It is a great relief to be able to follow the hon. Gentleman the Member for Govan (Mr. J. N. Browne) instead of following one or two hon. Members who spoke previously. Had I to follow the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), by the end of his speech I should not have regained my breath after hearing a statement of the doctrine of pure Liberalism such as I do not remember either to have read or heard since I was a student of the history of economic doctrines. Also I do not think I could have regained my breath after hearing enunciated as a serious statement of policy that those policies which were right in the 19th century must also be right in the 20th century. If that was a serious reflection of the point of view of the Liberal Party today, even the rather small increase in their percentage poll in yesterday's by-election should not be too much of an encouragement to them.
I am also grateful not to have had to follow the hon. Gentleman the Member for East Aberdeenshire (Sir R. Boothby), because the effect of his shattering self-confidence on me by the time he has sat down is to make me hopelessly nervous, doubtful and self-critical. There is also the political difficulty that one is in a position of agreeing with so much of what was said by the hon. Gentleman that it is difficult to debate with him.
There was one link between the speech of the right hon. and learned Gentleman the Member for Montgomery and the hon. Member for East Aberdeenshire, the latter of whom referred to the advisers of the Treasury who go on and on through every Chancellor, Labour or Conservative. In listening to the right hon. and learned Gentleman, I seriously thought that there was only one place in the country at the moment where those ideas would seem perfectly natural, and that was in certain sections of the Treasury. Outside the Treasury, and outside the Liberal Party, I do not think anyone at all holds them in the contemporary world. I want to find out from whoever is to reply whether or not any fundamental decision was taken at Sydney on the future of the sterling area. By that I do not mean about the future of Imperial Preference because, with respect to the hon. Gentleman who spoke before me, I share the view of one or two others who have said that under present-day conditions, as opposed to pre-war conditions, Imperial Preference is not the main thing which determines how much trade there is inside the sterling area. I believe that depends now much less on Imperial Preference and more on the import controls of the Governments concerned.
I am much more concerned with the general question of what attitude we now take to the future of the sterling area. I ventured to arguein a book a year ago that the sterling area from 1945 up to the present time has worked extremely favourably for certain of the independent Dominions, extremely unfavourably for the Colonies and rather unfavourably for the United Kingdom. This is not an original view, it is quite widely held.
Broadly speaking, the independent Dominions have been subsidised mainly by the Colonies and, to a certain extent, by this country. Clearly one could say that if things were going well in the economic field, if the outlook were genuinely set rair, as the Chancellor thinks it is, this would be a state of affairs which one could continue to envisage. It might be argued that it was worth while for the political advantages of retaining the sterling area in its present form. On the whole, I think that is a plausible argument provided that things are set fair in the economic world. However, it seems to me that things look very different if we are likely to be faced with an American recession.
Again the Chancellor was extremely optimistic about that, as are the economic advisers of President Eisenhower. I think we can all agree that there is no point in debating across the Floor of the House whether there will be a bad recession or not, because none of us knows and no one person's opinions are any better than another's. What we can say is that there is obviously a risk of a rather more serious recession than we now have and therefore we should decide what we shall do if this risk should materialise. In passing, I sincerely hope that the phrases about convertibility, which I recognise that any Commonwealth communiqué must contain, are as meaningless this year as ever. It would be a terrifying thought if, in the face of the Randall Report, and in the face of the possibility of an American recession, anyone in Her Majesty's Government, or in any of the other sterling area Governments, were seriously proposing to move in the direction of convertibility at the moment. I take it, however, that those phrases are there to satisfy the Treasury officials and not because they are strongly held by Her Majesty's Government.
Suppose that this recession comes, suppose that we have a recession roughly on the model of 1949, which a lot of people expect. I do not take the alarmist view that this will have anything like as bad an effect on the sterling area as the 1949 recession did. I think that a number of things have changed since then. In 1949, American stocks of imported materials from the sterling area were unnaturally high. At the moment they are quite low. In 1949 that recession was superimposed on a falling level of gold reserves in the rest of the world, whereas at the moment those gold reserves are rising. In 1949 the recession came at the top of a boom in raw material prices, whereas the boom burst a year ago and there has been a good deal of adjustment of prices to a different situation.
For these and other reasons, probably a recession of that sort which most people seem to expect would have a less serious effect on the sterling area than it then did. But there still will be an effect, and a serious one. My main object is to try to find out what attitude the sterling area took at the Sydney Conference.
It does not seem to me that there has been any particular divergence in speeches made on the subject as to what we ought to do if there is a more serious American recession. We are all agreed that every single sterling area country should be encouraged to discriminate against the dollar whilst keeping trade amongst themselves at the highest possible level. Some want it done by Imperial Preference, others by import control. That does not matter. The essential thing is to keep up the trade within the sterling area by discriminating, as far as we can, against dollar goods. The question is, will this happen? We know it will happen as far as the Colonies are concerned, because the wretched Colonies have virtually no control whatsoever over what they do with sterling balances, import policies, or anything else. So we know that they will discriminate in this way. My main concern is about what the independent countries, the Dominions in the sterling area will do. It is quite likely—and the Chancellor has said nothing to disagree with this—that they will be willing to discriminate against goods from America. This idea of discrimination against goods from America has sunk fairly deep, and even the present Chancellor is willing to discriminate, at any rate against manufactured dollar goods. So I have no hesitation about that point, though I am doubtful whether the South African Government will be willing even to do that.
But, to look on the bright side, let us assume that the rest of the Dominions will do it. This might protect our gold reserves and help us to keep up trade within the sterling area if we could lose gold only to America. But the trouble is that we can equally well lose gold to Western Europe through E.P.U. If the Under-Secretary of State for Commonwealth Relations would bring his cultured, academic mind to bear on such mundane matters as commodities and things of that kind, I should like him to tell us something about the relationship between the sterling area and Europe in the event of an American recession. I am very much afraid that if the recession gets worse, sterling area raw material prices will fall, Europe's imports of raw material will fall in value, and that very soon after the coming of the recession we shall have a very serious deficit with E.P.U., and that if nothing is done about it we shall lose gold to E.P.U. possibly at a more rapid rate than to the United States.
This will happen very quickly and we shall lose a lot of gold. The Chancellor of the Exchequer pointed out that if the deficit becomes larger we shall get into a tranche where we shall be paying something like 70 per cent. to 80 per cent. of our debt to Europe in gold. This can only be avoided either by the rest of the sterling area saying "We are willing to discriminate against E.P.U. as well as against America," which would be one solution, or by E.P.U. being willing to give more liberal credit terms to deficit countries than it is now willing to give. I feel very strongly that this is perhaps the most serious part of what our balance of payment crisis will be if the recession becomes serious. Either there must be discrimination by the rest of the sterling area against E.P.U. as well as against goods from North America or else we must have an assurance that Her Majesty's Government are pressing, day in and day out, on E.P.U. the need for a more liberal credit policy. It will not be the Germans or the Belgians who will press for it. They want a less liberal policy in E.P.U., so no one pretends that this is an easy job for the Chancellor. But I am convinced that one or other of these alternatives must be our policy.
If neither of these things happen, if we cannot persuade E.P.U. to give more liberal credit terms and we cannot persuade the rest of the sterling area to discriminate, except against goods from America, then by far the larger part of the American recession will fall on Britain. The major drain on gold reserves will come from Australia, New Zealand, India and so on, and we shall have a situation in which the whole burden of import discrimination and restriction will fall on Britain, and a very large part of the drain on gold reserves will come as a result of policies in the rest of the sterling area. Nothing was said about this in the Sydney communiqué and, if possible, I should like to have a statement on what view was taken in Sydney of the proper behaviour of the sterling area in the event of a recession.