Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 18th July 1961.

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Photo of Mr Anthony Crosland Mr Anthony Crosland , Grimsby 12:00 am, 18th July 1961

The last few minutes of the speech of the President of the Board of Trade at least showed that he has discovered the right road to promotion in the present Government. He used a succesion of platitudes which could not have been equalled except by the Home Secretary or the Prime Minister himself. The real trouble with his speech was that it was in exactly the same terms as speeches which he made six or seven years ago. I can remember hearing identical speeches from him in 1953 and 1954. He does not seem to realise that we are not discussing the situation that we had in those years.

In the early 'fifties, when we ran into a similar balance of payments crisis, it was often possible to put it down to temporary factors, ill luck, and so on. But that is not the situation today. Today we are discussing, and in the two days' economic debate next week shall be discussing, something very much more important and decisive than that, namely, the failure of a whole decade of Conservative policy. An occasion like this called for a much more searching, much less complacent and platitudinous speech than we have had from the right hon. Gentleman.

For ten years we have stood condemned as a country in the management of our economic affairs by the three most searching tests that anyone could apply. We stand condemned as having almost the slowest rate of growth, almost the most unhealthy balance of payments position, and almost the fastest rate of price inflation of any advanced industrial country. On each of these points the President of the Board of Trade made one or two extremely complacent remarks, saying that there was always some external cause, some scapegoat or alibi For this state of affairs.

On the rate of growth, the right hon. Gentleman said that to take the gross figures may give a false impression because we must take into account population increases. This has occurred to others beside the right hon. Gentleman. The unfavourable picture still remains, even if we allow for the obvious fact that Germany, for example, has received a large number of refugees from the East. The right hon. Gentleman also said that not only Britain but the United States are going through a period of slow growth. That is true, and it explains the extreme degree of heart-searching which is going on in the United States on this subject at present. It also partly explains why Senator Kennedy was elected last November. I hope that there may be a lesson here for Great Britain.

The President of the Board of Trade then said with regard to our balance of payments that the sums involved are merely marginal and that it would require only a marginal change to turn the deficit into a surplus. Of course, it is only a marginal change, but the interesting question is why this marginal change has somehow evaded us for so long. This suggests that although it is only marginal, a deep-seated change of policy is needed if we are to put the matter right.

It is surely an extraordinary achievement over so many years to have combined these three elements of slow growth, an extremely weak balance of payments and a rapid rate of price inflation. In fact, of course, it is not an accident that the three have gone together, because fundamentally they have precisely the same cause, namely, our slow rate of increase in productivity. All three are related to some basic lack of industrial efficiency from which the country suffers.

The result is that ten years after the Conservative Party was first elected we find ourselves in a humiliating situation in which sterling is propped up largely by support from the European central banks, and in which German businessmen and politicians privately express nervousness as to what the effect on British public opinion will be in terms of re-creating anti-German feeling if they continue to out-compete us. To listen to such remarks has been one of the most humiliating experiences I have had.

Whatever may have been true in the past, neither the President of the Board of Trade nor the Chancellor of the Exchequer can now point to any outside factor as the cause of our difficulties so that they can avoid blame for the present situation. The terms of trade are highly favourable in this country, much more favourable than most of us a few years ago thought that they would be. Economic activity in the world is at a high level. One cannot find a reason there for lagging British exports. We cannot any longer say that our slower performance is due to the fact that Germany, Japan and Italy are recovering from the ravages of war. Their postwar recovery was more or less complete by 1955. The same unfavourable comparison in the first half of the 1950's has gone on in the second half. There is no external factor which can be used as a scapegoat or alibi for our poor performance.

However, the Government and most financial commentators have found no difficulty in finding a new scapegoat. It has been mentioned off and on in the last ten years, but a great deal more in the last few months, namely, the behaviour of wages. Although my right hon. Friend the Leader of the Opposition said something about this, I think that there are still things which should be made clear. One thing which is often forgotten when the Chancellor of the Exchequer and others talk about incomes and wages increasing at too fast a rate is that over the last few years middle-class income earners have been a great deal more successful than wage-earners in increasing their money incomes. The bargaining power of the industrial trade unions is a good deal less than that of many middle-class and salaried groups, such as the farmers, doctors and a number of others. It is clear that in the last five years or so the middle classes have been more successful in forcing up their money incomes than the trade unions.

Even if we concentrate on wages, the central point is one which was made by my right hon. Friend the Leader of the Opposition. If we compare what has been happening to wages in this country with what has been happening in other countries, we find that the British movement of wages is not substantially out of alignment. It is possible to find one or two countries where wages have gone up more slowly, but there are a number of countries in which wages have gone up a good deal faster than in this country. In Germany, to take the most obvious example, they have increased by almost an identical amount—in fact, at a slightly faster rate.

The difference between what has happened in Britain as against the rest of the world lies not in the behaviour of wages but in the behaviour of productivity. The fact is that productivity has gone up much more slowly in this country, and this causes us to have this exceptional degree of price inflation. The Chancellor of the Exchequer is right when he says that one of our troubles is that incomes are moving out of line with productivity, but he is quite wrong to fasten attention entirely on what is happening to wages. He should be fastening his attention on what is happening to productivity and on the reasons for our slow rate of increased productivity.

Financial commentators have begun to talk about a possible wages policy in the sense of more Government co-ordination, regulation, supervision, or whatever it may be, of wages. This is an extremely difficult question. One can certainly imagine circumstances in which it might be desirable for the Government to have a policy for all incomes—not just for wages, but for salaries, dividends and so on.

But one must draw the Government's attention to the condition under which alone this could possibly work. There are only two countries in Europe where any kind of a wages policy has worked at all successfully. It has not worked spectacularly well in either of them, but the two in which it has worked best are Holland and Sweden. Both of these countries are conspicuously characterised by something which is certainly lacking in this country, namely, a high degree of social harmony and an absence of class tension. Both of these countries are characterised, on the whole, by an equal distribution of incomes, a tax system which most people in the country consider just, a much less stratified educational system than we have, and generally a much greater sense of social cohesion and harmony and of belonging to the same society. Nobody who knows either of those two countries could deny that.

It follows therefrom that if the Chancellor is thinking in terms of instituting, in co-operation with the trade unions, any kind of wages policy, no matter what it is, the absolute condition for this is that he must act in such a way as to create that kind of mood in this country. In the last few months, he has been acting in precisely the opposite direction. It will need a major change, not only in his actual policy but in his manner of looking at things, if he hopes to get this kind of co-operation from the trade unions.

It is not only hon. Members on these benches who say that. Even The Times in a leading article last week made precisely that point in language at least as strong as that ever used from this side of the Committee. It cannot be dismissed, therefore, merely as a political debating point.

Our object in this debate, I suppose, is to try to get some idea, which certainly did not emerge from the speech of the President of the Board of Trade, of the basic reasons for our failure and for the mismanagement of our economic affairs over an entire decade. It seems to me that the failure is twofold. First, the Government have never effectively had a long-term economic policy; and secondly, their short-term economic policies have consistently been wrong.

On the short-term economic policies, my right hon. Friend the Leader of the Opposition had something to say about the disastrous effect on our affairs over the last ten years of the way we react to every successive exchange or balance of payments crisis. It is always the same story of cuts in investment and in demand, with the consequence that we then have a year or more of stagnation of output, and with the further result that because investment does not go up as fast as it should our productivity also goes up less rapidly than it should.

That is a self-defeating policy, quite apart from the loss of output. Fundamentally, our balance of payments crises are due to the fact that productivity does not go up fast enough and we then cure the crises by a method which ensures that it goes up even more slowly. That is quite apart from the loss of output due to the periods of stagnation after each crisis. One sometimes wonders whether if we did not have the occasional carrot of a General Election we would have any economic growth at all. All the indications from the recent speeches of the Chancellor of the Exchequer and from the financial comment are that we shall go through this same appalling round again next week.

First, everybody supposes that the regulator will be used. We must examine this regulator. As I said in the Finance Bill debates, I do not oppose it in principle. I would welcome almost any regulator if it meant more fiscal planning than we have had in the last few years. Like hon. Members on all sides, I am extremely impressed by how much more rapid our rate of growth would be if we could simply make it steadier than it has been in recent years. To make it steady involves much more effective fiscal regulators than we have had in the past.