MONTREAL AND THE CITY
By NICHOLAS
DAVENPORT
THE thunder of the Common- wealth economic conference at Montreal has clearly been stolen by the American proposals for the October meetings of the Inter- national Monetary Fund and World Bank. If world trading reserves are to be increased, the World Bank to be reinforced and an International Develop- ment Agency to be set up, what
gold at the Bank of England. Unfortunately he he might have been more specific. He might have said that he would regard the United Kingdom's favourable terms of trade as an opportunity to lend more abroad and that he would assign more importance to overseas investment at the present time than to increasing the pile of unproductive The secular trend is against restriction and colonial expanding world economy.' Nevertheless, I think favour of 'an expanding Commonwealth in an of restriction or anti-dumping schemes designed to keep up the world prices of basic commodities? preferences, and Mr. Amory was on safer ground when, at the opening session, he spoke vaguely in is left for Montreal? Discussion contented himself with a clichi about 'sound reserves' and the 'need to be watchful.' It would be better if he watched the Commonwealth more and Zurich less.
There was talk some time ago about a Common- wealth Development hank, but the idea seems to have been killed in the City before it could be exported to Montreal. The City view is that its existing institutions are adequate-did not the Midland Bank lend £10 million to New Zealand? -and that it is more interested in developing World trade on a multi-lateral basis than Com- monwealth trade on a restricted basis. Is not Sir George Bolton, a director of the Bank of England, just now raising £2f million for the Bank of London and South America in order to develop trade in the Caribbean area? Besides, there is already a Commonwealth Development Finance Company which was set up in 1953 (after a Commonwealth Prime Ministers' conference) with an issued capital of £15 million held as to 45 per cent. by the Bank of England and 55 per cent. by a group of industrial, shipping, mining, and bank- ing companies. Up to the end of March, 1958, it had promoted fourteen schemes with a total com- mitment of about £14f million. It may be chicken- feed but the organisation is there if public authori- ties want to make use of it. The tendency, however, under the influence of the Conservative Govern- ment, is to let private enterprise take care of overseas development. , The members of the Montreal conference can hardly complain of the total amount of capital flowing to the sterling area. The flow has been quite strong in recent years but it has taken the form of direct private-enterprise investment. For example, it has been estimated that in 1957 about £200 million gross were invested abroad by British companies retaining the earnings of their over- seas subsidiaries. According to the Midland Bank the total overseas issues on the London capital Market in that year were only .£62.4 million.
Overseas Capital Issues-In £ million
Commonwealth ay.
1933-38 1954 1955 1956 1957
Public Bodies.. 9.5 35.1 17.5 13.8 13.0 Companies .. 16.8 19.3 22.4 17.6 47.9 Total. .. 26.3 54.5 39.9 31.3 60.9
% of all issues.. 16.2% 11.6% 7.0% 10.6% 15.9%
Foreign 4.7 6.6 2.2 - 1.4 Total overseas 31.0 61.1 42.1 31.3 62.4
% of all issues.. 19.1%
13.0% 7.4% 10.6% 16.3%
This table I have taken from The City's Invisible Earnings, a statistical survey written by Mr. Wil- liam M. Clarke, the City Editor of The Times, and published by the self-styled Institute of Economic Affairs at 5s. The members of the Montreal con- ference would do well to study this well- documented pamphlet, for it is often very difficult to know whether Mr. Macmillan's Government is speaking for the general body of traders or for select bodies in the City. After all, the nation pays its way in the world by its exports of goods and services and by its income from overseas invest- ments, whether they are in the sterling or the dollar area. Sometimes the official policy seems to favour the banking or investing role at the expense of the trading (as when it over-restricts domestic invest- ment in order to pile up gold), but when a govern- ment reflects what is known as 'the Establishment' and the only field where 'the Establishment' works intelligently as a coherent and organised body is in the City, it is natural that the banking and investing roles sometimes get priority treatment. What the Commonwealth representatives will find surprising in this pamphlet is the naiveté with. which Mr. Clarke describes the reopening of the commodity markets in the City and the rapidity with which the Bank of England allowed City traders to use sterling to buy dollar commodities.. 'How much additional foreign exchange,' he asks, 'has this attracted to London?' How much gold• and dollars, he did not ask, has all this lost from the central. reserves? Nor was the question dis- cussed as to whether it would have been better to reorganise commodity buying schemes in the Commonwealth than commodity markets in the City.
Mr. Clarke has raised the official estimates of the City's invisible earnings in 1956 from £125. million to £150 million or over. The individual' items he gives as follows: insurance £70 million, merchanting £25 to £30 million, brokerage (in- cluding shipping) £15 to £20 million, and banking £25 to £30 million. He may well be right to set the total higher, but the Commonwealth representa- tives at Montreal will bear in mind the official estimate of investment income remitted to the United Kingdom in the form of interest, profits and dividends. The figure for 1956 was £370 mil- lion (£350 million in 1957), and the impetus it gave to the export trade was surely much greater than that given by the City's £150 million. What Mon- treal should be trying to do is to make the British Government and the City think more in terms of planned investment in the Commonwealth. And the important question will soon arise as to how' the Commonwealth can be fitted into the Euro- pean free trade area.
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