The economy
Where's the alternative?
Jock Bruce-Gardyne
Most noble Lords on Monday, I sus- pect, approached the maiden speech of the Lord Bishop of Durham rather in the mood in which la famille Ramsbotham approached Blackpool: and were similarly disappointed. There were 'no wrecks and nobody drownded: in fact nothing to laugh at at all.' So those of us in search of the 'alternative Budget' dashed over to the Commons just in time to catch up with our former Premier. To be once more dis- appointed.
He promised us a 'definite solution' to our modern discontents. He then revealed to us that he had resorted to his statutory control of our wages and prices in 1972 having seen a vision of the oil shock to come in 18 months, and also that Mr Volcker had 'stated publicly' (to him alone?) that there was no connection be- tween high borrowing and high interest rates. But of that 'definitive solution' there was no sign. Indeed whereas Lord Stock- ton has urged us to copy Uncle Sam's example, and borrow till the cows come home, Mr Heath made it clear that he agrees with those of us who think that for Uncle Sam they have perhaps come already, bearing trouble in their train. What he did not like was very clear. His positive advice to those he called 'my right honourable friends opposite' was not so readily discernible.
So it is to those other exiles 'across the water' that we must turn for wisdom: Mr Francis Pym and (in particular) Sir Ian Gilmour. Mr Pym accused the Chancellor of 'operating within a straitjacket of his own choosing'; Sir Ian advised the Chan- cellor to try one of his devising — 'national agreement to limit incomes and prices' — instead.
Sir Ian, who does his homework with perhaps a somewhat greater application than the former Foreign Secretary, con- ceded that 'as things are we should have quite a good year this year', but insisted that 'the underlying constraints on a sus- tained high rate of growth are still there'. So perhaps we should pause and scan the record.
On the latest estimates (which, like all their predecessors, will assuredly require revision — usually upwards) the years 1980-85 inclusive should have seen our national wealth increase by ten per cent. That is modest by the standards of the Fifties and the Sixties. But it is a consider- able improvement over the years of 'national agreements' in the Seventies, when we rated eight per cent over 1970-75, and less than seven per cent over 1975-80. Where the Eighties have most markedly diverged from the Seventies to the Govern- ment's discomfiture, of course, is that a somewhat faster rate of growth has gone hand in hand with a far higher growth of unemployment.
The explanation of this sad paradox, according to the Court in Exile, is to be found in import penetration. That is unden- iable so far as it goes. But it begs two not unimportant questions: First: if we had not had the import penetration, how would North Sea oil have fitted in? Would we have left it in the ground, as Sir Michael Edwardes once suggested? I think we should be told, for with oil to export instead of having to import it, and no rise in other imports, we should either have had to export capital on a far more massive scale, or else presumably have had to watch our exchange rate soar until the rise in other imports did materialise. The other question looks to the future: if import penetration is indeed the root cause of the dole queues, how would 'more demand' not lead to more of it? It really is expecting miracles from a 'national agreement to limit incomes and prices' to believe it could. put a stop to that. There was an arresting moment on Monday when Mr Heath refer- red to 'preventing' a further surge in imports happening (quotas? fortress Bri- tain? — from the maestro of our European destiny? Perish the thought). But he did not elaborate. Nor did anyone else.
Besides, import penetration is not self- evidently the explanation, or at least not a whole one. Back in 1978, in one of those moments of awful candour that come back to haunt us all, a junior Labour Minister warned that 'over the next decade an additional 1.5 million will be in the labour force. That leaves, even with improved growth in the economy, us facing a possible 3 million by the end of the Eighties.' But there's even more to it than that. For not content with one of the highest 'activity rates' — i.e. the proportion of our adult population seeking work — in Western Europe we have been vigorously broaden- ing the labour market further as pad-time women take the place of full-time men. For this phenomenon there are a host of explanations: the high cost of hiring and (should things go wrong) firing full-time employees, resulting from insurance and redundancy, Wages Councils and Equal Opportunities Commissions, unfair dismis- sal claims and the rigidities imposed on wages structures by the unions, topped up by the fiscal privilege we give to the two-earner households. Precisely the sod of 'supply-side' artificial barriers Nigel Lawson is dedicated to demolishing — not as fast as some of us would wish, but far too fast for such critics as Ted Heath.
That said, the critics really might take time out from the mainstream ministerial rhetoric to analyse the occasional asides. Much learned exegesis has been devoted since the Budget to the interpretation of the extra £2 billion a year the Chancellor has earmarked for his bottom drawer, the contingency fund. Does it mean that his 'fiscal stance' is that much more restrictive than he has let on? Or does it mean that he has become so fatalistic about the irresisti- ble pressures of the spending ministers that he is conceding in advance? Or again, does it really mean that he is keeping a margin of safety in case the income he is hoping for from North Sea oil does not all material- ise? Personally I'd plump for the third explanation, but only time will show. It might be more worthwhile for the moment, I suggest, to ponder what he said to Brian Walden last Sunday. 'As we sail into calmer waters . . . next year . . . there might be room for some slight adjustment in the monetary/fiscal policy mix.' In other words what really ought to be called a dose of ReaganVolckernomics: a readiness to pay a rate of interest needed to draw in other people s savings, together with a somewhat bigger deficit for them to help us cover. The big difference between that and what the critics have on offer is that they want more borrowing and lower interest rates as well: just what Mr Reagan wanted, and what Mr Volcker saw he didn't get. The Reagan Volcker combination has kept soaring de- ficits and low inflation in the air together for a surprisingly long time. If the hangov- er is now about to hit them, maybe it could be our turn. Whether we could really sustain the combination even half as long as they have is another matter. But then, by next year's Budget the next election may be but 18 months away.
Previous page
