That is true to the extent that a manufacturing company has to borrow to finance its export trade. I shall have something more to say about that in a moment.
Companies of the type which the hon. Gentleman and I both have in mind are much more liable to finance their export trade out of reserves—profits ploughed back to reserves—than out of borrowed money. That is another point and I will come back to it in a moment.
I should like to say a little more about the danger sign represented by the curve of the number of unemployed crossing that of number of vacancies. This has two effects. First, it means that where an exporter receives an export order which may necessitate the engagement of additional labour, he cannot get that additional labour, he cannot keep the delivery date and the reputation of that company and of this country consequently suffers.
Secondly, it leads to a condition which is common at present, in which many factories in the same area are competing for labour and are paying more than the normal rate paid over the country as a whole. For the time being that is very pleasant for the worker engaged in that industry, but it means that the manufacturer is paying more than the economic rate for the job.
By "the economic rate for the job" I mean the rate which can be recovered from the selling price of the article which is produced by the workers in that factory. It is not very difficult to sell at that higher price in the home market, but it is exceedingly difficult to do so in the export markets. As a result, the home prices constantly tend to rise and, as a consequence, we have inflation straightaway.
I think that in his actions my right hon. Friend was by no means pessimistic, but was, in fact, realistic. There have been complaints about the frequency of changes. I would much prefer more frequent, moderate changes in good time, because that is bound to tend to have an effect which every industrialist wants—stability. Stability is the one thing above all others which the manufacturer wants.
May I turn to the other group of complaints, which come from hon. Members opposite and their friends? We heard something about these earlier this afternoon. They say that with the Tories it is always a question of a pre-election boom and a post-election crisis. My right hon. Friend dealt with the question of the pre-election boom quite satisfactorily by quotations from remarks of right hon. Gentlemen opposite on the Budgets of this year and last year. I want only to deal with the other aspect, namely, the allegation that there is a crisis now. There is no crisis at present. Expansion continues, but it must not continue at a rate far in excess of our annual productivity increase, which in fact, during the last few months of 1959 and the beginning of this year, has been the case. On the other hand, living standards have continued to improve, but not at the rate of the rake's progress.
There is nothing new in the use of controls. From 1946 to 1951, under the Labour Government, we had plenty of controls—steel allocations to the motor car manufacturers unless they exported 75 per cent. of their output, building licences, and every form of control. My main objection to rigid controls of that nature is that no one can accurately forecast. just what will be the effect of a particular control nor how great the effect will be.
As the hon. Member for Manchester, Cheetham (Mr. H. Lever) quite rightly said, we are rather travelling to some degree along a difficult uncharted path. I am trying to mix my metaphors as much as the hon. Gentleman did, but I can stick to the straight and narrow path along which the ship of State is sailing. It is to a very considerable extent uncharted, but we know a good deal more about these things in these days than we did before the war, and that is undoubtedly a main reason why, since the war, we have never suffered from such unemployment as we did before the war.
The main drawback of the rigid form of Socialist control is that it is too cumbersome and complicated. If it has the wrong effect, or if it has a greater effect than is intended, it may well be that Parliamentary consent must be obtained before it can be varied or done away with. The time lag is too great, and the damage is done. On the other hand, Bank Rate changes, hire-purchase controls, special bank deposits and such measures, can be quickly and finely adjusted as their effects become apparent.
Today, we must be clear on two things. First, on a question of fact, under my right hon. Friend's policies there has been expansion. Secondly, expansion remains the Government's policy—not uncontrolled expansion, but controlled expansion, certainly not tear-away inflation. What governs the rate of expansion? I suggest that two things do: first, increased savings—my right hon. Friend had something to say about that—and, secondly, improved methods and machines.
Arising out of those two things, which I do not think can be gainsaid, is it wrong, as hon. Gentlemen opposite are very fond of saying, for companies to make large profits? Secondly, should there be, as some of my hon. Friends would like there to be, a separate company tax, so that if the Chancellor of the Exchequer wants to alter the rate of individual tax he does not have to alter the rate of tax on company profits as well? Is it wrong for companies to make large profits? Historically, for the last 200 years and more the industrialist has lived on a third of his profits and ploughed the other two-thirds back into his business. That is still as true today as it was then. If any hon. Member doubts it, I can refer him to many books of reference in which that is quite clearly shown. It is true today.
One objection which hon. Gentlemen opposite sometimes raise to the ploughing back of profits is that it simply redounds to the benefit of shares. They allege that the ploughed back profits are in due course reflected in the increased Stock Exchange prices of shares and the worker derives no benefit. That is quite untrue. The worker in the industry where profits are ploughed back benefits in two ways. First, out of the ploughed back profits the company can buy the new machines without which increased productivity is impossible and from which alone high wages can flow. Secondly, the ploughed back profits add to the strength of the company, and thus improve the stability of the jobs of the people working in it.
On the point of whether or not there should be a separate corporation tax, I am very doubtful. I am certainly extremely doubtful if it means increased taxation, because increased taxation on companies would have the very opposite effect of what I have just been saying, namely, the benefits gained from increased profits ploughed back to reserve.
The general economic outlook at present is not unfavourable. My right hon. Friend took modest steps as soon as the first warning signs appeared, and I congratulate him on doing so. At this moment, he can derive a good deal of satisfaction from two things. First, when he took office he established as his unquestioned first priority the stability of the£. My right hon. Friend can look back on more than two years of no increase in the Interim Index of Retail Prices—the cost of living. That is a record unequalled by any Chancellor since before the war. Secondly, he can look back on two years of improving the standards of living and a fundament4ly strong economic and financial position today from which further advances in that direction can be made in the future. That is a record of which any Chancellor and any Government can well be proud.