In the City
What we expect of Jim
Nicholas Davenport By the end of last week the stock market had already assumed the victory of Mr Callaghan. The FT index of industrial shares had risen sixteen points, which was Six points more than the credit I had given to 'Big Jim'. His stature abroad, where he is regarded as the typical John Bull (reduced I am afraid, to the frigate, not the battle- ship, class) is perhaps higher than it is in the City For many of us financial writers the Intriguing interest of having Mr Callaghan as prime minister is that he has a `doomster asa son-in-law. Peter Jay, the economic editor of the Times, can be relied upon to reduce to the final satirical laughing point the compromise, complaisant economic Policies of a centre Labour government, that is, if he is ever allowed in at the back door of No 10 to tell his father-in-law some economic home-truths. As Mr Callaghan has declared that one of his pastimes is looking at Peter Jay on the television' there may be hope. One of the last things I read from Peter Jay's pen was a statement— Which has been emphasised many times in this column—that inflation will never be eliminated until we have balanced our budget. That will take some years, but a start must be made immediately in effecting a real cut—say, up to 10 per cent—in public expenditure, which Mr Healey has not yet attempted because of the opposition of the left wing of his party.
Mr Callaghan is noted for his blunt speech and this, added to the abrasion of the Chancellor, may help to bring the wild left of the Labour movement to its economic senses. Last week we heard on the television a shop steward from British Leyland say- ing: 'I am not here to run Leyland's, I am here to get the most money for my men'. An honest man but not educated enough to have read the immortal words of the poet bonne: 'No man is an island'.
We are now in a transitional period work- in.g out of the old free capitalism into a new kind of partnership between management and trade unions which is sometimes called employee participation' and more correctly the corporate state'. If it can be brought into being without a new crisis, the City Would soon adjust itself but it looks to Mr Callaghan, if prime minister, to guide the trade unions into a reasonable consensus and stop their false accusations about capitalism'. They always try to excuse the comparatively bad performance of British Industry by accusing the City of starving it of capital. This is sheer nonsense. We have the most efficient machinery in the capitalist World for organising and collecting through the life and pension funds the savings of Provident people and turning them into
investment. Last year the City raised a record amount of risk capital in spite of the appalling risks which were apparent.
The reason why industrial investment has declined is (a) because it is mainly financed out of profits which, after taxation, have not been adequate enough to provide for it and (b) because it has not 'paid off'. The Bank of England bulletin has lately given figures to show that the post-tax rate of return on capital invested in our industrial and commercial companies fell virtually to nil in 1974—and there has been little im- provement shown in 1975. The economic truth is that as long as the trade unions declare that they are not interested in com- pany productivity, which is their usual stance, and insist on overmanning, indus- trial investment in Britain will lag behind that in other industrial countries and will produce worse results. The Chancellor has been driving this point home in speech after speech. He has given the facts about the higher productivity gains from investment in competitive countries abroad. He has also come to the aid of our company profits by taxation reliefs in his budgets. Indeed, it is the manifest fact that Mr Healey has seen the economic light which has been res- ponsible for the change in sentiment in the City and for the recovery in our industrial equity shares. The City is looking to Mr Callaghan to get the trade unions to work with him.
According to the TUC pamphlet on Industrial Democracy the unions now want a two-tier system of company boards with the right to elect one half of the supervisory
board through the trade union machine. The CBI, while welcoming employee parti- cipation in principle, believes that the TUC proposal would not work. And they are right. I myself sat on a City life assurance board for many years and I know how diffi- cult it is to arrive at decisions even when the directors come from the same class back- grounds. When a supervisory board is divided between two groups of diametrically opposed outlooks the chances of agreement on such questions as expansion, retraction, mergers, take-overs etc would be remote. Employee participation is best achieved at shop-floor level. At board level it would become a joke.
So what more do the unions want ? If they would take companies over wholesale and run them better than the existing system of managerial talent, the big institutional investors in the City, who provide most of the equity capital, would be delighted. But it is obvious that they would not have the expertise, even with the help of Lord Ryder.
Of course, they want to change society. So do we all. But our tastes differ. Most of us would like to preserve our freedoms. Most of us would dislike a centralised authoritarian communist state which would fix our jobs, our wages, our choice of con- sumer goods, our travel and holidays. Even if a mixed economy is preserved most of us would dislike the closed-shop trade union- ism which Mr Foot is introducing. It is extraordinary that so talented an intellec- tual as Mr Foot should turn out to be a trade union bully-boy. It is another reason why the City will welcome Mr Callaghan as prime minister.
As I write the market has been depressed by a gloomy analysis of our industrial sick- ness from the Cambridge School of Eco- nomics who see no chance of the trade unions co-operating with Mr Healey. We must be grateful that Mr Callaghan had his economic tuition from the Nuffield School at Oxford.
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