What's Wrong with Britain's Economy
ARNOLD, G L.
What's Wrong With Britain's Economy By G. L. Arnold New demands for planning after 'Butskellism' ends in severe crisis London Every now and then, a commentator gets a chance to say, "I told you...
...To some extent, it has already done so—to the extent, namely, that the British defense effort is being reduced, with all that this implies for the present and future efficacy of NATO...
...Butler did not judge any of his steps by this criterion at all, nor did the House of Commons...
...For it is by this standard that Mr...
...Indeed, by comparison with Germany—showing a rise in her imports this year of some 30 per cent—and several other industrial countries, the whole increase in Britain's import bill looks moderate...
...But, compared with the margin of resources available, they are very big indeed...
...But why so suddenly, and what exactly has happened to provoke such bitterness and dismay in quarters where complacent self-satisfaction was the predominant note until quite recently...
...as against a bare 6-per-cent rise, in both volume and value, of exports during the same period...
...Therein lies the principal criticism of his administration...
...So our exports are roughly 40 per cent more vital to us than ever...
...that is hopelessly out of date...
...Because fixed investment has at last increased a small part of the way toward the level it ought to have achieved several years ago, it has been found necessary to cut down spending—including some spending on investment itself...
...To grasp what is the matter with the British economy, one has to relate the overt signs of trouble to the deeper structural weaknesses...
...Therein, and not on any palsied charges of personal rudeness, lies the principal charge against the Opposition...
...Does it also suggest one reason why some of the trade-union leaders are rumored to be having second thoughts about Gaitskell...
...Albans and Rugby...
...for, although it made for social peace and political quiet, it would be found to be "plainly unfavorable to economic progress—or at least less favorable than either straight planning or real competition...
...For the full absurdity of the present impasse needs to be emphasized time and again...
...The fact that a swelling volume of home-produced goods has had to be exported, in order to pay for the imports that are absolutely necessary to maintain full employment, has inevitably meant pressure upon the home market: More money is in circulation, while the "consumable cake" has grown by only 10 per cent in ten years...
...This feeling presumably explains the new note of ferocity in Gaitskell's Parliamentary onslaughts on the Chancellor, the growing conviction that he rather than Herbert Morrison (whose performance in the budget debate was no triumph) will inherit the crown, and the grudging acquiescence of some leading Bevanites in this outcome...
...It really looks as though Butler's experiment in a free-market economy has come to an end, and to that extent the Labor party is justified in feeling that the tide is beginning to turn back in its direction...
...And this is precisely what Britain cannot afford...
...In all Western European markets where British and German exports meet on equal terms, Britain's share of all major commodity groups except chemicals has fallen in the past year, while in most cases the share of German exports has shown a corresponding rise...
...It has, in fact, been combating inflation, and it has done so in the main to reduce purchases of the kind likely to swell the mounting import bill: In the first two quarters of 1955, imports (by volume) were 15 per cent and 4 per cent above the corresponding figures for last year, whereas exports, after rising by 12 per cent during the first quarter, fell by 2.5 per cent during the second...
...the motor-road program of this country now seems to be permanently settled at 50 miles of tantalizing example between St...
...It should be a dull and tattered thing of straw and sloth and no imagination, a tinkerer with troubles, instead of the architect of a grand design for expansion.' Exit Butskell, abandoned by his best friend...
...Be that as it may, the past month has probably seen the end of the Conservative attempt to provide Britain with a high-investment economy on a free-enterprise basis...
...Commenting on this disparity, the Financial Times described it as "disturbing" and added: "However, it cannot, unfortunately, be said to come as a great shock: The signs that the British export effort has lost some of its edge have been growing for some time...
...The surface manifestations are obvious enough: widening of the trade gap and worsening of the payments balance, accompanied by loss of gold and dollars from the reserves and by rumors of a forthcoming devaluation of sterling...
...The experiment was probably worth trying, if only because its failure is now so glaring as to leave its supporters with very little intellectual ammunition—except a half-suppressed demand for a "moderate" degree of unemployment...
...What's Wrong With Britain's Economy By G. L. Arnold New demands for planning after 'Butskellism' ends in severe crisis London Every now and then, a commentator gets a chance to say, "I told you so...
...The Economist's cure is higher productivity, i.e., greater efficiency...
...After noting that, in the case of enlarged coal and steel imports, "the extra load on the trade balance simply reflects a major structural defect in the British economy—the failure of the basic industries to keep pace with the expansion of the manufacturing side," the editorialist plunged into the heart of the matter: "In a year of extraordinary expansion and prosperity such as the present, the country should be able to afford a temporary addition to its import bill of this order of magnitude...
...To silence these rumors and to tighten the monetary position, the Treasury since the beginning of the year has been raising interest rates and restricting bank credit in an effort to reduce total domestic demand...
...The article went on to discuss excessive home demand for consumer goods, a topic given much prominence by R. A. Butler's recent emergency budget clamping extra taxes on a wide range of purchases...
...The price is being paid in the form of a relatively slow rate of economic growth, compared, for example, with West Germany...
...Behind this, of course, lies the hope that the end of what the Economist calls "over-full employment" would weaken the unions, hold wage demands in check, and improve factory discipline by making those in employment more afraid for their jobs...
...it would be a pleasure to show it how to be constructively cruel and really rude to this Chancellor...
...That, indeed, is the trouble in a nutshell...
...What, then, has gone wrong...
...A return to planning and controls would not be an unmixed blessing for the unions, though it would benefit the economy in the long run...
...when the official trade returns for the first nine months of 1955 showed a 15-per-cent value and 11-per-cent volume rise in imports over the corresponding period of 1954...
...Immediately thereafter, the House of Commons was called into session to hear the Chancellor introduce an emergency budget with the declared aim of combating inflation...
...it is also the solution advocated by some prominent Socialist economists...
...The boom was at an end...
...While it struggles with the contradictions of "Conservative freedom," Labor can plan to make a political recovery...
...It is not an easy choice to make for a government which increased its Parliamentary majority six months ago by exploiting a spurious boom psychology...
...As Graham Hutton pointed out in a letter to the London Times, "although we are 21 per cent more in work, turning out 50 per cent more, for over three times the total of personal income in 1938 we still get only 10 per cent more to divide up between ourselves as consumers...
...It does not sound very grave but in fact it is, and the reason was spelled out by the Financial Times in an editorial on October 21...
...But increased productivity demands higher, not lower, investment in essential industries...
...Never easy to resist, the temptation becomes overwhelming when it coincides with a major political or economic upheaval...
...That is the main lesson of our painful experience this year, which the Chancellor insists is neither a 'crisis' nor an 'emergency.' In a sense he is right: The absolute orders of magnitude involved seem small...
...For the Economist in its new mood, Hugh Gaitskell's loudly applauded rhetorical onslaught on the Chancellor, during the Commons debate on the budget, was not so much partisan as irrelevant: He had harped "to absurdity on the trifling effect of purchase-tax increases in working-class households, instead of going to the root of the matter and exposing the Government's failure to make the British economy more efficient and progressive...
...The widening of the trade gap during the second quarter, in fact, caused rumors about an impending devaluation which Butler was at pains to kill during September's International Monetary Fund conference in Istanbul...
...That was last February...
...and, since the total of investment cannot be raised, unessential industries must be cut back, which is impossible without controls, i.e., genuine planning...
...The guy should not be a greedy and cunning capitalist's friend...
...But the kind of credit squeeze that would really produce a sensible degree of unemployment would also force marginal firms to the wall, make an end of easy profits, and in general cause a depression atmosphere from which Labor would benefit...
...In fact what happened was another burst of inflation, which sucked consumer goods into the home market and forced imports up at a moment when exports were wilting under German, Japanese and American competition...
...Under Labor, an almost static total was redistributed, thus giving the mass of the population a larger slice of the cake than in 1938...
...The prediction which it is intended to recall was made in The New LEADER on February 14 last, when the present writer observed, apropos of the Butler-Gaitskell stalemate in British politics, that the British economy would soon have to pay with another of its recurrent crises for the prevailing political climate...
...The true economic story during these years is one of sharply rising output, very slowly rising income, and increased dependence on foreign trade...
...It has become the fashion under both Labor and Conservative governments for their respective supporters to claim a degree of success in coping with Britain's economic problems that makes one wonder how a situation of this sort could have arisen ten years after the war...
...and, since the Government seems to have no cure for it, the savage mood of the Economist can be understood...
...Butler's policy now stands condemned in the eyes of the Economist: "Every step in his program should have been determined by whether it would help to create a more restless dynamic to produce, to earn, and to save...
...When the Conservatives came into office in 1951, after six years of "socialist" rule, they did so to the accompaniment of loud clarion calls for a bigger national cake: Everyone was to benefit impartially from a sensational rise in output...
...If only the Labor party would lift its eyes from yesterday to tomorrow, it would be easy to show it: how to make a guy of this government...
...Optimism then once more became the fashion for a few weeks until October 20...
...Butskell" (i.e., agreement on economic fundamentals between the leaders of the two parties), we ventured to suggest, was not in reality such a good thing as the Economist said it was...
...This was at a time when "Butskell" had just become the slogan of the Economist—then as now a pulpit for weekly sermons delivered with an air of authority...
...This does not sound very grim, but the British economy is so tightly balanced that even a medium-sized reverse of this sort leads to immediate pressure on the currency...
...The superficiality of this analysis was, however, promptly exposed by the following sharp editorial comment in the Economist, hitherto Chancellor Butler's staunchest supporter: "The real charge that should have been laid against the Government during these [Parliamentary] debates is that none of its major measures seems to have any relevance to what should be the central objective of British economic policy: namely, to expand the national income, and to increase the incentive to save and invest more of it...
...It is quite clear that Mr...
...In the case of Britain's current domestic difficulties, the upheaval so far is economic, but it could easily become political...
...Even where proper priorities have been observed, the results are profoundly depressing...
...Eight months later, the Economic Commission for Europe, in an official report issued in Geneva on November 3, noted that Britain's competitive position in world export markets has recently weakened...
...Indeed, there are those who suspect that some union leaders prefer a weak Conservative government to a strong Labor regime...
...The answer seems to be that in this country the safety margin available is so small that a couple of small steps in the wrong direction send us to the edge of the precipice...
...That indeed is more sensible than devaluation, which would merely add to the cost of imports...
Vol. 38 • November 1955 • No. 46
