THE JOLT BACK TO ECONOMIC REALITY
BY NICHOLAS
DAVENPORT
WE all need jolts from time to time to bring us back to economic reality. The heavy cost of the Egyptian misadventure may yet cause the Government to see that the real issue is not the survival of Great Britain as a Great Power but its viability as an inter- national trading economy. Incidentally, British economic viability happens to be an obvious political interest of the United States, but the Washington Government also needs a lot of jolting just now to bring back its memory and senses. If Mr. Harold Macmillan would only give up his Military dreaming and get down to earthy economics—on the simple lines which I now propose to discuss—Washington Would get all the jolting it needs. Briefly, a Policy of economic realism for us—at this critical moment when our trading has been disrupted—demands the immediate release of shfficient resources at home to enable both exports and productive investment to ex,Pand, so that we can right the balance payments and make British industry really competitive in the world's markets.
. a speech to the foreign press associa-
!Inn last May Mr. Macmillan indulged in nis famous 'pipe-dream' about savings in defence. If we devoted, he said, only 5 per cent. instead of 9 per cent. of our total national income to defence the cost would £800 million instead of £1,500 million. only half the £700 it million saved were wected into exports would completely transform the foreign balance and if the °tiler half were shifted into productive I Industrial investment there would be no worry about the competitiveness of British manufactures. Surely the time has come when Mr. Macmillan will have to make his Prk-dream a reality. If the defence burden I '500 million is now going to force neat Britain once again into deficit on 's international account, then it will have t0 be cut. As compared with the rest of estern Europe we are already devoting early twice as large a share of our re- prces to defence. We are carrying—to use ‘,1,1'. Macmillan's phrase—two rifles instead ');!. one carried by the other members of NATO. The burden has become insupport- bule and the Washington Government must en told that as a result of the present cunnomic crisis we propose to cut. It is not °I. me to raise the wider political issues,
but it is obvious that since the American military policy of the 'great deterrent' has entirely failed to stop Russian aggression in Europe or Russian attacks upon British economic interests in the Middle East, we would be entitled, in any case, to reduce our present contribution to the Washington scheme of things. But my present argument is that our economic survival, now seriously threatened, makes a substantial cut in next April's defence budget imperative.
It will be necessary to convince Washing- ton that we mean business in the literal sense. When our national safety is at stake drastic defensive action has to be taken. I have previously referred to the defensive measures required to protect the sterling exchange. The Treasury should now, I think, begin to realise on Wall Street the balance of their dollar securities once held as collateral for the loan from the Recon- struction Finance Corporation, the present value of which is something under $1,000 million. Wall Street is at a very vulnerable level, being at about 10 per cent. of its all- time peak. The dearer money policy of the Federal Reserve is diverting money away from equities and there is no doubt that if the British Treasury became a heavy seller there would be a substantial decline in common stock prices. It is therefore essential for the Treasury to act quickly and not wait until a slump makes it too late to enter the market. We need these dollars to reinforce our reserves.
• Finally, let me reaffirm my belief that if we cut our defence bill and release further resources for exports and productive invest- ment we will emerge from our present crisis with a much stronger economy. The present crisis has had one good effect : it has made the Macmillan squeeze redundant and the costly dear money policy no longer neces- sary. Inflation will have been finally squeezed out by the oncoming recession : the vicious wage-price spiral will have been broken. Already it looks as if the present wage claims will be settled without serious harm to our industrial position, for labour can hardly want a serious fight over wages with unemployment rising. In another twelve months, if we reinforce our competi- tive position by well-directed industrial investment, we will be in the position to join the free trade European zone without risk to our home market and with the prospect of expanding export trade.
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