Of a different kind. I do not propose to discuss the situation in 1945.
I do not think that hon. Gentlemen opposite would grudge me my claim. I would also say that all of us ought to pay a special tribute to the Chancellor of the Exchequer for his achievement in halting the drain on our reserves. He has staved off the collapse—the break-up—of the sterling area which threatened us in the early part of the year. He has averted a catastrophe.
For all that, our position remains extremely precarious. Our reserves have shrunken to danger point. It may be, if all goes well, that the Chancellor's optimism will be justified, but any serious worsening in the economic weather might easily sink us altogether. But for American aid and some drawing on stocks in the early part of the year it is difficult to see how we could have avoided a devaluation in the last few months. We may not avoid it even now.
What has been the policy of the Government for solving our payments crisis? It has been, on the one hand, to reduce consumption by cutting imports and raising the interest rate and, on the other, to encourage exports to the non-sterling area and the dollar world. Now the Chancellor has called for a further increase in those exports. How is it to be done? As consumer goods already face a shrinking market, the burden, as he said, will fall, on the engineering and metal using industries. They are to be helped by a change in the pattern of the re-armament programme. What does this amount to? We are really being asked to continue what I might call the Cripps-Gaitskell policy in another form. It is "the mixture as before" with a flavour of deflation and a dose of Bevanism thrown in.
Is there any prospect, even with these new ingredients, that such a policy will enable us to attain, and what is still harder, to maintain the necessary increase in our exports? We were told at the end of the war that we had to increase exports by 75 per cent. over the pre-war volume. Despite a sellers' market and American aid that target has never been effectively maintained.
Can we hope now for any further substantial increase in exports, now when we are confronted with a buyers' market, with reviving German and Japanese competition, not to speak of the heavy new burdens which we shall have to shoulder next year in Germany for the maintenance of our defence Forces over there? It is hard enough to believe that we could come in sight of the new export targets even in good times: with a recession in the United States it would be out of the question.
The Government have a short-term policy. It seems to be doubtful whether it will work. It is perfectly clear that they have not yet got a long-term policy of any kind. There is a danger, moreover, that, by over-emphasising the im- portance of dollar exports in the interest of maintaining the present import programme, they may sacrifice our only hope of getting back to an expanding economy.
I must confess that I was somewhat alarmed yesterday to hear the Chancellor of the Exchequer blaming the greater part of our difficulties on the last war. Of course, they were aggravated by the last war, but if we believe that they are only due to that war we still do not know what has hit us. Our difficulties result from a deep-rooted and continuing crisis which has been with us for close on half a century. It is a crisis caused by our failure to adapt ourselves to the changes which have transformed our trading position in the world.
In the old days—the days of Cobden and Bright—food and raw materials were cheap. That is why Cobden, with his friends, went all out for a policy of free imports. The wanted cheap raw materials in order to make cheap production possible. They wanted cheap food in order to be able to pay low wages. In those days, industry carried very small overheads. When the grandfather of the present hon. Member for Cheltenham, Sir Michael Hicks Beach, raised the Income Tax to 1s. 2d. in the £, the "Daily Mail" came out with a headline "Is it the end of us?" There was no Welfare State then; as for re-armament, we just thanked God that there was a British Navy, and left it at that.
Those days have gone, and they are not coming back. Food and raw materials are dear, and they are likely to stay dear and may become even dearer. Nor is there any substantial hope of a reduction in our overheads for many years to come. We are - all, in both parties, determined to keep up the main structure of the Welfare State, and it is quite clear, in the world as we know it, that we have to devote a substantial part of our income to defence. These things are the political realities of the times. But the cost of them, if you add it up, means that we can never again be the cheapest producers in the world.
This fundamental change in our position has been aggravated by the dollar problem. The refusal of the Americans to import or invest as much as they export has brought about a complete and lasting breakdown in the machinery of world payments. We can no longer hope to buy in the cheapest market and sell in the dearest. We have to buy in markets in which our currency will be accepted, and we have to sell to purchasers who have currency with which to pay us.
Ever since the war, we have been indulging in a romantic illusion—I mean the American attempt to recreate a system of multilateral world trade such as existed, not before the last war, but before the First World War. There is nothing more tragic in life than the murder of a beautiful theory by a gang of brutal facts. Twentieth century America is not and cannot be 19th century Britain. She does not need the imports, as we did; she has unparalleled opportunities for investment within her own boundaries or next door. Nor will she follow our example and ruin her agriculture in the interests of an economic theory.
In these conditions, the Bretton Woods Agreement, the Washington Loan Agreement, the Geneva Convention, the Havana Charter and the General Agreement on Tariffs and Trade have all been milestones on the road not to recovery, but to disaster. We may as well recognise that the day of the Manchester school of economic theory, glorious as it may have been, has gone. Hon. Members will remember the old saying, "What Lancashire says today, England will say tomorrow." As a representative of Lancashire in this House, I hope that that may come true again, but the first step towards making it come true is to make up our minds that what Manchester said yesterday England must never say again.
The alternative, as I see it, to a return to a multilateral system which the Americans have been urging upon us, is to make ourselves a great producing country and, as far as we can, a great producing Commonwealth; not self-sufficient, but more self reliant and better balanced both in regard to industrial and primary products than we are today.
What does this policy imply? We must cut our dollar imports to the level of our dollar earnings. We must maintain a high level of export. These are already agreed aims between us. But, important as they are, there is one thing which is more important. That is to develop new supplies of food and raw materials, first and foremost in this country, and then throughout the sterling commonwealth. This should be our first aim, and we should seek our future economic expansion, not in what the economists call the neutral markets of the world, but in the new markets created by our own development policy for ourselves.
The opportunities for such development are very great. Here, at home, I believe we could produce 25 per cent. more food than we do now. I thought it discouraging to see from the Economic Survey that capital investment in agriculture last year was only 4.5 per cent. of the whole, and even this figure has been cut by 15 per cent. of that amount this year. We are all encouraged to know that coal production is improving, and we hope it will continue, and I agree with the Chancellor that much could be done to increase the production of building materials here in this country.
Beyond this, there is the whole range of synthetic products. Should we really go on paying dollars for cotton from which to make shirts to sell in this country and in the sterling area but on which we never get back a single dollar? Ought we not rather to be encouraging the Lancashire mills to change over, not entirely, but as much as they can, to rayon or synthetic fibres which have a much lower dollar content?
There are even greater opportunities for development in the Commonwealth. There is very little that we need which cannot be produced in some quantities in the Commonwealth. In a comparatively short time, the Commonwealth countries could supply all our needs in copper, sugar, and tobacco, which are among the main items on our dollar import list today.
Unconsciously, and in a typically British way, we have been moving towards the creation of a sterling trading area, under the impact of the war and also of the post-war difficulties. Our trade with the Commonwealth was formerly about 30 per cent. of our total trade. It now stands at nearly 50 per cent. Some of this has taken place through the Colonial Development Corporation. Some has been the result of Socialist policy.
However mistaken that policy was at home, it had at least one result. It literally drove capital and skill, through excessive taxation, to seek refuge in the Commonwealth. Every cloud has its silver lining. A good deal has actually been done in the last seven years. The trouble is that it has not been done as a deliberate policy of Commonwealth expansion, but as a makeshift policy intermittently imposed upon us by balance of payments difficulties. As a result, the investors have had no confidence that it would continue.
Last summer, in Southern Rhodesia, I asked a tobacco farmer why he did not increase his production. I said that he would help us with our dollar problem. He replied, "No doubt, you will buy my crop while balance of payments difficulties remain, but what assurance have I that you will not go back to dollar tobacco the moment that you are in balance with the dollar countries?"
To develop new supplies of food and raw materials in the sterling area will call for relatively heavy investment. It is essential, therefore, to create the conditions which will attract that investment. Capital is naturally timid; it will not come forward unless there is an assurance that what it produces will find a market. To create this confidence, we shall have to discriminate in favour of the Commonwealth producer as a matter of deliberate, declared and permanent policy.
There are many ways in which this can be done. We, on this side of the House, have always been in favour of tariff preferences, which we regard as the most liberal, the most free trade way of regulating trade. Hon. Members opposite may prefer quotas or bulk purchase measures. There is no doubt that some of the primary producers in the Commonwealth have a deep-rooted preference for long-term contracts. But whether we go for preference or for quotas or for long-term contracts, we must first denounce those sections of the G.A.T.T. Agreement which limit our right to discriminate in favour of our partners in the Commonwealth.
The Japanese have now applied to join G.A.T.T. If Japan is to become a normal and healthy member of the free world, I really do not see how we can refuse to let them in. On the other hand, if we do let them in, we commit ourselves to giving most favoured nation treatment to Japan, and we jettison our last hope of protecting the colonial market. It may be that this new danger will prove to be a blessing in disguise.
It may be that it will finally convince the Government that they must now denounce those sections of G.A.T.T. which seek to extend the most-favoured-nation clause to inter-Commonwealth trade. We on this side of the House were pledged at the Election to denounce those sections of G.A.T.T. Many of us have waited very patiently while Ministers are trying to make up their minds on this admittedly very difficult subject. I beg the Government not to mistake our patience for indifference, nor to underestimate the strength of feeling which exists on this question of G.A.T.T., at any rate on this side of the House.
Trade measures must, of course, be backed by financial measures. A new investment programme for the sterling area will require new credit facilities. I wonder whether our present financial machinery is adequate for that task. How long can we continue holding the sterling area together with a bank which serves all its Governments and is controlled by only one of them? Has not the time come when steps should be taken to bring the management of sterling under joint Commonwealth control?
So much for the conditions which will attract investment from within the Commonwealth or from outside. What about the investment itself? Where are we to find the machinery, the capital equipment, which development requires? Others may help us in due course, but the main burden is bound to fall upon us. To shoulder it we shall have both to reduce consumption at home and to increase production.
What room is there for cuts? There are to be changes in the defence programme. But these, we are told, are intended to facilitate exports rather than investment. I confess that I should be very loath to take any further steps in that direction. The dangers that confront us are still very grave. Our friendship with the United States and our influence in Western Europe depend more than anything else upon playing our full part in the North Atlantic Treaty Organi- sation. World confidence in sterling, moreover, depends, among other things, upon our ability to maintain ourselves as an imperial Power. Any further reduction in our present overseas commitments, any further Abadan, would damage our credit, perhaps irreparably. To that extent, any further cuts in the defence programme might easily prove to be false economy.
Of course, cuts could no doubt be made in the social services, more particularly in the building programme. I know that there is a limit to what public opinion will endure; the British people have been through a lot in the last few years, and they will not stand for much more in the way of cuts or pin-pricks which lead nowhere; but that does not mean they have lost their sense of national discipline or self-control. On the contrary, if the British people are once convinced that a policy is right, if they are convinced that the Government believe in it and are resolved to carry it through, if they can be shown the light at the end of the tunnel, they will be ready to pay the price for recovery, whatever it may be.
There certainly is not much room left for cuts in general consumption, but something might still be done to guide resources and labour from less to more essential occupations. The Chancellor's disinflationary policy has had some success, although of a rather limited kind, in this direction. The trouble about this policy is that it is not sufficiently selective. I have often wondered whether we could not find a middle way between deflation and clumsy physical controls. Perhaps some form of differential interest rates might supply the answer.
There will have to be some cuts to achieve the necessary level of investments. But more important than cuts would be an increase in production. There are still several things that could be done in that direction. The elimination of restrictive practices, mentioned by the hon. Member for Stoke-on-Trent, South, is one of them; the working of more frequent shifts is another. Then there is the question of retirement. The Chancellor in the late Government urged the importance of postponing retirement. Certainly, an increase in the working life of the people of this country by two and a half to three years would make a very considerable contribution to increasing the national production.
No less important is the psychological factor. If the Government are to overcome the present crisis they must inspire all sections of the community with a sense of national and social purpose, with a vision of what they are working for—a vision of a free, expanding Commonwealth. They ought to try to make every employer and every worker in the country feel that he or she is a shareholder in a great concern; that he is saving money today so as to have more tomorrow.