Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 25th November 1968.

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Photo of Mr Ian Lloyd Mr Ian Lloyd , Portsmouth Langstone 12:00 am, 25th November 1968

Before turning to the main points of my speech, I extend a very warm welcome to my hon. Friend the Member for New Forest (Mr. McNair-Wilson). I wish to embroider the rather charming analogy he made of a ship with a tiller but without a rudder by a description I heard of the way a very poor yacht sailed. The description was that it sailed like a piece of real estate and that is precisely how our economy can be described as sailing.

Some years ago, Maynard Keynes warned us that practical men, a term which has always carried a robust air of purpose and implicit approval, were usually to be found when propounding their favourite economic theories to be the slaves of some defunct economist. Later, he warned us that he himself might be one of those economists, although at the time of his great controversy with the great central banks in the 1930s that seemed to be a most unlikely contingency.

Now, the House knows full well that although all professions are the butt of their critics, economists and statisticians bear more than their fair share of criticism, especially when the practical men are in a position to couple them, as they are at the moment, in one contemptuous gesture with financiers, bankers and all those who preside in one role or another over the economic destinies of nations.

As politicians, too, most hon. Members will be aware that any one who is rash enough to come here and bear one six hundred and thirtieth of the responsibility for the national decisions is exposed, like the lady in Oscar Wilde's play, to comment on the platform. I nearly said "decisions made here", but we all know that such a statement would merely provoke mirth, because we no longer make decisions. Indeed, we do not even make or unmake Governments, but, whether or not we make them, we carry responsibility for decisions and will continue to do so for some considerable time.

On this occasion, we shall collectively be asked to bear the responsibility for at least one-tenth of the economic decisions made last week by the Group of Ten, and I do not think for a moment that it would be wise either for the Opposition to disclaim responsibility, for the country now has a long perspective of economic crisis and failure stretching back through many Governments, many balance of payments gaps, many import sprees and export failures, many meetings of the I.M.F. and the Group of Ten, of Finance Ministers and central bank governors, or for the Government to endeavour, as they seem to have done today, to write into this situation the small print of party advantage, for the country is sick and tired of the stereotyped clichés of party economic analysis. The practical men might be slaves of some defunct economist, but the country and the peoples of Europe as a whole have come to feel themselves the slaves of defunct politicians, and that is a fate from which there is no ready-made escape.

There is a widespread mood, particularly among informed and serious commentators on economic affairs, though it is not by any means confined to them, that we are now witnessing a fundamental failure of the economic mechanism. It is not merely, to use this modern and popular analogy, that the clutch of the car is slipping, or that the driver has lost all sense of relationship between the road and the accelerator and the brake. It is the chassis which seems to have cracked, and the rescue vehicle is nowhere in sight. Indeed, to extend the analogy, there is but one rescue vehicle for every ten cracked chassis on the road, or so it would seem. The breakdown seems to be beyond the scope of running repairs, or, ultimately, of chassis replacement, for it is the ump- teenth time that the wretched frame has cracked, been repaired and cracked again.

The main technical charges, to revert to the proper idiom of our debate, are three. The first is that we have failed to control inflation. This is true, but it is a charge which can be levelled accurately against every Government in Western Europe and the Western world. The second is that we have failed to control speculation. The hon. Member for West Ham, North mentioned this, and I should like to deal with it in a moment. The third is that we have failed to carry forward the development of the mechanisms which we designed at Bretton Woods to deal with the consequences of 15 years of massive failure from 1930 to 1945, and after 20 years of only partial success there is a deep feeling that the whole mechanism must be seriously reviewed and reconstructed.

These charges cannot be seriously disputed, but it is right to say this in mitigation. Inflation is not easily controlled in any political system which permits and develops dispersed centres of economic power. Even within totalitarian systems it is not unknown, for all complex societies have reserves of wealth which can be taxed by a combination of weak government and the printing press. Speculation—that bugbear of the Left, which does not seek to understand the international monetary system, largely because it has no real sympathy with it—is absolutely unavoidable in the short term in any international community in which very large money flows are the uncontrollable consequence—and I use the word "uncontrollable" in no pejorative sense—of massive trade exchanges.

The normal trading pattern of Europe involves every month a couple of billion dollars worth of wholly legitimate trade and it seems utterly misleading to describe the acceleration or deceleration of trade payments, by far the most significant item being to attempt to ensure against currency losses, as speculation. For a company heavily involved in international trade not to try to obtain forward cover for its heavy foreign currency commitments would certainly be irresponsible and could prove disastrous in certain conditions.

On top of this, Europe has no particular right to insist that those abroad whom it asks and encourages to hold its currencies should contribute more than they feel is avoidable to the redistribution of wealth brought about domestically in Europe by inflation. Of course, in an ideal world their actions would invariably be guided by high-minded concepts of international public interest, and the gnomes of Zurich and the sheikhs of Arabia would vie with each other in switching their deposits in whatever directions the governors of the central banks thought would contribute most to monetary stability, but I need hardly remind the House that it is not an ideal world.

It is sometimes not even an intelligently selfish world, for there is no doubt that the unintelligently selfish frequently provide the energy and acceleration which convert relatively harmless adjustments into irrational massive monetary surges such as those which we are now witnessing. The Gadarene swine have no monopoly of self-destructive stupidity and in these matters it would seem that human behaviour is more susceptible to the fashion and infection of the mob than to the restraints of reason and objective analysis.

It is profitable to examine the charge that we have failed to develop the mechanisms of monetary readjustment. Different rates of growth, different rates of inflation, different rates of saving and investment, different prices and incomes policies, variations in the skill and success of investment, all combine to ensure that the one single bridge between two complex economies, the rate of exchange, should eventually become unable to carry the weight of traffic across it. Certainly, we can construct new and possibly better bridges, and, certainly, there is a large range of interesting and constructive proposals. Some hon. Members have mentioned them in the debate already and most of them would undoubtedly make a positive contribution to the cure of the malaise which we are suffering. The mobilisation of central bank credit swaps in recent years cannot be regarded as a wholly unsuccessful response to the surges of short-term capital across the exchanges.

But what is now clear is that in a world in which every advanced economy is part of the international trading economy, the attempt to combine the deep-seated and disrupted illusion of total national economic control with the reality of a large and growing economic interdependence has finally demonstrated its most basic and inherent contradiction. The choice, at least within the North Atlantic community, is not, as some people imagine, a choice between continuing the illusion of national economic independence and control and in some way reconciling this with the similar illusions of other people by a more sophisticated development of the I.M.F. or any other mechanism—any other mechanism, that is, which serves to perpetuate the major illusion by continuing the minor illusion of separate and different currencies.

The choice is more fundamental. It is between a major reform of the international monetary system so that the institution and control of currency conforms with the realities of international economic interdependence, coupled with whatever political restructuring proves necessary to give validity and effect to such a change, and continuing to tinker with the symptoms of failure, producing ever more elaborate and complex compensatory mechanisms behind which national Governments can continue to foster the illusions—and, my goodness, one does not have to be long in the House to realise how deep-seated these illusions are—of macro-economic control.

The price we shall pay for the former is not in dispute. We shall lose the illusion of total sovereignty over a part of the international economic system. We shall gain, perhaps, if we try hard enough, the reality of a shared sovereignty over a substantial part of the economic system of the developed world. This is the real choice facing the peoples of this country and Europe today.

The political restructuring is what is now profoundly necessary, not a mere tinkering with the symptoms of failure, producing, as I say, ever more elaborate compensatory mechanisms behind which national Governments can continue to foster their illusions. Of course, national Governments do not like sharing sovereignty. Prime Ministers do not like any form of change which might result in their appearing to be like chairmen of regional councils. But it is worth pointing out that the Governors of both New York and California preside over geographical areas which, in their total wealth—if one may call it national wealth in that sense—is now probably greater than that of any of the sovereign States of Europe.

The whole basis of political argument is wider, and the scope for national manoeuvre is more limited. To decide economic policy in the interests of the unemployed of Europe is obviously more complex and unfamiliar as a concept than deciding economic policy in the interests of the unemployed of Britain. The British unemployed have no votes in Bonn, and the German unemployed have no votes in Westminster.

I do not for a moment under-rate the difficulties. Nor am I prey to the illusion that Europe's monetary Rome will be built in a day. But built it must be. The foundations are political, not economic. There must now be recognition at the highest level, first in Europe and then within the North Atlantic community, that we are indeed one community with one economy, that the prime phenomenon of our time is economic interdependence, that we urgently need in Europe, and subsequently beyond Europe, federal monetary institutions, a unified European currency and a European central bank.

Those are the real choices lying before us. The institutions are there already. The Bank for International Settlements is familiar with the machine. What is lacking—if we are frank with ourselves, we all know this—is the political will. The political will is either absent or frustrated.

It will not be sufficient, even if we do recover from the present crisis, merely to improve the machinery of readjustment, to raise the price of gold, to introduce S.D.R.s, to improve the credit swap machinery between central banks or to arrange for Finance Ministers and the governors of the central banks to meet more frequently. That would be merely to substitute one illusion for another. For nothing would be more futile or more dangerous than to substitute the illusion of international economic control for what exists at present, since, if that were done, Governments would then be encouraged to "pass the buck", to wash their hands of responsibility, and those who argue that the difficult is impossible and unrealistic would immediately be swept to power on a profound and cynical mood of nationalistic reaction. This is the danger inherent in the next great move forward.

There is one argument which will be used against the proposal which I have put. Quite simply, it is that the crisis is too severe and too immediate to permit, or even remotely countenance, structural changes of that kind. Since no such machinery exists, it will be said, since there is no European monetary authority or central bank, since the major currencies of Europe have little enough in common except inflation, we shall have to climb out using once again the rope ladder which the I.M.F. and the governors of the central banks throw down to those intemporary difficulties.

I accept that that is so, in the very short run only. The dyke must be held. The stability of international trade cannot be allowed to founder merely because of what has happened. But more than the mere reputation of capitalism—or, if hon. Members opposite do not like the term "capitalism"—more than the mere reputation of the mixed society which Europe has created is at stake. If we take no more fundamental steps, we shall without doubt have not one but many recurrences of crisis, and if that happens the temptation to distort the diagnosis will become increasingly strong. Since the symptoms are economic, we shall look ever more desperately, but ever more fruitlessly, for purely economic solutions; and such solutions simply do not exist.

In my view, the answer is that that is a fundamental mistake. The crisis is not an economic crisis. It is a crisis which reflects profoundly and seriously a lack of political imagination and will. There is no balance of payments crisis between California and Maine. There is no such crisis between Scotland and England, or between British Columbia and Nova Scotia. There need be no balance of payments crisis between England and France or any other State of Europe. It is simple to show how within a unified economy one could readily create all the conditions, without exception, which are plaguing the economies of Europe today. We could do it within the major monetary units of Europe. But we seem incapable of reasoning in reverse, of learning the lessons of history in this context. Yet that is what we must do.

Only our obtuse respect for national sovereignty stands between the peoples of Europe and their real destiny. We have not a great deal of time in which to rediscover this basic fact and get on with the job.