Orders of the Day — Public Investment

Part of the debate – in the House of Commons at 12:00 am on 10th November 1960.

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Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham 12:00 am, 10th November 1960

The debate has been conducted in a spirit of great harmony and with very little acrimony. I hope I shall not say anything to disturb this atmosphere, but I must comment that it has emerged in the course of the debate that everyone, in all parts of the House, is in favour of more exports, more productivity, more capital investment, and more aid to backward countries and that, although all those are worthy objectives, the problem is, what steps ought to be taken to make achievement of those desirable objectives more probable?

The hon. Member for Bristol, North-East (Mr. Hopkins) said that it is no use going to leap a fence on a horse and just making very ebullient noises; one has to do something about it or one does not get over the fence. I should point out to him that that is not quite so, for very often the rider gets over the fence and the horse does not. That is what happened at the last election. Immensely ebullient noises were made when we were about to take our fences, but the horse—the unfortunate British economy—was left behind while the rider succeeded in getting over and going on for another five years.

I agree with all these worthy objectives except that I could not agree with my hon. Friend the Member for Sheffield, Park (Mr.Mulley), who said that his tutor had been kept awake at night only in trying to see how we could get a buoyant home market and a buoyant export market as well. I cannot go so far as that. I want to keep the burden of my speech on a theme which has not been touched upon. While we are all busy putting attractive finishes to the interior decoration of our economic home, we all seem oblivious of the world scene as it is. The greatest single danger seems to be the possibility of this country becoming involved yet again in a balance of payments crisis, this time by reason of happenings in the American economy.

My hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), I thought, put his finger on the matter when he asked, "What is the matter with us that as soon as production starts to get into its stride, after about a year or so, we develop a balance of payments crisis and have to start to cut back?" In the course of a brilliant speech, he analysed the illness, but I hope he will not think that I am cavilling when I say that I do not think he gave the answer to the problem. Nor has anyone who has spoken so far given the answer. What is wrong with our economy that every time when we look like getting into our stride we hit a balance of payment crisis and have to slow up?

I venture very humbly in dealing with the American situation—which is our own situation writ large—to point out what I think to be the great stumbling block preventing us leaping forward. It is quite useless to say that the Common Market is the solution, because that is rather irrelevant to this main problem. We are all in favour of going into an attractive market or combination of countries, but the only problem is on what terms we should go in. It is useless unless we are told in express terms all the political implications and the economic implications we are expected to accept and the terms on which we can go in, yet none of the enthusiasts for the Common Market has ventured to tell us that. Indeed, it is very doubtful whether a first-class lawyer applying to himself to the Rome Treaty could discern with any exactitude the economic requirements before we could enter the Common Market.

It is idle to say that we should go in unless we state the political and economic terms. I would not enter it on terms of taxing food or neglecting our responsibilities to the backward areas of the world, where we have the most intimate, personal, financial, and economic connections. I am not prepared to enter it on political terms which would ask us to underwrite the Algerian war. I am not prepared to enter it on political terms which might commit us to Dr. Adenauer's political ambitions in a geographical or military sense. I want to know in very great detail what we shall be sacrificing our sovereignty for. It is idle for these Common Market fans to jibe at us as obstinate, obtuse, backward little Englanders because, with all our political and economic heritage and that of our Commonwealth, we refuse to give a blank cheque before going into the Six.

As for their argument, in order to try to persuade us, that if we do not join we shall be ruined, it does not make sense in the modern world. If, as probably will be the case, the Common Market becomes of great advantage to the six countries which belong to it, that does not mean that it will be a menace to the rest of us. Have not we learned by now that the only prospect for us in the post-war period is the prosperity of the rest of the Western world, everywhere? Are we, simply because we are out of it, really to get into the ludicrous and paradoxical position of being frightened by an organisation on the Continent which will lead to immensely increased prosperity for it, or so we are told? Good luck to the Six. I hope that they will be tremendously successful. Their operations might create what the Prime Minister would call "little local difficulties" for us here and there, but if it is to Europe's advantage and benefit it must be to ours, too.

My hon. Friend the Member for Sheffield, Park, avoided the point that I put to him when I asked him whether he thought that because the United States of America is a common market it would somehow be to the advantage of this country if it were broken up. Of course it would not. America would be poorer, and so should we all, not only politically but economically. It would be the greatest disaster that could face our prospects of world trade if, for some lunatic reason, America split up into fifty stagnating States.

I welcome the Common Market. The European Six believe it to be in their interest. But I see no reason why I should be the victim of intellectual bulldozing by superior persons seeking to persuade us to enter the Common Market. My attitude is in no way altered by the speech of my hon. Friend the Member for Sheffield, Park, for whom I have the highest respect, admiration and affection. He showed, by one sentence in his speech, that he has fundamentally misunderstood the essential problem facing this country and the trade of the world. He told the House that if America, under the beneficent Presidential administration which will presumably now come into being, emerges from its stagnation and becomes extremely prosperous, it will cause us immense difficulties. Nothing more clearly shows the misconception of people's economic thinking than their idea that we have a vested interest in the ruin, depression, or stagnation of great areas of the world outside. To the contrary, the burden of my speech will be that it is only on the basis of the purposive, integrated, well-thought-out and planned prosperity of the entire Western world that this country has any future.

Not being a football pools addict, I shall not go into the question of league tables, and whether we do this or that faster or slower than anybody else. I leave that to the experts, except to make one comment. It behoves those who use these league tables to do so with the greatest care. The hon. Member for Scarborough and Whitby (Sir A. Spearman) rightly pointed out that the proof of the need for greater immediate capital investment—and I am not saying there is not such a need—is not made out when it is said that production per man-hour has risen faster elsewhere. Perhaps the people in other countries drink less, or like to work harder. Perhaps they are more ingenious, or more economical in the use of their resources. Perhaps they are concentrated in larger units.

The Common Market enthusiasm of my hon. Friend seems to be ill-attuned to his dislike of mergers and cartels. If anybody wants to see the place where cartels and mergers dominate the whole economic scene they should go to the Common Market. One of the consequences of the Common Market—and one of its intentions—is the promotion of an even further concentration of cartelisattion and rationalisation of the industries there on those lines. Our Monopolies Commission would have a thin time if it attempted to bring its activities to bear upon the countries whose economic life will be increasingly governed by the Rome Treaty.

I must not lose my theme, which is the threat to us of the very contrary to American prosperity, namely, American stagnation. I would ask the House to bear in mind the fact that the American situation has significant parallels—although not exact ones—with our own situation. I refer to the problem now arising in respect of the American balance of payments. Your predecessor, Mr. Speaker, more than once referred to my economic homilies as being in the nature of sermons. In view of his Scots associations, I took that remark as being intended as a compliment. I shall speak today in a sermonising manner because I shall refer to the religion which has more adherents than any other in the world. Hon. Members will realise that I am about to talk about the gold question.

The United States of America is suffering a huge loss of gold even from its renowned stock in Fort Knox. It is clear that America is running a substantial foreign account deficit. This is being settled in part by short-term borrowings and in part by a shifting of gold into other parts of the world. Although the economic pundits are trying to persuade us otherwise, there is nothing wrong with the parity of the dollar, because the Americans are now running quite a decent and useful trade surplus on trade account. What has put their payments account out of line is the fact that they are exporting capital on a substantial scale, partly in the form of private investment and partly through their foreign aid and defence obligations. Their problems arise substantially because of their huge investments of private capital in other parts of the world.

When a nation exports capital without matching it by goods—in other words, when it does not run a trade surplus large enough to cover its export of capital, two things happen—and they happen here as well as in America. First, the buying power of that capital is with-drawn from the country exporting the capital and there is a short-fall in the tension of demand. Here I must oversimplify the matter. If I were an American and I had 10 million dollars to invest and I decided not to invest them in my own country but in France, Germany or England, those 10 million dollars would no longer be buying things in the American market. That is the first thing that happens when I send money abroad.

If, when I give it to the French, Germans or Englishmen, they buy American goods, the effect is the same as if I had done so, but that means having an export surplus of goods to match one's export surplus of capital, and that is exactly what is not happening in America. America is exporting capital without a matching export of goods. The first consequence is a chronic withdrawal of buying power—both investment power and other buying power—from the American market. That means that the market will not have the tension required to keep it going in a dynamic and fully employed manned. That accounts largely for the American stagnation.

The second consequence occurs abroad. When a country has an export deficit of capital unmatched by goods there is a strain upon its foreign reserves, and, however powerful that country—and this applies even to mighty America—its currency comes under threat and strain if the situation is long kept up. But the remedy for the slackness at home because of the deprivation of buying power runs contrary to the solution of the problem of the pressure on that country's foreign balances.

So the reason why the export of capital unmatched by the export of goods is so dreadfully dangerous is that it creates a lack of demand at home, and a need for expansion. This can he remedied by modern methods of economic and financial planning, but the measures required to be taken to make good that shortage are themselves in conflict with the second consequence of export capital unmatched by goods, namely—simultaneously and pro tanto—a strain upon one's reserves.

This, basically, is the answer to my hon. Friend's analysis of why this country is not allowed to get under steam. As soon as she gets under steam, she runs into a balance of payments crisis, partly because £2,000 million of capital is exported not adequately matched by goods. At any rate, much of it is not matched by goods. Although it is worthily intended and has many advantages, it cannot be said too frequently that the export of capital unmatched by the export of goods is a menace to a country, not merely in its domestic policies, which are restricted because of the pressure generated upon her exchange, but because it itself creates the need for inflationary measures, unless the economy is to stagnate.

The Americans are being victimised on a much heavier scale than we are. It is suggested that the solution to their problems lies in the financial conjuring trick of doubling, trebling or quadrupling the price of gold, or even adding 50 per cent. to it. America is facing a crisis, and it is odd that it has not been mentioned in the debate, because the consequences to us can be enormous if the American Government are driven to unwise or almost inevitable measures because she has been pushed too hard in her gold reserves.

What has startled and dismayed me not a little is the number of financial advisers who are of a progressive bent who are, as it turns out, secret gold addicts and who see in the conjuring trick of doubling the price of gold, to which we are invited to give our assent and support, the solution to America's and the world's problem.

I shall state the objections to this. The first objection is that, unless the United States has a very vigorous change of heart and mind, there is not the smallest prospect of it agreeing to pay, for example, 70 dollars an ounce for the Russian gold production. The United States will quite rightly think that she should not be lunatic enough to finance Russia by paying it voluntarily twice the price for a commodity she produces, which is in this case not a particularly useful commodity. I imagine that the Government will have very strong advice from their strategic economic advisers that it would be the very mid-summer night of madness for America voluntarily to give Russia double the present price for her future production of gold and for any stocks she now has. That is a very substantial objection.

The second objection is that the suggestion does not solve anything. It merely puts off the solution. The economic set-up is the same. The pressure upon America could be temporarily relieved by notionally doubling the dollar value of her gold reserves. In two or three years' time we should be back where we are today and would have solved nothing.

Thirdly, if one doubles the value of gold stocks and future gold production one is giving a claim, in terms of buying power on the world's resources in the future, to the owners and prospective owners of those gold stocks. We must surely be agreed that what we want to do with world production is to ensure that the backward areas get an increased claim on any increase we have. We should try to ensure that the increased production redounds to the advantage of those areas needing it most. Who will benefit from doubling the gold price in America? The American gold holdings will double in value. West Germany's gold holdings will double in value. So will our own more modest gold holdings. The South African and Russian mine owners will receive a greater income from it.

There would be something to be said for this ridiculous charge or lien upon the world's future production—temporarily given by the United States, it is suggested—if, for example, the gold supplies of the world were located in India or in the backward areas which are sorely in need of an increased claim upon world production. There is, however, nothing to be said for it in the present context.

The final and greatest objection is this. When the United States Government fixed the price of gold in 1934 at 35 dollars an ounce and did not change it after the Second World War when everything had risen in value two or three times, we started the valuable and useful process of dethroning, for the first time in history, the great god, gold. Once one starts expressing the value of gold in terms of how many dollars can be bought with it, instead of the reverse situation where the value of the dollar is defined by saying how much gold can be bought with it, gold is on the way out. It becomes a commodity like any other commodity, but in this case a useless one, whose value is kept, for various reasons of convenience, fixed at 35 dollars an ounce by the United States Government.

If one once starts on the road back to the re-use of gold as a unit of value, if one once again makes world trade dependent upon the volume of gold available to finance it, if one is to indulge in this massive regression towards tribal finance, instead of the immense step we have taken towards purposeful and planned finance, we shall have the greatest difficulty in re-emancipating ourselves. From then on, the quantum of world trade will automatically be dependent upon gold and not, as at present, upon international agreements between the Western nations in their trading relations which are being developed and are gradually assuming greater importance year by year.

Let us not go back on the road to tribal fantasies in relation to gold. Let us not enslave ourselves once again in the manner suggested, to which there are so many powerful objections. Let us, on the contrary, go forward. The lesson we should learn is that there is not enough international co-operation. The World Bank and the International Monetary Fund, developed from the E.P.U. and the like, are the ways in which to solve the problems of short-fall in the balance of payments. Let us insist that those who have an export trade surplus without a matching export of capital shall do something about it so as to relieve the strain upon those countries which temporarily have current accounts deficits, partly because they are engaged in capital finance. Our aim there must be to go forward to the further measures which are required to protect a country temporarily out of balance.

It will be an utterly hopeless task, however, to achieve this further international co-operation if we go on setting ourselves objectives which we cannot all achieve in common. We are all out to get an export surplus. We cannot very well all co-operate so that we can all have an export surplus, because if everybody has an export surplus, this will require the discovery of the fourth dimension. It is rather like handing three turbulent youths a large cake and saying to them, "Do be good boys. Agree among yourselves as to how each of you can have half of this cake." It just is not on.

What we must achieve is a realistic common objective which we can all achieve. In other words, although we all like export surpluses, we must make arrangements so that, when we do not have that equilibrium or surplus, we help each other temporarily to bridge the gap. Therein lies the hope of again emancipating ourselves permanently from these cyclical crises and artificial restrictions upon our potential production.

I shall now try to relate this to our own country. It might be said that I am talking through my hat in suggesting that so modest a contribution as a couple of hundred million pounds a year by way of the export of capital could have any noticeable effect upon an economy which, after all, is producing about £15,000 million a year in goods and services. This would be wholly to under-estimate the power on financial policies of questions relating to foreign reserves.

America has about 18,000 million dollars worth of gold left; that is about £6,000 million or £7,000 million. That is chicken feed to the American economy. Let her lose 4,000 million dollars of that in the next three months or twelve months. Let her lose 4,000 million dollars, which is a mere flea bite compared to the total American production. Then we should see what drastic consequences there will be in the American economy, because the American Government would have to do something to stop it.

That has happened with us. If we are running a deficit of £200 million or £300 million—of relatively little consequence in relation to our total production—the Government proceed to take measures to get that £300 million back, which affects, not £300 million of home production, but more likely £3,000 million or in some degree even £10,000 million of home production. The attempts to gain balance in foreign exchange for relatively small sums involve economic endeavours by the Government affecting productivity in huge areas of industry out of all proportion, to the relatively small, imbalance involved in the foreign exchange trouble. That is what happened. Worse still happened when there was no economic reason, but only financial reasons, as in 1957, when we were exporting splendidly and having export surpluses, simply because—and I will not weary the House by explaining it all—certain speculative holders of sterling, hedging against the risk of a future recession, turned £500 or £600 million into dollars and Deutschemarks.

I feel that we can plan to ensure maximum growth of our economy, without, I hope, turning ourselves into Poffelheimers, or whatever it was said by the Economist we should become, like neurotic Germans or duodenally-ulcerated American businessmen. I dare say we could have done more but we must tell the whole story of the great achievements of our country since the war and in it. If we want to reach prosperity, we must recognise that it is only by world prosperity, and not by turning back to ill-thought-out and reactionary restrictions of the kind advanced from the benches opposite in the course of this debate, such as that we should cut long-term investment and the like or increase the price of gold. The road forward is the road of co-operation with all the other countries of the free world, because we have a vital interest in their prosperity, as indeed they have in ours.