MR. AMORY'S LUCK
By NICHOLAS DAVENPORT No Chancellor has ever had it so good as Mr. Heathcoat Amory.
He assumed office at the Treasury after the dangerous shock treat- ment had been given and the patient had come round. (To everyone's surprise the mental condition of the TUC had been improved by the shock and thereafter excessive wage claims were either not pressed or were successfully resisted, as in the case of the London busmen.) All Mr. Amory had to do was to ignore the advice of the bold Dr.
ThOrneycroft (who has now been struck off the register), throw his medicine out of the window and then Mart giving the patient a good tonic. This was done by ending the credit squeeze, removing the hire-purchase restrictions and finally remitting a lot of taxation. So lucky was Mr. Amory that the outside climate began to improve just as his patient was recovering. The recession ended in America and trade soon began to revive in Europe.
To crown it all the terms of trade remained astonishingly favourable. The fall in import prices offset the rise in wages last year. Today his patient is bounding with health and Vitality. No doctor ever took on a case at so favourable a moment.
Can his luck hold? The Chancellor appeared to be dubious about it when he spoke at the Actuaries' dinner on November 25. He did not want people to think that he would reduce taxation again next April just because the Budget was turn- ing out more favourably than had been antici- pated. Budgets, he said, played an important part in steering the economy between inflation and deflation and his problem was to keep a balance between the growth of money incomes and that of the output of goods and services. Prices had been stable lately largely because that balance had been preserved. But could it last?
The November Treasury bulletin seemed to suggest that this balance was rather precariously held. The retail price level has now been stable for nearly eighteen months (in October the index was very slightly below that of October, 1958), but special factors were responsible for it. The food price index had dropped when the potato shortage ended last year; indirect taxes had been cut and import prices had remained low. It is impossible to state, say the Treasury, that the underlying upward trend of prices has been entirely eliminated. But fortunately wage rates and earnings have been rising much more moderately than in earlier years.
As compared with the first half of 1958 the wage rate index in the first half of this year was about 3+ per cent. higher, but the rise since the beginning of January has been only about 1 per cent. This is due partly to the lengthening of the interval between wage rounds and partly to the change of emphasis from higher wage rates to shorter hours. (A reduction in working hours has been conceded in the printing, chemical and foot- wear industries and is now being fought for in engineering.) But for the inflation problem which is still worrying Mr. Amory' we must com- pare earnings and output. Total income from employment was only 3 per cent. higher in the first half of the year (against a rise of 5 per cent. and 6 per cent. in the previous two years) and, allowing for a rise of 7 per cent. in profit incomes, what is called 'total factor incomes' in the economists' jargon, were about 4# per cent. up, which was not far off the growth in the national output. The index of industrial production is now rising
strongly and by the end of October it was 9 per cent. higher than twelve months ago. Output has risen in all the main industries except coalmining and shipbuilding—and quite sharply in steel, it chemicals, consumer durable goods, textiles and clothing. There is nothing as yet to suggest a return of inflationary pressures. Unemployment has slightly increased—it is still around 2 per cent. of the labour force—and the number of unfilled vacancies remains well below. The labour posi- tion, in the opinion of the National Institute of Economic and Social Research, is easier than in any post-war year except 1952 and 1958. Surplus capacity in industry is still the rule rather than the exception. What, then, is worrying Mr. Amory?
The only cloud in the sky is a small rise in import prices, mainly in industrial materials such as rubber and wool. According to the index of the NIESR the rise since March has been 4 per cent. Having regard to the spurt in productivity this is surely small enough to be absorbed without causing any rise in manufacturing prices. Besides, this moderate rise in import prices implies some recovery in the incomes of the primary producers overseas which in the long run must benefit British exports of manufactures. Really, there is nothing in all this to scare the occupant of No. 11 Downin Street.
Clearly Mr. Amory is riding his favourite hobbY1 horse, which is to frighten manufacturers at home into lowering their prices. He is becoming obsessed with this idea. He sees the need for some service and transport trades, which cannot increase thelt productivity, to raise their charges as wage rates advance and if this is not countered by reductions in the prices of those manufactures blessed bY, lower output costs he feels he will not be able t maintain stability in the cost of living. If price rise, he told the Actuaries, our competitive post tion will be weakened and then our expansion an the improvement in our living standards will hay to be held back. Some European government have already taken budgetary and other measur to restrain the growth of demand. If I may say so, Mr. Amory seems to be fussin unduly. It may be true that some British mau; facturers are loath to cut prices as productivit rises and need some pushing from the Treasur but what Mr. Amory seems to forget is that th removal of import quotas, the ending of dolla discrimination, the breaking-up of price rings b the Restrictive Practices Court will all increas competition and set up a trend towards low prices, Mr. Amory's luck is holding. Later on h will, of course, have to apply some control, for free economy does not steer itself into perpetu equilibrium.
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