Credibility gap in the mixed economy MONEY
NICHOLAS DAVENPORT
On Monday the Prime Minister took the chair at a meeting of the National Economic Develop- ment Council for the first time as our Economic Overlord. The famous pipe was seen puffing clouds of smoke destined to get into the eyes of all those suspicious industrialists who have been alarmed by the Industrial Expansion Bill. Under this innocuous title the Government is taking powers to acquire shares in private enterprise companies and the CBI is afraid that it is another diabolical scheme for backdoor socialisation and that even if it isn't it will favour big com- panies against small and infringe the principles of fair trading.
Now it is true that not even our pragmatic Economic Overlord has yet discovered how the mixed economy should work. The left wing of his party probably do not want it to work at all. It is clear that he cannot get it to work and expand, or even climb out of its present stagna- tion, unless he regains the confidence of the capital-investing employers, big and small. He has to convince the CBI and the industrialists who sit on the 'Little Noddies' that his inter- ventions in private industry are for a technologi- cal, not an ideological, purpose, that he is simply out to reorganise and 're-structure' British indus- try and promote productive investment which would be too risky or too costly for private enterprise to undertake on its own. He disclaims any idea of initiating the investment schemes; he leaves that to private enterprise, but he claims that it is only fair for the state to take a slice of the equity if it is giving financial aid.
I have no doubt that the Prime Minister means what he says, that his intentions are technological and not ideological—ask Mr Michael Foot to say when Mr Wilson has ever shown interest in the ideologies of his party— but in the view of realistic bard-headed business- men the Prime Minister is bound by the exigen- cies of party unity. He cannot ignore his left wing all the time and seeing that they—being most of the party workers—are constantly demanding an extension of public ownership he is bound to make use of the Industrial Reorgan- isation Corporation and the Enabling Bill• for that purpose whenever he feels it is politically desirable to keep them quiet.
There is only one way out of this dilemma for the Prime Minister. It is to reorganise and 're-structure' the Inc. While a conventional banker,' Mr Ronald Grierson, is its managing director the cut may feel confident that no back- door socialisation will take place. It had no complaints to make of the merger between English Electric and Elliott-Automation which th me promoted with the help of a soft loan or of the shipbuilding consortium on the Clyde or of the great aluminium smelter which is now being discussed, but Mr Ronald Grierson is going to leave and his successor might be an ardent socialist to please the left wing or a politico-businessman under the thumb of Mr Wilson. Did not Mr Peter Shore replace Mr Michael Stewart at the DEA? If the Prime Minister really wants to regain the confidence of the business world he should turn the mac into a joint holding company in which the state and private enterprise have equal shares. Then there -would be no alarm when this joint concern acquired a slice of the equity of any company or of any company merger it had promoted and helped. It would, in fact, be the living embodi- ment of the mixed economy. It would no longer be a toothless lion like the IRC in its present form (which proposed a merger between am and GEC last May and then curled up when AEI resisted). A joint holding company could activate take- over bids on its own initiative. It could become the active instrument for the reorganisation of individual industries without upsetting the balance between public-and private enterprise. And it would avoid the secretiveness of the Italian state octopus, the Ott, which never makes public the objectives of its far-flung enter- prises.
At a moment when it is so important for the business world to regain its confidence in government intentions news has leaked out that the Government has been considering various schemes for mobilising the private dollar port- folios, which now amount to close on $10,000 million. The idea is that the gold and dollar reserves might thereby be replenished (they are now below £1,000 million) and the Chancellor enabled to refinance the IMF debt of $1,500 million due in 1970. Who really wants the economy to remain deflated until the IMF is repaid? Apparently the Government did think of mobilising the dollar portfolios at the time of the July crisis of 1966, but any suggestion of a compulsory takeover of private dollar port- folios would destroy confidence not only in the business world at home but abroad, particularly among the central bankers who keep us afloat with credits and currency 'swaps.' According to The Times a private scheme has been put for- ward whereby the investment trusts, the life funds and private trusts should hand over 25 per cent of their portfolios to the Treasury in return (a) for a government-guaranteed sterling bond tied to a gold clause and linked to the Dow Jones index of Wall Street industrial shares; and (b) for exemption from the present 25 per . cent Treasury grab of the investment dollar premium. It would be grand for the portfolio managers to be able to hand over their dud and doubtful shares to the Government and retain their best holdings free of the 25 per cent grab on switching but it would be very foolish of the Treasury to oblige.
If private schemes are being considered, my own, advanced tentatively in this column, de- serves a mention. This is for the Treasury to give a free switching ticket (free of the 25 per
vent–grab) to any private portfolio which'. showed that over a period it had disinvested 25 per cent provided always that the dollar invest- ment pool were restored to its proper function and the direct business investors excluded from it. It is absurd for the Treasury to deny official exchange for business investment abroad and then allow these frustrated and angry business- men, to barge into the portfolio pool and bid up the premium to over 30 per cent. This is bad for confidence and a bad advertisement for the nation. It looks as if the business community would pay any premium—even over 30 per cent—to get out of British socialism which dues not know how—or want—to run a mixed economy on fair and sensible business lines.
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