The Economy
Mr. Maudling's Election
By NICHOLAS DAVENPORT
IF the Conservatives win this election it will be due entirely to Mr. Maudling. He has steadfastly re- fused to take the deflation- ary action—dearer money, higher rents and mortgage payments, higher purchase taxes, more unemploy- ment—which would have turned votes to Labour. He has stubbornly refused to believe that the economy was overheated just because it ran into balance of payments trouble. When all the academic economists were telling him that he should have used his Budget to take £200 to £250 million out of the taxpayers' Pockets he imposed only £100 million of additional taxation and that on non-essential articles of consumption like tobacco and alcohol. He rightly decided that he must not interfere with the growth of the economy—that growth came before sterling. By consistently telling the public that there was no economic crisis and that our economic prospects were good—witness his statement on the BBC home service prOgramme `Ten O'Clock' on August 21—he delivered a deadly counter-blast to Mr. Wilson's call `Go With Labour and Expand.' It must seem to the simple young workers carrying home their bul- ging pay packets, without a thought for the balance of payments 'crisis,' that `Go it with Maudling' is not at all bad.
The White Paper published this week showed that the balance of payments could hardly be worse. The second quarter ended with a deficit on trading account of 13 million and on com- bined current and capital account of £194 million. This follows on deficits of £69 million and £147 million respectively in the first quarter. It is therefore perfectly fair for Mr. Harold Wilson to say that if this continues we shall be in the `red' this year to the tune of £600 mil- lion. But it is very foolish of his supporters to sound the `crisis' alarm. There is no sterling crisis because this shocking deficit has been quietly financed (i) by the increased dollar earnings of the sterling area overseas (which enlarged its sterling deposits in London by about £120 million in the first half-year) and (ii) by the attraction of foreign money to London through the pull of the interest rate (the differ- ence between the New York and London Treas- ury bill rates having been in favour of London since May). So we have survived without having to lose a lot of gold. In fact since the end of last year the gold and convertible currency re- serves have only fallen from £949 million to lust over £900 million—in spite of the transfer of around £60 million to Italy for the Shell-
• Montecatini deal.
Mr. Wilson was therefore careful to qualify his `crisis' warning over last weekend by the state- ment: `This does not mean that a financial crisis in the sense that we had them in 1957 and 1961 is impending or imminent.' Mr. Maudling has been much too clever to allow himself to be landed with a flight from the £ as Mr. Thorney- croft and Mr. Selwyn Lloyd did in those years, through miscalculation and mismanagement. He knows that he has got enormously strong de- fences for sterling. Our stand-by arrangement With the IMF enables us to draiv quickly $1,000 million and our total drawing rights amount to nearly $2,550 million. In addition we have the $500 million 'currency swap' agreement with
the and the stand-by credits with the Euro- pean central banks under the Basle agreement. The foreign speculator must realise that he has no chance to get away with a 'bear' raid on the £ while Mr. Maudling has these massive defences to drawn upon. And I must take my hat off to the Chancellor for playing it so cool. He has never acted in an alarmist manner. He has said nothing about having to arrange fresh loans or credits. He has avoided mentioning the words `sterling crisis.' He has quietly drawn upon the dollars available when it has suited him to do so. He knows full well that the Americans will stand behind him through thick and thin because the last thing they want is a flight from sterling which could react upon the dollar on the eve of the Presidential election. They will certainly allow him to postpone payment on the interest on the American loan at the end of the year.
But I wonder whether Mr. Wilson was wise to give a warning in his Cardiff speech that the Conservatives were 'once again preparing to bring expansion shuddering to a halt' after the election if by mischance they were re-elected. It is, of course, possible that they would tell the trade unions that unless they stopped pushing up wages ahead of production and productivity they would have to devalue the £. That expedient
is a sure way of reducing the standard of living of the workers for a time, for it adds to the cost of food and other essential imports. But I do not think that Mr. Maudling would choose that solution to the problem of the balance of pay- ments. He is much more likely to tell the public frankly that we are in a mess because we have not done enough of the right sort of industrial investment in the past. that the effects of the present investment spurt will be felt later next year when it should be possible to increase ex- ports and displace some of the imports of manu- factures and that in the meantime he will draw on his dollar credits up to $2,500 million if neces- sary to finance the balance of payments deficit for the next twelve months. That would avoid bringing the expansion to the 'shuddering halt' which Mr. Wilson seemed to expect. He is much more likely to subsidise exporters and bring back expansion.
Of course, the balance of payments failure is due, as Mr. Wilson insists, to lack of scientific planning in industrial investment on the part of, the previous Conservative Governments. It has been against their creed to apply selective en- couragement of technical innovation—hence their indiscriminate investment allowances—or to dis- allow claims on the national resources for investment which does not advance our export efficiency or import-displacing scope. If the Con- servative Party wins the election it will therefore be due •not to its past industrial record but to Mr. Maudling's timely repentance and en- lightenment. I cannot help feeling sad as an economist that we cannot elect Mr. Wilson to be our Prime Minister and economics chief and Mr. Maudling to be our unflappable Chancellor of the Exchequer.
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