I am with the hon. Member for Edmonton (Mr. Albu) in believing that we are in the midst of an extremely serious and dangerous world economic crisis, particularly in the West. All of those who have seen the figures published in the National Institute's Economic Review must realise just how serious it is. It is becoming increasingly clear that the Government's economic strategy has, up to now at any rate, failed.
But it would not be anything like so serious for this country, and, indeed, for the West, if the policies being put forward by the likely alternative Government were serious or credible. One sees this from the article by Mr. Peter Jay in The Times today. But I prefer to go back to a few days ago, to a leader in the Evening Standard, which used the same word about Conservative policy, "naked", as the Financial Secretary used about it today. The leader said:
The endless harping on public expenditure, rising prices and the evils of incomes control will just not do from a party which can only offer in return a change in farming and housing subsidies entailing higher rents, food prices and social security payments. … Indeed, on the vital question of monetary reform the Government sounded far more open-minded than the Opposition.
That was the comment of a newspaper not normally associated with the policies
of the Government or of the Liberal Party. it is a newspaper which, broadly speaking, is friendly to the Conservative Party.
Although I am not myself in a position sufficiently to judge exactly who is telling the truth about public expenditure, as a member of the public I am gravely affronted when I read in The Times of today that the Leader of the Oppositional debate in the House has falsified the figures of public expenditure. I should very much like to be told the truth about the public expenditure figures. The right hon. Gentleman said in Monday's debate on the economic situation that between 1963–64 and 1968–69 public expenditure had risen by 60 per cent. This morning we were told that those figures were entirely untrue and that the real figure was about 48 per cent., which compared with an increase of 47 per cent. in the last few years of the Conservative Government. This kind of debating which the Leader of the Conservative Party adopts does nothing to raise the standards of debate in he House or the standards of political honesty.
It is not insignificant that the Conservatives have only very recently decided whether to oppose the Bill, and even now they have moved an Amendment rather than oppose the Bill root and branch. In the debate on the Ways and Means Resolution earlier this week, there was no mention of the fact that Her Majesty's Opposition intended to oppose the Bill. I wonder what has made them change their minds. It may be that the C.B.I. has exerted some pressure and it may have been that the unequivocal opposition of the Liberal Party to the Bill has made them realise that they could not be left out on a limb. The Amendment is not outright opposition, but my opposition to the Bill is outright. I do not need to be told about public expenditure and interest-free loans, and if I am to be told about public expenditure I want to be told which kinds of public expenditure the Conservatives wish to cut.
I oppose the Bill because it will restrict world trade; because it will reduce competition and the competitiveness of British industry; because it will do long-term damage to the whole British economy if it works, while if it does not work, it is not worth introducing, because it will bring no long-term advantages, while even the short-term advantages are extremely doubtful; because it will adversely affect the gap between the rich and poor nations by restricting their trade with us; and because it will inevitably throw some small business men out of business.
What will be its effect on the balance of payments? What this country has most to fear is the vicious circle of world protectionism and I fear that we are already in that vicious circle, that it is not something which we are looking at in the future. We are virtually on the edge, if not over the edge already. Squeezing the economy, squeezing liquidity, is not something at which more than one or two can play. If one squeezes one's own economy and one is alone in doing so, it is possible that one can divert a certain part of one's production to the export markets. But we are not alone and many other major industrial countries are squeezing their home economies which will make our exports much harder. I do not believe that this latest squeeze will work any more than previous squeezes under the Labour and Conservative Governments and one reason why I oppose the regulator is that it takes us back to square one all over again, to the same old medicine which has not worked before, with no reason why it should work now.
Whether actions of this sort break the E.F.T.A. Agreement has often been asked. That has still not been decided, but whether it breaks the letter of the E.F.T.A. Agreement, it certainly breaks the spirit. I re-emphasise the view to which Liberals have always held fast—that there cannot be an effective free trade area, or an effective economic community, unless there is the underlying political unity to go with it, because only with political and constitutional unity behind it can a free trade area have enough sanctions to enforce the rules.
I have a query in this connection. Yesterday, I received a telephone call from a business man who imports dressed rabbit skins to make into ladies' fur coats for re-export. He buys these skins from Europe and exports them primarily to E.F.T.A. countries. He has been told by the Board of Trade and the Customs and Excise that if he re-exports these fur coats to E.F.T.A. countries he will have to pay the deposit, but that if he re-exports them to non-E.F.T.A. countries he will not have to pay the deposit. My immediate reaction to this was that we were living with Alice in Wonderland, or that he must have misinterpreted the message, or that the Board of Trade and the Customs and Excise had gone stark staring bonkers. Having checked up on this matter with the Customs and Excise this morning, I have discovered that what he said was correct, and I should like to know from the Minister of State whether he will undertake to look into this matter—I can give him further details and figures—to make sure that the Government have some method of solving this problem.
Another problem is the effect of the regulator on prices. I have no doubt that if the import deposit scheme works, it will enable British manufacturers to exploit their monopoly situation and increase prices. What do the Government intend to do to stop prices from being increased for this reason? I should like more assurance than we had about the Selective Employment Tax when we were told that its cost would not be added to our restaurant and hotel bills and so on.
The effect on small firms will be rather greater than some Labour Members have suggested. In the City Press this week there are some remarks of small City importers, small in the sense that they are not massive firms, not the sort of firms which can stand this raid on their liquidity. The consensus is undoubtedly that many of them will have to go out of business. The reason is that many of these firms have a vast turnover on extremely small capital resources and these are the people who will be very hard hit.
I should like the Minister of State to say what the deposits will total at most and how that figure compares with present total advances to industry. My calculation is that it will be a substantial chunk of total bank advances to industry, which would tend to show that firms will not be able to raise this kind of cash from that source. I do not believe that importers will be able to get credit from abroad certainly that is the opinion of those whom I have asked, and it is the opinion of the banks. One of the reasons why they will not be able to get credit from overseas suppliers is that there is still a fear abroad, incredible though it may seem to us, that sterling is not all it is cracked up to be. While foreign suppliers may well give credit for three months, many of them will jib at giving credit for longer than that, in the fear that at the end of the time the £ will be devalued by 10 or 15 per cent., or whatever it may be. I do not believe such a devaluation is likely to become necessary, but we have failed to convince foreign bankers and foreign merchants of this and they are obstinate in their beliefs.
If we could guarantee foreign merchants against that by adopting the policy which I outlined in the earlier debate this week, that of the crawling peg, we would guarantee to a certain extent that no immediate and substantial devaluation would take place. I hope that the Government are now convinced that it at any time devaluation were to become necessary—not that they think it will—they will devalue only by the crawling peg method to which I shall refer in a moment.
I want now to deal with what I regard as the only possible alternative economic strategy for this country. The hon. Member for Ebbw Vale (Mr. Michael Foot) dealt in his somewhat protectionist speech with what he called a Socialist alternative economic strategy. I do not believe that that would work, and I should like to outline what I would call the Liberal economic strategy. First, we have to be rededicated to the task of a 4 per cent. growth rate. How? The right hon. Member for Barnet (Mr. Maudling), when he was Chancellor of the Exchequer, believed that one could grow through the balance of payments crisis, and there was some evidence of this at the time. He believed that by expanding demand we would automatically increase capacity. To a certain extent this is true, because there is no doubt that by expanding demand one increases the tendency of businessmen to invest. Their feeling of security is enhanced. It is only a limited connection, and by expanding demand by say, 4 per cent., although it may be possible to expand the rates of growth of capacity from 3 per cent. to 3·2 per cent. that is still not enough and it only postpones the balance of payments crisis which will inevitably come at some time.
Is the only alternative to this doctrine of growing through the crisis, which did not work last time and which I suppose is unlikely to work again, to accept what has become known as Paishism? This doctrine says that it is impossible to expand demand more rapidly than capacity and therefore we should not try. There is some truth in both these arguments. I want to create a situation in which the helpful effects of expanding demand, the assurance for instance of continuous prosperity, creates security for investment, innovation, for new techniques and the sweeping away of restrictive practices. The only way we can get this is to accept a willingness for a certain level of unemployment, say, 1·75 per cent., certainly never more than 2 per cent.
I do not honestly regard this as a total disaster provided that within this figure of 1¾ per cent. we are continually in a state of flux, that is that no one is permanently unemployed, but that these people are moving from one industry to another. I do not think that this is socially disastrous. In a modern technological society I believe it to be inevitable and even desirable. It will also be necessary under this strategy to act directly on the balance of payments. I have already made it clear that I totally discard the way in which the Government have chosen to act upon the balance of payments.
The only feasible way to act immediately on the balance of payments is to accept the need to adjust exchange rates gradually, without the sort of crisis which one got with the French devaluation, the sort of experiences which the Germans had and which we have had. If all currencies are in equilibrium it is quite possible to go to the floating exchange rate. In the present situation of gross dis-equilibrium, the floating exchange rate would inevitably mean a very sharp re-adjustment. The mark would go up very substantially, presumably the pound, the franc, the dollar and lira, and all other points west would sink pretty abysmally. What is needed now is a scheme to bring about this equilibrium gradually.
There is nothing magical about existing rates of exchange. It is quite obvious that devaluation may have to come for any currency, or revaluation for that matter. The scheme that I am outlining, the scheme of the crawling peg, applies equally to devaluation as to revaluation. It is undesirable that any future changes needed to correct the fundamental disequilibrium are carried out suddenly and immediately. It is highly desirable that they should be carried out gradually, and we have suggested, with Professor Meade, to whom I give credit for this originally, by not more than 1/26th of one per cent. per week.
If this had been done in 1967 we should have escaped the trauma of our own sudden devaluation, France would have found devaluation very much easier to accept and even Germany might have been able to revalue without the severe political embarrassment which the German Government fear. I hope that I have made it clear that what I believe in is a fundamentally different strategy for the economy.
It is based on the acceptance that international exchange rates are not holy, sacred, something which we should stick to for all time. I do not wish to amend this Bill. I have made it clear, on the Ways and Means Resolution, that it is wrong-headed through and through. It will do more harm than good. Britain is extremely vulnerable in world trade and we live by trade. Yet we have surrounded ourselves over the years with gross protective tariffs and that is why we are uncompetitive today, that is why imports are selling so well here, because for years British industry has been feather-bedded. We need the icy winds of competition and we have kept them out for far too long. We cannot live by keeping them out. We have to buy and sell in the world market in order to live. I am in favour of import-saving, but it cannot be done by legislation of this kind. It can only be done by making our products more competitive in world markets and in our own home market. No Bill was ever passed that has enabled us to create wealth.
Government intervention in the economy, and this again will probably separate me from the Conservative and Labour parties, should be confined to creating conditions in which private enterprise can do the job. I believe that private enterprise can only work in conditions of competition. Unfortunately, the free enterprise system does tend towards monopoly and the elimination of competition. That is no reason for scrapping it. It is a reason for ensuring that the Government role is to continually increase competition, to continually ensure that the monopolistically inclined elements of the free enterprise system are kept swimming outwards rather than inwards.
The Government must continually work against the monopolising elements, against monopolies, against mergers, restrictive practices, and above all, the most restrictive practice of all, against tariffs. This is a tragic and mistaken Bill. It will add to the gathering pace of world protection. We have nothing to gain from it and everything to lose.