ECONOMICS AND THE CITY
An open letter to Jack Jones
Nicholas Davenport
Dear Mr Jones, I do not know Whether you ever read The Spectator but there was a piece on August 30th in the City columns about "Mr Wilson and the Economy" which Should have been addressed to you as you are now virtually running the economy and not Mr Wilson. This fact has upset some diehards in the City but not me who have been greatly impressed by your new sense of economic realism. You are reported to have said: "We have had a fever with wage rises running up to 60 per cent. If you go that way you arrive at a banana republic where El will be the value of a piece of toilet paper". Whether that remark was prompted by your new awareness of the economics of a runaway wage-cost inflation or by your single desire to keep a Labour Government in power and Mrs Thatcher out does not really matter. The important thing is that You have disassociated yourself from the revolutionary Benn-boys who want to take everything over now because they regard capitalism as dead. You have apparently realised that they are quite incapable of running a private enterprise export trade of £16,000 million a year. Much less the City of London with overseas earnings of nearly £1,000 million a year. You have sensed the frightful unemployment Which would result if the clever academics who advise Mr Benn and the Marxists — but could not run a peanut stall — were in power in Downing Street and managing the economy. In other words, you are a pragmatic Fabian Socialist who wants to see a mixed economy work and work not only more efficiently but more fairly. And this is something which ought to please the City as well as Mr Wilson facing his most awkward party conference.
Of course you want to change society. So do we all. It is not a very fair society when strong-arm trade unions can appropriate bigger slices 'of the diminishing national cake and make poor people poorer. Your flat £6 a week limit shows that you are conscious of this fact, for the poor workers will gain and the top working nouveaux riches will suffer a fall in their standard of living. But I would like to discuss with you your plans for changing our advanced industrial society. You seem to be ignorant of the way in which the financial system works in a mixed economy.
At the Trades Union Congress you produced a half-baked scheme for adding about £1,800 million to manufacturing investment by forcibly taking (a) about £500 million as a start from the pension funds and giving it to the National Enterprise Board and (b) about £1,300 million from company tills and pushing it into capital expenditure. You seem to think that there are wicked people in the City and in company boardrooms sitting on piles of cash, on which they can earn 15 per cent "in the street" without risk, instead of putting it into new factories and plant for the better employment of your members. By and large this is simply not true, as you will see if you turn to page 97 of the CSO Financial Statistics for August.
I think you must have been drawing your picture of the capitalist finance system from Mr Jim Slater. But Mr Slater is unique. He is not representative of the industrial world. He is a cash scavenger and like our dustmen he performs a useful, if over-paid service. The truth is, Mr Jones, that most industrial companies are not sitting on piles of cash—in spite of Mr Healey's taxation reliefs — but have barely enough cash for survival, that they are not earning enough profit to finance new investment and that , if they were, they cannot make the investment pay off while your members insist on over-manning the new machines.
As you must know, the new issues of capital made through the Stock Exchange are only a fraction of the total of new company investment. In the boom 1972 year these new City issues amounted to about £1,000 million against nearly £4,000 million of total new company investment. The total annual savings collected by the life and pension funds is about £3,000 million and these have to be distributed among private loans and mortgages, property develop
ment company debentures, loan stocks and risk capital, not to mention subscriptions to government and municipal issues. If you force the savings managers to put £500 million into the National Enterprise Board how do you know that Lord Ryder will be cleverer than these savings managers in selecting wise investments for it? Experience has shown that risk investments selected by state servants are not usually the winners, because if they fail, these privileged bureaucrats do not lose their jobs, as private enterprise men would do, but go on to well-paid retirement.
Mr Wilson not long ago wrote a letter to the British Insurance Association saying that he would never compel them to make investments against their own judgement. Myself I have always felt that there should be more co-operation between government and private savings regarding investment — some guide-lines to help investment managers. I am sure you will agree upon that. But please don't imagine that you will get better investment by forcing savers to put their money into nationalised industries or into trade union dominated enterprise. You would only inhibit saving.
Of course, if you can devise a scheme whereby the best brains among your members can be brought into the boardrooms and share in the management I am sure that most company chairmen would jump at it. In the past worker participation has failed because your members have not been keen to co-operate in increasing profits. They have been brought up to believe that profit is a dirty word, that managements always exploit workers and that capitalism must therefore be destroyed. If you can convince the trade union world that in a mixed economy the workers can share in the profits of private enterprise through participation in a public unit trust so that by not insisting on over-manning they can actually make a profit for themselves, then you will find new industrial investment leaping ahead and uemployment shrinking away. You could, Mr Jones, be the saviour of our country 7 if you could persuade your unions to drop their Marxist take-over nonsense and co-operate.
Finally I hope, Mr Jones, that you will not over-do your egalitarianism. I am entirely with you in being shocked at the high salaries paid to some chairmen of companies and public boards, but you must look at them net of tax. As you say, the "percentage"rises in salaries carried from trade union practice into public and private service produce ridiculous results. A chairman getting £40,000 will have an extra £8,000 if the 20 per cent rise for his work-people is applied to himself, but net of tax it will mean only an extra £336. I was shocked, as you must have been, to read that the new chief executive of the state-owned British Leyland is to get £50,000 a year. It is under £10,000 net of tax but it is enough to make a worker on the production line in a Leyland factory throw a spanner in the works. But I would increase your own salary, Mr Jones. You should not get less than a Cabinet Minister. Fair is fair.
Yours N.D.
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