A World View
By NICHOLAS DAVENPORT To travel by Comet undoubtedly helps a man to take a world view. Flying over the vast European market at 32.000 feet I was able to look back on Mr. Selwyn Lloyd and laugh at his puny efforts to control his parish economy Poor man, his worry over a diminishing balance of payments is already turning him into a schizophrenic. At the i,.flettectual recent meeting of the International Monetary Fund, when ne made a thinly disguised attack on Germany for not lending abroad more 01 her huge surplus, he said, 'There is a danger of countries trying to solve their payments prob- lem by competitive deflation with all the world- Wide stagnation and unemployment which that Would involve.' Back home at the Conservative Party Conference, where, clearly, he did not have to address himself to many unemployed people. he gave 'an absolute priority to keep sterling 14°118 whatever the effort.' This must have brought blushes to the cheek of Mr. l'horney- e,r°ft who resigned' from the Treasury at the ueginning of 1958 because his colleagues were not as determined as he was to give an absolute Priority to keep sterling strong whatever the cost to unemployment. Perhaps Mr. Lloyd has no tithe to co-ordinate the speeches written for him by his different civil servants, but he ought to know by this time that prime economic objec- 1"yes often conflict and that 'absolute priority' can never be assigned to price stability with stagnation.
The Government, said Mr. Lloyd at Scar- borough, was not responsible if things were not gu,eing as well as they were twelve months ago. world trade outside the UK had stopped expand- ing. According to his ghost writers world indus- trial production, in recession in 1958 and in "gorous recovery in 1959, stopped rising in the second quarter of 1960. At the same time the world export trade. also failed to maintain its '59 rate of growth. The rebuilding of stocks in industrial countries has come to an end. Even Europe finds itself for the time being over- extended. So the prices of some raw materials have already weakened and growth in the world exports of manufactures is tailing off. But is this really a good alibi for Mr. Lloyd? Can he honestly blame the American industrial recession 4.,11(1 the decline in world trade for the crisis in the British motor industry and for the slump in hitt' balance of payments surplus? Certainly not. e is one of the leaders of the Western capitalist sil Ystern and is as much responsible as any of the others for the muddle, the bad planning, the t!i,iett, of co-operation, the trade split in Europe which has brought on the current economic malaise.
_The truth is that the capitalist Western Powers attempting to run their economies with in- sufficient planning, with out-of-date monetary systems, with crude and imperfect monetary con- trols and with an archaic system of international payments and reserves. Governments actually generate the cycles of recovery and recession by their clumsy use of the rate of interest and the control of credit. Obsessed by the fear of infla- tion they often make money dear enough to stop all growth—regardless of the constant need to mobilise all resources to meet the economic threat from Russia. I am not suggesting that govern- ments should give up freedom and resort to a system of rigid economic controls; 1 simply urge that they should plan more, work together more, stop relying upon inefficient monetary controls, and—in the U K—co-operate more with managements and trade unions in the planning of investment. in the allocation of the resources of materials and labour and, finally, I hope, in the determination of a rational wages and profits system. Much that goes on in this country, Mr. Hoy d told the Conservative conference, is 'com- pletely out-of-date.' He was pointing to restric- tive practices in industry, but he could equally well have referred to his own monetary restric- tive practices. These, together with bad invest- ment planning in the motor industry and in the nationalised industries, are partly responsible for our own parochial recession.
But I must keep to my world view. One of the causes of the present slow-own in the Westerri economies is the growing disequilibrium in currency revaluations and reserves. Mr. Lloyd was fully aware of this when he addressed the meeting of the International Monetary Fund. He dwelt on the problem of 'im- balance,' on the persistent flow of reserves from the US into continental Europe in the past eight years, during which Germany increased her holdings of gold and foreign exchange by $4,500 million, Italy by $2,000 million, France by 'just over $1,000 million and the Benelux countries by a little less. These huge surpluses have not been matched by capital exports to needy countries. They are not contributing, as they should, to the expansion of the underdeveloped countries. If they remain hoarded they will inevit- ably slow down the growth of the world trade in manufactures. But if they were handed over to the IMF to form a central reserve they could be used as cover for extensive credits to all the backward countries of the free world, the expan- sion of which is now being retarded by balance of payments difficulties. That, incidentally, would be the time to write up the price of gold and revalue the $ and the downwards and the Ger- man mark upwards.
Mr. Miff, the vice-president of the World Bank. referred in his annual address to the rapidity with which countries engaged on big economic development programme's could reach the limit of credit-worthiness for international loans. He had India and Pakistan in mind. This is all part and parcel of the archaic financial system which Western capitalism has inflicted on itself. Unless a more flexible payments system is quickly devised, growth in the West will be retarded and the new nations will turn more and more to the Soviets for help. Mr. Miff mentioned some novel forms of development finance which are being tried out, such as the lending of food and other surpluses in bilateral trade agreements. TheSe should certainly be extended—on Russian lines. I can envisage. for example, the creation of a dairy industry in the dried-up regions. of Greece if America were to lend some of her huge surplus of feeding-stuffs. But it could never be done on the basis of money loans under present World Bank rules.
Perhaps it needs a sluinp to bring the West to its economic senses, to makc the bankers and the finance Ministers sit down in a 're-think' summit meeting and devise a new payments system for the IMF, a revaluation of exchange rates and a more flexible aid system for the under- developed half of the world. ,
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