In the City
Whither the mixed economy?
Nicholas Davenport
The really unacceptable face of capitalism is bad management—the failure to make a profit out of its use of resources. This is particularly true in a mixed economy when the public sector is continually being enlarged and making huge losses. But as the private sector struggles to make a profit under the new Price Code, which, according to dear Mrs Shirley Williams, will enable it to raise its return on capital from a derisory 2.2 per cent to a near-laughable 3 per cent, it is clear that capitalism in its old form, that is, when it was concerned with the maximisation of profit, no longer exists. I would venture to suggest that we stop using the word.
It was foolish of Mr Heath to pander to the Marxists who want to destroy private property and private enterprise by speaking of the unacceptable face of capitalism jast because a few businessmen occasionally misbehave. He might have added a parenthesis about the unacceptable face of socialism because a few labour councillors occasionally go to jail for corruption. I doubt whether capitalism so-called is any more prone to breed corruption than socialism. Looking round at the miscellany of economic systems in the world, it is apparent that corruption creeps into every one. Power, as we all know, corrupts and absolute power ends in absolute corruption. One might add that as taxation and the power of the Inland Revenue increase one would expect the neurosis of corruption to increase. The first case of a suicide following the intrusion of a VAT inspector, (who can invade the private dwelling of any registered VAT payer at any hour of the day or night) has just been reported, but perhaps this is merely the case of a sensitive businessman being driven out of his mind by the Kafkaesque behaviour of the VAT apparatus.
What used to be called capitalism is now being transformed by this Labour government into state capitalism with a diminishing private sector and an enlarging public sector. This transformation can be measured statistically by taking the gross trading profits of all companies as a percentage of the total domestic income—both net of stock appreciation. This percentage has come down from just under 15 per cent in 1964, when the Wilson government first acquired power, to a little over 5 per cent in 1975. So far the Labour government, even under Sir Harold, has not declared any intention of taking everything over, although each election manifesto proposes an enlargement of the public sector and Clause 4 of the Labour Party constitution requires it eventually to socialise 'all the means of production, distribution and exchange'. The next Labour Party conference will consider a resolution to take over the insurance companies and some ot the banks, which shows that the spirit of Clause 4 is still alive.
The last time the Labour Party tried to nationalise the insurance companies—in 1946—the Co-operative Society vetoed it. It was not going to have its own insurance company or its bank taken over by untried and doctrinaire socialists. (I believe that at that time the Co-operative Society had two members in the House of Commons.) Cooperatives are obviously tough people, as Mr Robert Evans, an ex-member of the London Co-operative Society, has proved by winning in the High Court after a long fight an action to compel the LCS to pay compensation to its staff pension fund for having borrowed millions from it at rates of interest below the going market rate. We may therefore hope that there will be some tough members of the Labour Party ready to block this further lurch towards the completely socialised state. Our eyes are turned on the prime minister who is no ideologue, who really believes in a mixed economy, who is anxious to get the new restraints over the private sector working efficiently, and the body of unemployment reduced, before making any further step towards the Clause 4 socialised state.
The most important of the new restraints are the proposed planning agreements between the private sector companies and the public sector boards. No one knows how they will work out. There is the National Enterprise Board which has powers to intervene, to finance and to take over. An interesting remark made by Lord Ryder was quoted in last Sunday's Observer. The NEB is not, like the old Industrial Reconstruction Corporation, charged to pull out and attend to the next patient as soon as the lame duck has recovered. 'One of our prime objectives', he said, 'is to assist the move towards a mixed economy—private and public capital at work in the same sector of industry. To sell everything as soon as it became profitable wouldn't be part of the long-term strategy'. What that long-term strategy was he did not explain but it could be that longterm the public capital at work is intended to take over the private capital.
A case in point is the National Oil Corporation which is bringing public capital to work alongside or in competition with private capital in the same sector of industry. As the existing legislation gives the state complete control over the oil and gas development of the North Sea there is not the slightest reason to set up an operating state company except the socialist urge to displace private enterprise. The monstrous extravagance of recruiting and training unnecessary technical staff (not to mention paying the salaries of the socialist lords on the boardKearshaw, Balogh and Briginshaw and perhaps other. Labour stalwarts not yet ennobled) will not escape the eye of the Chancellor struggling to reduce the borrowing requirement but the Clause 4 ambitions of the Minister of Energy in oil will no doubt win the applause of the Marxists at the party conference. The oil companies, including BP, must therefore be on their guard.
It is a pity that these new restraints upon the private sector should come at a time when recovery is on the wing, when profits are moving up and the index production has shot over 5 per cent growth. Sir Marcus Sieff has just told the shareholders of Marks and Spencer: 'A strong and prosperous United Kingdom, and the survival of responsible democracy depend on a dynamic mixed economy'. Why then try to damp it down bY the extension of the public sector ? I cannot but believe that the revolutionary changes which the Labour Party is making in the nature of the mixed economy are responsible for the lack-lustre behaviour of the . market in our leading equity shares. If, however, the pragmatic Mr Callaghan demonstrates his supremacy at the coming partY conference market sentiment may change.
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