The Cohen Report
MHE report from the Cohen Committee on its I second probe into the body economic makes remarkable reading. 'The dangers of inflation have only been scotched, not killed,' it insists, `by the slackening of tempo in the last twelve months'—a verdict which is undoubtedly right; but it comes as something of a surprise after the extremely pessimistic appraisal of our present strength and prospects on which the report is based. During the rest of this year, it is argued, the balance of payments can be expected to deteriorate, as ex- ports fall and imports become more expensive again. Production is more likely to decline than to increase as investment tails away, stocks are run down, and consumption stagnates. Against such a background one might surely have antici- pated some strong recommendations for re-expan- sion by an all-out encouragement of spending. But this the report specifically resists. Moreover, a short discussion of the ways open to the Govern- ment to stimulate activity is followed by a far longer discussion of the dangers of doing so. It is all rather paradoxical.
The committee was clearly in a dilemma. On the one hand, it was desperately anxious that the glittering prize of stable prices, which we now have within our grasp after twenty-three years of inflation, should not be snatched away at this stage by precipitate government action to stimulate business. On the other hand, the committee seems to have been impressed with the danger of a deeper recession later this year. Here, however, it is open to criticism on a number of grounds. There appears to have been little or no apprecia- tion of the extraordinary buoyancy and confi- dence of. British industry. Instead the 'committee has been led astray by the surveys of business opinion conducted by the Federation of British Industries which purported to show that profit margins and capital expenditure are both falling. But in the latest period for which figures are avail- able both continued to rise, as the report recog- nises. What is happening now is a matter of specu- lation. But as we have said before, the number of businessmen who are prepared to admit to swell- ing profit margins is probably about equal to the number of farmers who will agree that they are having a good year. The committee might have noted that whatever the businessmen wrote down on their questionnaires from the FBI has not prevented them telling a different story to their shareholders, since in the first seven months of 1958 dividends paid out have increased by 8 per cent. That is hardly the way business would behave if it were seriously worried about the future.
The committee has also been curiously reluctant to acknowledge the remarkable strength of Britain's overseas account at the present moment —though it should be said that some parts of the picture are only now becoming clear. It is almost without precedent that at the end of August the £ should remain so strong in the foreign exchange markets—over $2.80—which suggests that we may even be gaining gold at a time when we normally expect to lose it. The trade gap so far this year has been about half what it was in 1957. The terms of trade appear to have settled down 10 per ceni more in our favour than in 1954. However much `deterioration' there may be in the last four months of the year it seems unlikely that the final figure for the annual payments surplus will be substantially less than £400 million, and as such a record.
Again, it might have been expected that the committee would have made more of the relaxa- tions already conceded by the Government. The ending of the credit squeeze, the further reduction in Bank rate to 4-1 per cent.—all this will auto- matically lead to greater activity. The credit squeeze has indeed been replaced this week by a credit war, led by the Midland Bank, which will inevitably lead to a higher level of business in the shops, by making loans easier to obtain. As it is, hire purchase is still expanding, and if the Control of Hiring Order were revoked it would expand still more.
But in spite of the committee's reluctance to give sufficient credit to the imagination and resili- ence which British industry is showing, the report remains of value. Its discussion of the contrast between fixed prices in the shops and the fall in prices of raw materials as they reach the factories is tantalisingly brief. It is to be hoped that it will be extended in the next report, if the problem has not solved itself by then.
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