relation to others and so remove the old tension betwen domestic growth and the balance of payments; and our new flexibility on the international monetary scene is recognition that our necessary economic, industrial and psychological reforms are essentially domestic and will require all our energies. There is every hope that, undeterred by crisis and the demands of the short term, the Government will largely complete its programme of reconstruction. But we need both continued steadfastness by the Government, and a much greater effort on its part to explain to the country and its supporters what it intends ultimately to achieve, and how it intends to go about the business of rescuing the economy and the country from one of the steepest and most unintelligible nose dives it has ever been in. Only then can we be hopeful that the brirTht promise of June 1970 will be fulfilled,
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