ECONOMICS AND THE CITY
The stock market and Mr Benn
Nicholas Davenport
After its very sharp recovery the stock market is now back into what the chartists describe as a 'consolidation' phase. The FT 'thirty' index has been as high as 250 — a 70 percent rise from its low of 146 on. January 6 — and as low as 230. It the Finance Bill passes with more concessions from Mr Healey it may start climbing again towards 300. Happily it is totally unaffected by the convulsions in the Tory Party. I am heartened to see that a leading firm of stockbrokers agrees With my panic at the collapse of the system explanation of the abnormal slump and supports my expectation that the market should eventually recover to its normal ,bear' Position of around 350. (The bull' top was M3 and a normal 'bear' drop of 30 per cent to 40 per cent would take it to 350.) To quote my broker supporter: "On the basis that the yield on equities will not fall below 6 per cent until the economic climate shows definite Signs of improvement, the market has an upside potential to 310. However, if interest rates fall much below 6 per cent then scope for the index to move higher would exist.', I hope that you will understand brokers' jargon. Much therefore depends upon the fall in interest rates. Fortunately, the reflation of the American economy by President Ford is be mg preceded by a lowering of borrowing rates. The Federal Reserve Board has now cut its discount rate to 63/4 per cent from a high of 73/4 per cent and the major commercial banks have brought their prime rates down to 9 per cent. They may go lower, for the President has said: "The economy Is in a severe recession. Ynemployment is too high and will
rise higher." Indeed, the Council of Economic Advisers thinks that
unemployment will peak at a little Over 8 per cent. As interest rates are lowered in America, there is a good Chance that our Bank rate will fall again What is so important about the Present market recovery is that equity shares are being bought again by the investment institu,gons and by the unit trusts for their lrue, basic quality, which is as a 'ledge against the mad world of tolitics outside. They have not ceen a good hedge against infla. ton, as we have seen, but they do raepresent economic realities gains t the make-believe world of Politics. Mr Wedgwood Benn suggests that British industry has failed to invest down the years because it lacked intelligent and imaginative management. But he says nothing about the failure of the British trade unions to co-operate wholeheartedly with managements in any productivity drive. In my Memoirs I quoted a letter written to me by Douglas Houghton, now Lord Houghton, the wisest of the Labour elder statesmen, many years ago. He said: "The weakness of our industrial system is the failure of the trade unions to get interested in efficiency and profitability . . Trade union philosophy is for the destruction of capitalism: it created the Labour Party to do it." How, then, can British managements be condemned for inadequate investment when they cannot rely on their labour force working to the best advantage of the new machines they install? The overmanning of new machines in our newspaper industry is a world-famous scandal. The upsetting of productivity in other highly mechanised industries by constant strikes called often for trivial reasons and for inter-union rivalries has become known as 'the English disease.' It is therefore unfair of Mr Benn to denounce British managements without mentioning the fact that they have been up against a more difficult and less co-operative trade union establishment than perhaps any other industrial country in the world.
Mr Benn has now introduced his white paper on the National Enterprise Board which he claims will put British industry on its management toes by making a revolution in industrial relations. It will have power to invest up to £1,000 million. to take over inefficient companies and even to take a slice of the equity in the largest and most efficient companies in furtherance of the socialist plan to extend public ownership of industry. The key to its success lies, he says, in bringing the trade unions into management decisions by disclos ing to them the long-term planning programmes of the company boards. Needless to say, the man agements through the CBI have denounced his paper as "ignorant, half-baked and drawn up by politi
cians who simply do not know how industry works.'-' They are particu
larly afraid that the disclosure of planning and investment decisions will be used by the militant Marxist trade unionists to destroy the most efficient parts of capitalism. Clearly, both sides will have to compromise on this issue. The capitalist system must inevitably change because industrial relations have reached breaking point. It is surely unreasonable to keep workers in the dark about their future. If you have worked happily for, say, twenty years in a sausage factory you will not think it fair for the management (in this case Unilever) to say suddenly that they are closing it down. The threatened Imperial Typewriter workers must feel as bitter about their American parent as the sausage workers about Unilever. Workers are certainly entitled to more information and to the assurance that they will be trained for another job if they are below the retirement age when they are declared redundant. On the other hand it is unreasonable to put workers on the boards or on the managing committees and expect them to vote on complex planning decisions which are beyond their competence. The British genius for compromise must be allowed to work on this difficult issue. Above all, Mr Benn must be asked to agree that the purpose of any company in the private sector is to make a profit and that public money will not be advanced without a profit in view. Even if he cannot read a balance sheet he must appreciate that a trading account must show up a surplus.
The extension of public ownership is. of course, a retrograde step for a mixed economy. It increases the potential area for loss-making. Most of the public boards have been forced to make losses because governments have refused to allow them to adjust their selling prices to increasing costs. It was a great relief to the taxpayer — and a spur to the return of confidence in the stock markets — when Mr Healey recently stated that this must stop. But governments will never stop interfering in the management ot public boards.
The most depressing document I have ever read was the white paper on government spending plans up to 1978-79 which was published last week. Every year they go up. For the present year they are 9.4 per cent up over those reduced by Mr Barber's cuts. Next year another 5.9 per cent up and so on and so on. Total public expenditure has grown 211/2 per cent in the past four years. Even so a good socialist like Peter Jay, the clever economics editor of the Times, is appalled. The total claims on resources—government and private — exceed, he says, by a wide margin the capacity of our economic system. Is it not crazy for Mr Benn to enlarge at this time the public sector?
Previous page
