In the City
Ethic of the mixed economy
Nicholas Davenport
The good-natured television interview between Robin Day and the Chancellor was a delight to watch. Every time Robin Day carefully advanced a point to prove that the Chancellor had miscalculated the Public expenditure Denis Healey would say; 'No, no, Robin, you have got it all wrong; what you don't understand is . . It was like being back at Oxford confronted With a very superior tutor. I doubt whether the Chancellor would have got away with so many prevarications if the questioner had been the Cambridge economist, Terry Ward, who is now advising the Commons Expenditure Committee to attack the entire credibility of the Treasury estimates.
There is such confusion over what and how much expenditure Mr Healey has cut —the debate is becoming like the mediaeval theologians' dispute over how many angels can sit on a pin—that it was wise of the City to ignore it and concentrate on the one point that matters, namely, that the Chancellor has routed the Tribune Left and has kept the co-operation of the trade union establishment. This was sufficient to stop the decline in industrial equity shares and push the FT index back to over 400. But until the budget is out on 6 April, and until Mr Jack Jones has secured the necessary union support for the next round of voluntary wage restraint, one cannot expect the Stock Exchange to start another lift to the bull market.
I hope in this waiting period that the City does not change or shift its belief in the Conversion of St Denis. For the time being it seems to be convinced that the Chancellor has accepted the Oxford economic diagnosis of the English sickness —that the proportion of the gross national Product going to people who do not Produce and sell goods at home or abroad is too high and the proportion going to Productive industry is too low. This Implies that the Government has recognised the importance of restoring the investment Profitability as well as the liquidity of the Private sector. That should be enough to sustain and fortify the bull market in industrial equities.
But there are doubters who point out that while this may be true for the time being—even a communist government would turn to private enterprise for help to get the nation out of its present economic mess—the Labour Party as a whole has not accepted the ethic of the mixed economy. It still wants to secure over-all state control and implement its Marxist Clause 4 when the mess has been cleared. It was noticed that the Chancellor in that television Interview did not enthusiastically endorse the recent speech of Mr Roy Jenkins, who bravely stated the social democrat case for a mixed economy, when Robin Day called his attention to it. Some doubt about the conversion of St Denis must, therefore, remain. But I am sure that Mr Wilson, who is never firm on ideology but a stickler on the party rule book, has reminded his left colleagues that in 1960 the party did vote to retain a mixed economy in its new Statement of Aims. I am also sure that Mr Wilson wants to establish the idea that Labour is the party of government and that the private and public sectors can work happily together in partnership.
A case which supports the Wilson partnership idea is the first participation agreement which has now been reached with two American oil companies in regard to their North Sea oil interests. This achievement is no doubt due to the ingenious Chancellor of the Duchy of Lancaster, Mr Harold Lever, without whose money sense the Prime Minister would never have dealt so successfully with the tycoons of the American motor and oil industries. The participation agreement really does leave the oil companies no better and no worse off, as Mr Lever has claimed. Their existing rights to oil and their obligations to provide capital remain unchanged while the Government has acquired the right to buy up to 51 per cent of the oil produced at, market prices. The two oil companies—Gulf and Continental —are already partners with the National Coal Board Exploration Company—now a subsidiary of the British National Oil Corporation—in the five fields concerned. But I should add that only three of the five have yet been declared commercial. The beauty of the participation agreement is that the state has 51 per cent of the oil without having to put up a penny.
Compare the economy and practicality of this partnership between private and public sectors with the extravagance of the original socialist idea of acquiring 51 per cent of the North Sea oil concessions. I have before me the estimate of the cost of developing seven of the fields, including two large ones, Forties and Brent. It is just under £3000 million. There are twelve more fields to come in, including Ninian and Thistle, which would cost well over £5000 million. The idea of adding, say, £4000 million to a borrowing requirement which is already £12,000 million—the servicing of which at the present high rate of interest is making it impossible for Mr Healey to cut public expenditure and make any real saving—shows that the Marxist Clause 4 socialists are out of their tiny minds, whatever Eastern origin they might have.
'Socialism' in the North Sea could have been secured through the Energy Ministry and the Acts of Parliament governing the exploitation and taxation of the oil without having to set up a National Oil Corporation which can only add to the already intolerable cost of the public sector. As it is, the NOC is going to buy out Burmah Oil's concession in Ninian and has already made an advance payment of £40 million. Heaven knows what Lord Kearton may be up to when the state and not Courtaulds has to foot his bills. At the moment there is a glut of oil. Last year the free world demand was running at 43 million barrels a day against a 1974 supply of over 47i million barrels. As the landed price in Western Europe of Middle East oil is around $12 a barrel, there is a fair profit from North Sea oil while it holds, but the minor participants in the North Sea fields may well have to accept a discount from import parity to dispose of their crude. God help us all if the parity drops! For this year it looks safe and by the end of it we may look to 400,000 barrels or even 500,000 barrels of oil coming from the developed fields, which is about 25 per cent of our current oil consumption and could save over £700 million from the import bill.
The working partnership between public and private sectors, which has now been established in one small sector of the North Sea, receives its big test when it comes to operating the National Enterprise Board under Lord Ryder. The draft guide lines for its operation have just been published by the Department of Industry. The Board is to have the same obligations and the same opportunities for acquisitive growth as private sector companies. We shall soon know whether the ethic of the mixed economy has been properly recognised by this very mixed government.
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