ECONOMICS AND THE CITY
Inflation and the public sector
Nicholas Davenport
It was very rash of speculators to Jump into some of the shipbuilding and aircraft shares earmarked for Mr Benn's nationalisation on the grounds that he would pay for net assets per share. Some of these fell by 20 per cent or more when it was found that his compensation was based on a six-months average of stock market prices from September 1973 to March 1974. Thus, the take-over price for Swan Hunter comes out at about 90p against a net asset value of around 250p in the balance sheet of December 1973. Although Mr Benn's grab is unnecessary and unfair to efficient private enterprise market prices have always been taken, and generally accepted, as the only practical basis for nationalisation seizures. I remember advising Hugh Dalton not to pay out more than £850 million for his take-over of the railways because that was slightly above the market valuation of railway stocks before the 1945 election. In fact, he issued £1,054 million of Treasury 3 per cent stock 1978/88. Technically nationalisation generally benefits the expropriated owners because it turns paper into cash at a better rate than they could realise if they were to sell in the open market.
While we must not shed tears Over the losses made by fool-hardy speculators we should weep over Mr Benn's folly in widening the nationalisation net by including companies in the aerospace industry with a turnover of £71/2 million a year — instead of the £20 million turnover originally fixed — "in the light of representations made to me," he added. This remark disclosed the doctrinaire Marxist company he keeps. A significant and welcome exclusion was the manufacture of helicopters. It was reported that there had been strong objections from the Westland Aircraft workers against any form of state take over. It was sad, however, to hear the outcome of those pathetic advertisements which had been appearing in the press from the Bristol Channel Ship Repairers Ltd. "Dear Tony," they said in effect, "please don't take us over. We are a small firm and an efficient firm. Most of us have voted Labour always. We are practising industrial democracy. We are a happy lot — workers and managers together -doing what you have been Preaching in the practice of good industrial relations. Please, Tony!" But what was the good of appealing to the human heart of an ideologue?
There are three good reasons, political and economic, for not extending the public sector. In the first place, it is contrary to industrial democracy. State capitalism, which is what it means, creates not_ a classless society but a new class distinction — between the elite bureaucrats in the state board offices and the workers who have to toe the official line. In the second place, as there is no place for industrial democracy in public enterprise, as there is no continuing dialogue between managers and men, the workers have to resort to blackmail to get the wages they want; in other words, their threat to strike must hold the nation up to ransom. If they gave up the right to strike when they entered public service, that is, if they accepted compulsory arbitration, all would be well. But they won't and don't.
In the third place, it is economic madness to extend the public sector and increase the borrowing requirement when the crying need of the hour is to curb inflation and for that reason, as the Bank of England urged in its latest Bulletin, to make a big cut in public expenditure. The annual white paper on public expenditure to 1978/79 (Cmnd. 5879) has recently been published. According to its 1974/75 estimate public expenditure will have increased in this financial year by 5.7 per cent over the previous year and in 1975/76 by 4.7 per cent, although the rises in the gross national product will be 2.4 per cent and 1.5 per cent respectively (National Institute estimates). Clearly this has been increasing the inflationary pressures. The Department of Employment gives a figure of £43,000 million as the likely total public expenditure (national and this year, a frightening sum when the public sector borrowing requirement is reaching £8,000 million.
The Government is, of course, trying to cut public expenditure — it is going to make very big cuts on defence, which will not be popular among NATO members — and Mr Healey is to be congratulated upon his decision to phase out the subsidisation of our coal, gas and electricityl industries. But will he cut out the food subsidies? No less than £526 million has been poured out in food subsidies alone in the financial year 1974/75 and £551 million in agricultural price guarantees and grants which extended to food processing and marketing.
We are now spending as a nation about 5 per cent more than the value of the goods and services we produce — the deficit is borrowed abroad — and as the Government has manifestly failed to stop the excessive pay settlements exacted by the powerful unions its only course of deflationary action is to reduce its own and local government expenditures. Cuts, alas! require a long time to take effect. Why, then, does the Government go on extending the public sector? Public enterprise is generally more wasteful of resources and more extravagant in administration than private enterprise. There are no competitive restraints upon the pay
of its employees and the size of its staffs. (Witness the recent jump in the swollen staffs of the local authorities). There are also no monetary restraints — no liquidity crises. The only reason for pushing the descent of the public sector into bankruptcy is the socialist manifesto of the Labour government. It is ironical that the new Manifesto Group formed among Labour members in the House is supposed to represent the 'moderates' against the immoderation of Tony Wedgwood Benn in his drive to extend the public sector. If the Tories are right in claiming that his Bills ,go beyond the terms of the socialist manifesto they might look for support in the divisions from the Manifesto Group. But they are not likely to get it. The group has become a rabbit petrified by the socialist snake.
Previous page
