The Economic Survey shows as great an improvement in our position as any of us dared to hope, and I confess that it shows a greater improvement than I personally ventured to guess. It shows what an able Administration adopting a Conservative policy of turning trade back into private hands, of getting rid of restrictions, of opening the commodity markets, of abolishing controls on production and consumption, can do. [Interruption.] An hon. Gentleman says "Nonsense," but that is the Conservative point of view, and one that we are entitled to hold, just as hon. Gentlemen opposite are entitled to hold the view that there should be State control. The difference is this; our method is succeeding, while the method they supported rather failed.
Whereas those who predicted disaster have been proved wrong, as prophets often are, I do think that those who were very concerned, not about the probability of a balance of payments crisis, but at the measure of misfortune that would bring on the country, may still have cause for anxiety. Although 1953 was a year of record activity in the United States, although the improvement in the terms of trade and in production increased our resources by about £800 million, we had a surplus, excluding dollar aid, of only £123 million, which was less than that of the year before. I cannot help wondering whether we did not spend rather more on housing, urgent as that is, than we could really afford.
Our gold reserves went up to £240 million, but our sterling liabilities have increased by very much the same amount. German competition, as is explained in the Economic Survey, is gaining ground. The Board of Trade Journal last week showed that our proportion of trade with 10 sample countries had fallen from 26½ per cent, to 22 per cent, whereas the German proportion had gone up from 7½ per cent to over 12½ per cent. Our reserves are still only equal to about 15 weeks of imports.
So that I should say that the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) might well be gratified with the improvement if he were in a less disinterested position than he holds today, sitting on the Opposition Front Bench, although I can agree with him that we certainly cannot yet be satisfied.
I believe that the Government should have four main objectives in the economic field. The first is to check inflation. The second is to encourage investment and efficiency. The third is to pave the way for convertibility. The fourth is to do what they can to expand world trade.
In dealing with inflation, I believe the Chancellor has a very delicate balance to find. If his Budget is too tough, there is unemployment and production falls. If he creates too much purchasing power, costs will rise, exports will suffer and those who can least bear the burden will be punished most. It seems to me that the balance which he has today is just about right, but it is extraordinarily difficult for any outsider to judge and perhaps not very easy for the Chancellor himself to judge. He may very well have to keep an open mind as to whether, later in the year, he may not have to use the monetary weapon to check an inflationary expansion or, alternatively, to release further purchasing power. Because the Budget happens to fall in the first week of April is no reason why that week should be the moment when the Chancellor can accurately diagnose exactly what to do for the whole year.
I was very glad that my right hon. Friend paid so much attention to the need for increasing productivity, where we have certainly been losing ground to some of our competitors. In 1948 we were spending on plant and equipment over £300 million more than the Germans, whereas in 1952 they were spending considerably more than us. I very much hope that these new proposals will bring about a much more substantial investment in industry, and I must say that the objection of the hon. Member for Sowerby (Mr. Houghton) that this is an unorthodox plan did not seem to me to be a very good argument against it.
Thirdly, I believe that the Government must prepare the way for convertibility as fast as they can. I admit, however, that there are many conditions which must be fulfilled before convertibility can be safe. We must have larger reserves—and that means a more satisfactory balance of payments position. We must wait until other countries are also making their currency convertible and we must wait until trade restrictions have been reduced throughout the world, and particularly in the United States.
As a firm supporter of G.A.T.T., perhaps more enthusiastic than some of my hon. Friends, I believe it to be a very useful machine for reducing trade restrictions. I am quite sure that to plunge precipitately into convertibility would be to risk all we have achieved. On the other hand, to delay it indefinitely, I believe, would be taking just as great a risk. It might even lead to the dissolution of the sterling area. I am quite sure that we cannot make full use of our historic position as a centre of world trade until our currency is freely convertible.
I want, finally, to speak of the need to expand world trade. It is fairly generally agreed in the Committee that only by increasing production can we permanently raise our standard of living, but it is not so generally recognised, although I believe it to be equally true, that in our efforts to raise our standard of living here we are dependent upon an increase in world trade. Except in the very short run, I am quite sure that a poorer world means a poorer Britain. I believe it is quite impracticable for this country to get such a big share of the cake of world trade as would compensate for the cake of world trade becoming much smaller.
If the Government had run for shelter behind tariff barriers, I believe they would have set an example to the world and to the Commonwealth which would have impoverished us all, and I believe that their wise and courageous actions— I am thinking of the Japanese Agreement, of the liberalisation of imports from O.E.E.C. countries and of the opening of commodity markets—have increased the trade of the world and made a powerful contribution towards solving our own trade problems.