In the City
Turning point?
Nicholas Davenport What is happening to Britain? One leaves the City for a few weeks to find the giltedged market in a state of nerves and the equity markets disconsolate for lack of buyers. (The FT index down eighteen points to 352, a new low for the year.) Motoring round the south of England one inevitablY gets the impression that everyone has stopped working except the farmers—and they look extremely glum because crops are short and they are winter-feeding their stock on account of the drought. The ex-proletariat have apparently all gone to Spain for their holidays. The middle classes are left crowding the English beaches and even cultural byways like the Roman remains at Bath where one has to stand in a queue waiting for a guide. As their standard of living has been badly knocked through high taxation and inflation the middle classes are more appreciative of the better value they get by spending their pounds at home. MY wife and I were amazed to have a lunch at the Old Mill hotel near Bath for £1.65 which could not have been bettered at an' country hotel in France (except perhaps for
the cooking of the vegetables). The trolley of sweets was far superior to anything to be found in our old duchy of Normandy and Aquitaine. And what beautiful country we English have! Where could you find on the Continent such lovely unspoilt valleys as lie hidden in the Cotswolds or the Berkshire downs? So let us spend our sadly depreciated money at home—in spite of the Dutch elm disease—and stand up for Britain.
More people, one finds, are doing so. This Year, thanks to the 'social contract' between government and trade unions, there has been less production lost on unnecessary strikes, so that the national output has gone up by about 31 per cent. (In 1975 there was a decline of 1.6 per cent in real terms.) The significant fact is that consumer expenditure, measured also in real terms, was no higher in the first six months while personal savings as a percentage of personal disposable income were slightly up. So it cannot be said that we British are going downhill because of riotous living. We may be taking longer holidays but if we are now drinking More it is due partly to the hot weather and Partly to worry. We are all worried to death about our jobs. We are told by the Government that a world economic recovery is taking place, but unemployment is still going up in Britain. In mid-August it topped 1 million for the first time since the war.
Those of us who study government blue books are well aware of what is causing the I055 of jobs. Between 1972 and 1975 the Index of the gross domestic product at factor cost (1970= 100) rose by 4.2 per cent While the index of wages and salaries per unit of output (1970=100) rose by 71 per cent and the index of retail prices by 57 per cent. In other words, men and women have been getting more pay than is justified by !heir output of goo4. In the same period Income from employment expressed as a Percentage of total national income rose from 67 per cent to 71 per cent while the Share of company profits fell from 12.4 per cent to 9.8 per cent. (It was 15 per cent in 1965.) In short, companies have not been earning enough profit to invest and expand, not merely because of the world slump but because of the rise in wage costs.
. Incidentally, the public sector now ciccounts for 65 per cent of the total domestic Product. Until we enlarge that part of the Private sector making goods for sale abroad 41d in substitution of imports we shall never get out of our financial bog. But that means reducing the amount of 'socialism' we have built up in the national economy. All these facts, I believe, are slowly being realised by the man in the street, who is inclined to become more conservative when he faces uaeniPloyment. Tile monetarists will say that there is too Much money chasing too few jobs, pointing out that in the month to 21 July the money suPPIY on its wider M3 definition rose by 845 million or 2.1 per cent. Do they really ?c"eve that by reducing the money supply IheY will create more jobs? No sane economist believes that it would be possible
to stop price-inflation by purely monetary means without bringing business to a stop. No doubt Sir Keith Joseph has been able to convknce the electors of Leeds North-East of the eternal validity of the equation MV PQ (the quantity of money its velocity-the level of prices the level of output). Of course, when the level of output is at its physical maximum any increase in the money supply will increase the price level. But the level of output is not at its physical maximum, as we all know, and if you reduce the money supply—by issuing fewer Treasury bills and more gilt-edged stock to the non-bank public—you might raise the rate of interest, slow down business activity and create more unemployment. There are so many variables that no one can know exactly what will happen if you start tinkering with the • supply of money. Monetarists are far too simplistic for my liking. It would be a big joke if the Phillips curve, which they affect to despise, turned out to be correct this year—that rising unemployment did slow down wage-cost inflation. If people are really becoming more conservative in their outlook it might he a turning point in our sad economy.
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