Balance of Payments

By NICHOLAS DAVENPORT IF Mr. Lloyd had been as ex- pert pert a bridge-player as Mr. Macleod he might have played a national emergency. Although hand, for he can always declare his cards better when he de- clared his wage-pause. He has always held the trumps in his the immediate threat to sterling 6 passed when he had secured his huge credit from the IMF, he can still point to a deficit on our international trade account; he can still say that if another round of wage claims were allowed the £ would be in danger again. But he has never played his trumps. He is still arguing that the wage- pause is intended to create 'a more realistic relationship between wage increases and the rise in national productivity'—just as if he was de- livering a lecture or writing another report for the Council on Prices and Productivity in the style of Sir Dennis Robertson. This is not the way to convince the public, much less the trade unions, that his shock tactics on the labour front are justified. Indeed, his whole handling of the emergency has been crude and unimaginative. Perhaps he shares my fears that the measures he has taken are not those most likely to solve our economic crisis.

The Treasury, in its latest bulletin, reminds us that the balance of payments is still adverse. It improved a little in the first half of the year, but was still badly in the red. The 'invisible' surplus was again very small and the improvement in the visible trade deficit was due more to the fall in imports than to any rise in exports. The same story was repeated in the third quarter. Exports were 1 per cent. more than in the second quarter and at the same level as in the first quarter. So far this year exports have been running 4 per cent. above the average level of 1960, but have lagged behind the growth of world trade and behind the rise in the exports of our industrial rivals. Last month—for what it is worth—they were sharply down. Imports, after a fall of 6 per cent. between the first and second quarters, declined by only 1 per cent. in the third quarter. The country, perhaps relishing its luxuries, ate more imported food—in spite of a 5 per cent. fall in prices food imports in value were un- changed—and, what is more serious, imported last quarter 54 per cent. more finished manu- factures, including such articles as clothing and footwear which our own manufacturers might have catered for. So the visible- trade deficit, though much improved, is not looking up in the direction we want—a rise in exports—and there are signs that the fall in imports is flattening out. With the superb understatement for which British officials are famous, the Treasury con- cludes its bulletin: 'There would be better grounds for confidence that the improvement will be lasting if it depended less on a fall in imports and more on an increase in exports.' If ever our industrial production is to rise again a stocking-up movement must follow on the present de-stocking and imports must rise sharply again.

I have no wish to be pessimistic, but I cannot follow those who see a big rise in exports coming. Certainly the American boom will draw in more goods from abroad—our own exports to that market were 7 per cent. up in the last quarter as compared with the third quarter of 1960—but we are not going to sell them the motor-cars we used to and even in the delicate matter of alcohol a sudden change in that fickle American taste may be swinging a lot of the thirst from Scotch to native products. European demand for our goods will no doubt expand, even before we enter the Common Market, but in the immediate future there will be no spurt, for European trade has gone off the boil.

As the Treasury plaintively remarks, we need a much better visible balance because our in- visible earnings have fallen so heavily. Although the visible trade deficit was reduced in the last quarter, as compared with the corresponding quarter of 1960, from £82 million to £34 million a month, it was still barely enough to put our balance of payments right and certainly not nearly enough to cover our net investment over- seas. The fall in our invisible earnings is shown up in the following table:

`INVISIBLES' IN THE BALANCE OF PAYMENTS-

Government—

IN 1958 MILLION 1959 1960 1961 Jan:June debit ...

••• 279

274 330 196 credit ... .... 56 42 46 25

Shipping—

debit ... .., 587 621 704 361 credit ... ... 637 624 646 331 Interest Profits and

Dividends—

debit ...

••• 415

426 450 197

credit......

708 686 688 340 Travel—debit ••. 155 173 205 88 credit

•• • 138

153 188 87

Other services—

debit ...

••• 277

312 342 188 credit ...

••• 464

493 522 272

Total ...

+284 +190 + 59 + 25

It will be seen that government spending abroad on defence is still mounting up, that shipping is bringing in a loss, not a profit, and that tourism leaves us in the red. It will also be found that the drop in oil earnings has re- duced the surplus on 'interest profits and divi- dends.' The international oil companies are up against severe price-cutting brought on by the surplus of oil in the free world and by the grow- ing exports from Russia. Moreover, they have to share fifty-fifty with the oil-producing States in the Middle East a fictitious profit based on posted prices, but as they have to sell about a third of their output at a discount on these posted prices they have to swallow an unpleasant loss. I can see no early reversal of this trend. The only satisfactory 'invisible' item is 'other services,' which includes the spending of the American forces in this country and net earn- ings from insurance and banking and mer- chanting.

It looks as if we shall have another year of deficit trading on our international account and that we shall be lucky to get back into surplus in 1962. Our net overseas investment of over £200 million a year will have to be financed by borrowing. And somehow we shall have to earn enough to pay back our $1,500 million loan from the International Monetary Fund. If I were the Chancellor of the Exchequer I would declare an emergency here and now, put a strict control on overseas investment and start trying to boost exports with tax incentives and cheaper credits.