The Economy
Treasury versus Economics Ministry
By NICHOLAS DAVENPORT As a life-long critic of the Treasury in its wrongly cast role of economic manager I was delighted to read Mr. Harold Wil- son's plan for a new Min- istry of Economic Affairs or Economic Planning. But its terms of reference might have been more carefully drafted. Its job, he said, is `to frame the broad strategy for increasing investment, ex- panding exports and replacing inessential im- ports.' Its job is not necessarily to increase but to get the right sort of industrial investment done, so that our competitiveness in the vital export markets can be improved. Its job is not to replace 'inessential' imports, which we could obviously do without, but 'essential' imports, that is, the sophisticated capital goods which are required for the fulfilment of our export orders. The most disturbing feature of our adverse balance of payments is not so much the slow- ness of the growth of exports as the sharpness of the rise in the imports of machinery which we ought to be making ourselves. As the National Institute of Economic Research pointed out in their last bulletin, imported machinery has been steadily increasing its share of the British market—from only 12 per cent in 1957 to 20 per cent in 1964. Imported machinery now represents 24 per cent of the total current invest- ment in factory plant. This is proof enough that
the Treasury and the Board of Trade have been incapable of running our economic affairs.
The new Ministry would have another Min- istry of Technology to help in the job of bring- ing advanced technology and new processes into industry. The aim is to establish new in- dustries either by public enterprise or in partner- ship with private industry in order to get a more rapid industrial application of new scientific discoveries. The essential task, said Mr. Wilson, is to energise and modernise our industries, in- cluding their methods of promotion and train- ing, to achieve the sustained economic expan- sion we need. The Treasury is not equipped to handle this job. The idea that the Chancellor of the Exchequer, by presiding over a National Economic Development Council on which the trade unions and employers are represented, could plan the modernisation of British industry, has never seemed to me to be realistic. Its staff is too academic and theoretical. Mr. Wilson is surely right to keep NEDC as a discussion body, not as an originator of industrial plan- ning. The new five-year plans which will have to be drawn up for each industry—NEDC is only just putting embryonic plans on paper after two years' talking—would be prepared by the new Ministry of Economic Affairs which would take over the sections of the Board of Trade (the present Ministry for Industry, Trade and Regional Development) dealing with in- dustrial affairs. It seems to me a much more practical thing to do—more like the French Commissariat du Plan which has made such a success of the modernisation of French industry.
I was delighted also to see that Mr. Wilson intends, if he gets office, to make the new Min- istry of Economic Affairs responsible for co- ordinating the whole economic policy of a Labour Government. Hitherto the Treasury has had the power to decide and fix the economic climate. If it wanted to deflate for financial reasons, that is, to protect the £ or reduce a deficit on the balance of payments, it just put up Bank rate, restricted bank credit and squeezed the whole business community regardless of the state of the economy and the productivity of industry. It was a deadly power and the exercise of it by amateur Chancellors and civil servants has ,often been disastrous. Thus, for example, Mr. Thorneycroft deflated the economy in 1957 when it was actually turning down and still running a surplus on the balance of payments. Mr. Selwyn Lloyd in 1961 applied an un- necessarily savage .deflation and did serious harm to the economy, which stagnated for eighteen months or more until Mr. Maudling rescued it.
A few months ago I reviewed here a book on The Management of the British Economy, by Mr. J. C. R. Dow, who, having served in the Treasury's economic section and with the National Institute of Economic and Social Research, is the greatest living authority on this subject. His painstaking analysis showed that the attempts of the Treasury at economic control since 1945 have been ghastly failures. Mistakes in forecasting and mistakes in eco- nomic clithate-making followed one another LOTHBURY is on holiday with painful regularity. Treasury budgetary and monetary policy, he said, had 'failed To be stabilising and must on the contrary be regarded as having been positively de-stabilising.' It is therefore entirely proper that Mr. Wilson should seek to remove this economic power from the bungling hands of the Lords of the Treasury and to hand over its 'brain trust,' the economic and statistical section, to the new Economics Ministry. There would, 'I imagine, be no job for the Economic Adviser, whose advice the Chancellor has never had to take or even to listen to. The last time we had a Ministry of Economic Affairs there was a hopeless con- fusion. This was for a short time in 1947 when Stafford Cripps was appointed Economics Min- ister to deal with the growing crisis which seemed to be beyond the reach of the Chancellor, who was Dalton. I can reveal that neither of them knew who had responsibility for the balance of payments! Next time it will be for the Economics Minister to decide and I hope he will take Mr. Dow's view—that if our policy is to aim at steady growth it must 'drive straight through fluctuations in the balance of payments.'• Mr. Wilson's plan means, of course, down- grading the Chancellor and his Treasury. But this is not before its time. The Chancellor under the Wilson plan would simply have to deal with tax reform, with tax-gathering and with the prevention of waste in public expenditure—the traditional functions of the Treasury in the Gladstonian epoch. He would not be responsible for the over-all budgetary target, that is, whether to add to or to subtract from the incomes of taxpayers. That is a condition of the economic, climate and it would be decided by the Prime Minister and the Economics Minister. For the first time business people would be able to sleep happily at night without dreaming that they might wake up to a sudden, mad Treasury deflation.
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