FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT IN the year which has just closed the nation completed its qujet recovery from the industrial recession of 1952. This is the more remarkable because it took longer holidays than ever before and lost a full working week over_ the Coronation. The index of production, after the summer dip, went steadily ahead ,and the average for the year will probably be 6 per cent. or more above that of 1952 and between 1 per cent. and 2 per cent. above that of 1951. The real national income will probably be £650 to £700 millions larger than in 1951 of which £500 millions will be due to the extraordinary improvement in the terms of trade. The, workers are busy at the moment securing a larger slice of the bigger national cake which now weighs over £14,000 millions. In 1952 the wages slice was £5,460 millions. (This excludes the Forces pay.) The much smaller slice of cake going to dividend and interest receivers of the middle and upper classes is also being increased. In 1952 it was £872 millions (excluding the undistri- buted profits of companies). I notice that this is arousing the indignation of some Labour Members of Parliament who profess to see " the pattern of social justice " being changed. Are they not losing their sense of proportion ? Looking back they will find that since 1946 the wages slice has come up from £3,250 millions, a rise of nearly 70 per cent., while the dividend and interest slice has come up from £620 millions, a rise of 40 per cent. The gross national -income in this period rose by about 56 per cent. When the new wage claims have been met the wages slice of the new national cake may go up from 40 per cent. to 44 per cent. but I would be surprised if the dividend and interest slice rose by more than 1 per cent. from its present 61 per cent. when all -the 1953 dividend increases are through. Hardly the occasion for another storming of the City Bastille 1 The Dividend Slice of the National Cake Nevertheless, Mr. Roy Jenkins, M.P., is shocked—so he writes to the Economist— because in a representative cross-section of companies reporting in the first ten months of the year the amount distributed in cash was 9 per cent. higher than in the corres- ponding period of 1952. But allowing -for the increase in capital employed by these companies in this period the actual increase in dividend " yield " was nil. Labour Members may object to companies issuing bonus shares to bring the issued capital into line with the real capital employed because, they say, this so often leads to a larger distribution in total cash. But they are objecting to honesty in company finance. It is important that company directors should trade on the basis of profit margins worked out not on the original cost of the assets but on the replacement cost, that is, on current market values. It is important that they should pay dividends on capital brought up to correspond with the current Market value of the real capital employed. This is much more likely to induce them to plough back more to reserve and restrain their cash distributions. I regard the present phase of bonus share issues and more liberal distribution as a return to greater reality in company finance, as a restoration of the equity share to its proper " risk " function in the capitalist economy. I would guess that the phase will not last much longer than three to six months more, by which time companies will have completed their accounting for this year of grace and recovery.
Penny Shares for Workers There is no -doubt that dividend increases may encourage the workers to demand higher wages but that is only natural in a free competitive society. Sir Walter Monckton should make both sides examine the financial statistics on this page. Mr. Butler in the last economic debate in the House of Commons wisely declined to give a lecture to the country about profits, dividends and wages I he merely hoped the utmost moderation would be used by all. If the workers feel jealous about dividends going up there is nothing to stop their buying equity shares on the Stock Exchange except the incon- venience of dealing. But this might be over- come by Mr. J. B. Kinross2s bright idea of Penny Shares. This is a scheme to create Unit Trusts in the shares of famous com- panies, to sell penny units of these Trusts by popular savings book methods and to have them on tap at workers' canteens in the factories, in chain stores and co-operative shops. A Penny Share in Great Universal Stores, for example, might have been a popular buy last year seeing that they quadrupled in market value. In fact, any " growth " share would be attractive. The Trade Unions might well adopt a new slogan—" Workers ! Own Your Equities 1"
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