Free-for-all Muddle
By NICHOLAS DAVENPORT TINKERING with the very big problem which confronts him Mr. Lloyd has reduced Bank rate from 6 per cent. to 5/ per cent. He hastened to tell the Institute of Directors that this implied no change in his policy of credit restriction. The time had not come to relax. A 6 per cent. Bank rate had simply be- come too high in relation to similar rates in other financial centres. If Mr. Lloyd reads his financial papers he would see that 51 per cent. is also too high in relation to the financial centre he has in mind. Our Treasury bill rate at 5.1 per cent. is nearly 3 per cent. above the American Treasury bill rate. It still pays to Move money from New York to London. But there seems to be a conspiracy between the Powers in Washington and London to ignore international monetary movements, to pretend that currency speculation does not exist and to Pursue the domestic policies each is bent on—the Americans keeping money very cheap and easy to ward off the trade recession they fear, the British keeping money very dear and tight to Ward off the wage-cost inflation they fear. But does any sane person really believe that money controls without any other controls can solve cur problems?
Mr. Lloyd apparently does and as his sanity has never been in doubt I attribute this lapse to inexperience of the working of the economy. The Conservative Party, he told the Institute of Directors, won the last three elections on a pro- gramme which included no more nationalisation, the sweeping away of physical controls and rationing schemes. To quote: 'We said we be- "eyed in free enterprise, the working of the laws f suPPIY and demand, consumer choice, etc. We clic! not believe in comprehensive and detailed State planning. We preferred to try to regulate °ur economy through the Budget and by inonetary controls.' And, he proudly added, haese methods worked.' They did indeed. We d nearly three, years of stagnation and after cule and a half years of expansion we are back !gain in restriction and stagnation—witness the latest figure for the index of production—and 19 the running into another recession. If that the best Mr. Lloyd's methods of monetary control can do, it is surely time to make a change.
beg the Chancellor to look again at the real Problem which confronts him. The balance of payments problem. The last half-year saw our surplus on current account fall to £35 million- pinst £116 million in the first half of 1959. Yet we are still investing abroad at the rate of over a,4).0 million a year—£160 million in government .1._u and grants and around £200 million in private of payments be How;does Mr. Lloyd right the balance 1111 PaYments by 'monetary methods? If he makes recession dear enough to bring about a general ;_cession in the home trades—in order to reduce r. ports—he puts up the cost of our manufac- c es because he reduces the volume of output and so worsens our export chances. Of course, if he causes such a bad recession that widespread unemployment follows, he may think that he will bring down wages and so reduce the cost of our manufactures, but that is extremely unlikely as a matter of politics. Long before unemployment exceeds the 3 per cent. level he will be up against the Prime Minister as well as the trade unions and will be out of the Treasury. (A fine chance, then, for Mr. Butler to get back into the succes- sion!) Clearly, our payments situation is much too difficult a one to correct by monetary methods.
The first practical step is to exercise some con- trol over external investment, so that our monetary position is not worsened by unneces- sary foreign investment which does nothing to help our exports. The financial press has lately been full of the exploits of the property mil- lionaires—Mr. Cotton putting up a quarter of the money to build a super-skyscraper over the Grand Central Station in New York, Mr. Clore buying another skyscraper at 40 Wall Street from the fabulous Mr. Zeckendorf, and Sir Brian Mountain of the Eagle Star and Second Covent Garden Property providing a fifth of the capital ($16+ million) for the first stage of a skyscraper development in Montreal. If these great entre- preneurs had so many dollars accruing to them the Treasury should have made them convert them into sterling to strengthen our precarious balance of payments. If they had to buy the dollars, it is a Treasury disgrace.
The next practical step is to reorganise the export trade, grouping the smaller companies in each trade into an export sales organisation under expert management and providing them with extended credits and an up-to-date sales research.
If control of imports is out of the question— and no one wants to go back to import quotas— let the Government consider how to ease specific pressures at home without making money dear for everyone. The obvious control to reimpose is the building control. The boom in office build- ing and private enterprise flats is obviously getting out of hand. Why wait for the inevitable collapse through over-expansion? Why not try some planning now? The building trades and the motor industry are the only sectors which have been pressing strongly on the labour market —so strongly indeed that another round of wage claims is presently meeting with little or no employer resistance. The wage settlement in the building dispute is likely to be the costliest for years. It is idle for Mr. Lloyd to plead for wage and profit restraint. It is his refusal of control in building which is responsible for the wage in- flation in that and other industries.
The cost of having no controls but monetary ones is dangerously mounting up. If Mr. Lloyd does not believe in 'comprehensive and detailed State planning,' why does he have an 'Economic Planning Board' to which he has just appointed three new members? A Chancellor who refuses to use 'planning' and relies solely on general monetary techniques is, I fear, doomed to failure.
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