5 MAY 1961, Page 29

Macmillan's Economic Plan •

By NICHOLAS DAVENPORT THE story I prefer to believe is that joining up with the European Common Market is only part of the Prime Minister's grand economic plan—the plan which is to restore the missing dynamic of the British economy. No doubt his recent meeting with Mr. Kennedy in Washing- ton gave him a kick, but to be told that the United States urgently wanted the UK in the Common Market for political reasons, even if it meant the loss of some American exports, was exactly what he wanted to hear from the President's lips. It gave him the support he needed. He had decided, I am sure, a long time ago that we British had to put our signature on the Treaty of Rome. To remain outside the Common Market was to seal the long decline in the British share of the world's exports of manufactures. But Mr. Maudling had made a hash of the negotiations and the first Chancellor who has been willing to collaborate with the Prime Minister in his'grand design has been Mr. Selwyn Lloyd. When he found that President Kennedy was thinking along the same economic-monetary lines Mr. Macmillan was persuaded that he could go right ahead regardless of criticism from the Empire Crusade, Right- wing industrialists, hard-money fanatics and all. From our island point of view it is going to be a new industrial revolution.

It goes without saying that short of a world war the struggle between Western and Eastern blocs is bound to be decided by the economic weapon. The uncommitted developing nations will turn to the bloc which gives them the most economic help and this will not be the Western unless it can increase its rate of economic growth. Both Britain and America have been falling behind in the economic race because they have been pursuing foolish economic policies, using what has been aptly described as the 'stop-stare monetary techniques. Both ' having currencies which are used in world trade and held as monetary reserves, they have been prone to make money dear and credit tight whenever they see inflationary trends and balance of payments deficits developing. Hence they usually bring on recessions shortly after they have been enjoying recoveries. But each recession does permanent damage to economic growth and weakens the country internationally. The way out is not to apply the old deflationary monetary techniques of the Federal Reserve Board or Mr. Thorney- croft or Lord Amory, but to allow economic expansion to go steadily ahead, as Mr. Lloyd has done, and to rely on international monetary co- operation to defend the two international cur- rencies through the agency of the IMF. This was the common strategy agreed between Prime Minister and President in Washington. It meant that neither £ nor $ would have to be defended with the limited means of the national Bank rate and the national reserves. In his fine speech at the Massachusetts Institute of Technblogy Mr. Macmillan declared : 'We must ensure that the credit system in the free world is adjusted to the needs of expanding trade and aid—and that money becomes the servant, not the master, of men's needs.' This is the sort of remark I have been making for years in this column, but it is the first time that a Prime Minister has said 4 and has had a Chancellor of the Exchequer to agree with such Keynesian philosophy. And it is the first time that a British premier has had an American president to co-operate with him in a sweeping reform of the Western system of pay- ments and aid.

The first step will be taken at the autumn meeting of the IMF. Both President Kennedy and Mr. Macmillan are backing the plan to turn the IMF into a credit-creating international bank which will issue Fund Certificates to an aid co-ordinating agency—perhaps the new OEDC. (These Fund Certificates will be encashable by aid-receiving nations in the countries supplying their equipment needs.) If this plan does not get enough support the American and British repre- sentatives at the IMF meeting will press for new `stand-by' agreements with countries whose cur- rencies may be needed to support the £ and the S. Propaganda for this important monetary reform was made at the Paris meeting last week of the constituent members of the new OEDC. Presi- dent Kennedy sent a high-powered delegation to this meeting, including Professor Triffin, the author of the international bank plan; and it was decided on their initiative to set ttp three working parties to consider problems of economic growth, of 'hot money' movements and of the use of monetary policy (meaning less competitive use of interest rates). The joint monetary strategy of the President and Prime Minister seems to be working according to Mr. Macmillan's grand design. If it is successful the whole Western economy will improve its rate of growth.

It is now possible to see this business of joining up with the European Common Market in its true perspective. Our own rate of economic growth depends virtually on the rate of growth in our exports. According to the April Treasury Bulletin for Industry--well timed for this public debate—the EEC is 'the most rapidly expanding large market for manufactured goods in the world.' Imports of manufactures by the EEC countries last year averaged nearly $1,100 million a month, which was about double the American imports of manufactures. Imports of British manufactures by EEC countries increased at half the pace of their imports as a whole. We just can- not afford to be left out. Fortunately most of the Commonwealth countries (Canada excepted) now agree that it is better for the UK to be a member and are actively considering the changes in our tariff preferences which must be made. Of the EFTA members Norway and Denmark are desirous of joining, but Sweden, Austria, Switzer- land and Finland consider themselves to be `professional' neutrals barred from signing the Treaty of Rome. The old stumbling-block, de Gaulle, is no longer likely to resist the British joining up. In fact it seems inevitable that sooner or later Mr. Macmillan's grand economic design will take effect. He can even say playfully : Don't rush it!