4 OCTOBER 1969, Page 22

MONEY Labour's jealous eye


This is a time for masterly inactivity in the security markets. Tremendous decisions are about to be taken on the political and mone- tary fronts and we investors must cross our fingers and wait and see. Across the channel a new German government may keep us wait- ing over the revaluation of the mark and even if they decide against much up-valuation this will not remove uncertainty from the Euro- pean currency scene. Across the Atlantic the IMF meeting will end this week with the acti- vation of the special drawing rights, which may add nearly S10,000 million to monetary reserves over the next three years, but it will leave the old uncertainty about exchange rate policy—whether greater flexibility can be agreed upon—and the eventual role of gold. At home the Labour party conference opens with a host of uncertainties for equity share investors. Decisions may be taken which might drive many of them to Bermuda where, incidentally, a dollar currency becomes effec- tive in five months' time. And over all looms the great uncertainty of our next general elec- tion, which is now thought likely to be in April or October 1970. If only we could close the Stock Exchange and leave it to the City institutions to take in each other's washing!

A look at Labour's 'Agenda for a Gener- ation' is worth the investor's attention. Mr George Brown is said to have toned down the more extreme views of 'Labour's Economic Strategy', recently published by the National Executive Committee, but it is not obvious where his moderating force was felt. Labour is now impressed by 'the capitalist dynamic', the accumulation of capital assets and earn- ing power through the ploughing back of profits. This, they say, is the foundation of the long-term appreciation in the value of equity shares. The equity market tends to catch up with this capital accumulation by sharp cyclical bursts rather than by steady long-term growth, but share prices over-all have managed just about to double over each decade. Even shareholders in badly managed companies can look forward to some kind of pay-off through a take-over bid.

All this, they argue, makes for an increas- ing inequality of wealth. Only about 1.8 mil- lion adults directly own equity shares and this tiny group own about half the stock of equity shares—or £15,000 million—so that every I per cent rise in the market adds £150 million to their wealth. Since the end of 1966, it is said, they have gained, despite the recent setback in prices, some £5,000 million. This in brief is the Labour case not only for a tax on wealth but 'for the community as a whole to claim an increasing proportion of the fruits of economic growth'. The new proposal is for companies to be compelled to issue equity shares not to their workpeople but to 'social organisations' which would benefit the community as a whole.

It is very depressing to find that the Labour party after all these years does not yet know how to make the private sector work. I can understand their wanting to increase the pub- lic sector because they still hanker after a socialist state. 'Agenda for a Generation' con- tains several proposals for enlarging the pub- lic sector by forming a new state holding company to seize 'economic opportunities', especially in the development areas, by using the Industrial Expansion Act to create new industrial boards on the lines of the ship-building board, and by setting up a pub- lic housing corporation. 'On occasions', they say, 'we envisage the state holding company undertaking new industrial ventures jointly with private enterprise' (They have a hope!) All this in addition to the state-owned In- dustrial Reorganisation Corporation which can take participations in the industrial mer- gers it promotes. Now no reasonable man will object to what they describe as 'imagin- ative experiments in the public sector', but when Labour refuses to be content with a dynamic and profitable private sector and starts trying to grab equity shares in its most successful companies and limit their dividend pay-outs, they show that they are jealous and resentful of legitimate and successful private enterprise.

The proposal for a statutory limitation of dividends strikes at the basis of the capitalist system in the private sector. The system

works because the private entrepreneur can come to the open capital market in the City and, if he cannot obtain loan capital on reasonable terms, can secure risk capital through an issue of equity shares, the under- standing being that the subscribers will take all the loss or profit after satisfying the pay and retirement claims of the workpeople. Statutory limitation of dividends would bring the issue of risk capital to a halt. The private sector of the economy would then slide into decline. As the private sector is virtually responsible for the whole of our export trade —and so far the balance of payments surplus —the folly of this will be appreciated.

'Agenda for a Generation' proposes in addition to the limitation of dividends the limitation of certain key prices. This leads the Labour party into a ludicrous economic subterfuge. If, as a result of this proposal, some producers are not able to finance their capital_ investment, the Government must come to their aid and supply the money. In other words, when Labour policy makes an industry uneconomic the Labour government must finance the losses. Mr Jenkins will surely have something to say about this idiotic proposal.

The only way to make the private sector of a mixed economy work is to see that it is allowed to make reasonably good profits after tax and encouraged to plough back whatever it wants for future development. The com- munity can share in this growth of capital and earning power—without any grabbing of equity shares by the state—in two ways: first by setting up a public unit trust—this I suggested as far back as 1958 in this column —and inviting workers and the self-employed to put their savings into this 'fund of funds'; secondly, by making the state pension scheme a funded scheme and investing the surplus in equity shares. Mr Crossman has said that if this had been done when he first recom- mended it the state pension fund would now be owning most of British industry.

If those attending the Labour conference are so narrow-minded that they refuse to read a well-wisher in the SPECTATOR they might ask Lord Hirshfield to give them his booklet on the Trade Union Unit Trust. This invites the worker to invest his savings —under a monthly savings plan—in the equity shares of a well-selected bunch of 'growth' companies. 'The fruits of economic growth' are, in fact, being dangled before their eyes for anyone to pick.