The results of the Dutch policies are not the same as those we now experience. One of the interesting characteristics of the absorption of North Sea gas into the Dutch economy is that it was done with a small variation in the real exchange rate of the guilder. That is the point upon which I should like to concentrate.
The effect of all these factors on the exchange rate last year was that by the end of 1979 the pound was 25 per cent. above the level of 1976. Taking account of inflation its real effective exchange rate was 25 per cent. above for the average in 1976 and it has risen a further 9 per cent. since the end of last year. In other words, there has been a 35 per cent. increase in the real exchange rate between the middle of 1976 and today.
The result of that strengthening of the pound becomes clear if we look at the effect of the contribution of oil on the balance of payments. Last year the oil contribution was £7¼ billion higher than in 1976. Yet despite that massive inflow into the current account the whole current account deteriorated last year compared with 1976 by £1¼ billion. Far from showing a large growth in the current account surplus we saw that account getting worse against the background of a massive inflow.
It is possible to argue that that in itself is not a bad thing. It is possible to argue that what should have happened is that the growth within the domestic economy should have been put on to a higher plane because demand that was formerly provided by the external sector was now provided in the internal sector.
It is possible to argue that what should have happened is that the economy should have grown at a faster rate because there was more internal demand than would have been the case without North Sea oil.
Whatever the theoretical attraction of that argument, one can say only that it has not happened. The arrival of oil into the domestic economy has not contributed to an expansion of our rate of growth. On the contrary, it has simply replaced economic activity that existed in the economy before oil came in. Since oil, for all practical purposes, employs almost no one, but the manufacturing sector that it has replaced was particularly labour-intensive, that has inevitably led to the unemployment we now face.
If all this were simply a matter of history and I were merely recording what has happened in the economy my speech would be an interesting academic analysis which would not take us forward. However, I want to concentrate the Government's mind on what I see as the threat of the future, which is an even further deterioration in the position we now face.
Even if the exchange rate in real terms remained as it is now, the British economy would still be 30 per cent. less competitive than it has been on average during the 1970s. For as long as the domestic economy is being held down as hard as it is, it is reasonable to assume that British manufacturers will continue to maintain their export volume for the contribution that that gives them. They will accept pressure on margins in order to maintain volume, and the balance of payments will not suffer unduly. I am concerned that, when the economy eventually begins to recover, those manufacturers who are now maintaining export volume, albeit at greatly depressed margins, might divert that capacity to satisfy the home market. Companies will cease to export, which will lead to a decline of export volume. The expansion of our domestic market will suck in more imports. Obviously, I am describing a straightforward, old-fashioned balance of payments crisis resulting from an uncompetitive economy and leading to devaluation.
In other words, I fear that at this moment we do not face the choice between devaluing and not devaluing. The choice is between devaluing a little now in order to pre-empt that loss of competitiveness and that loss of manufacturing capacity and having a much larger devaluation forced upon us in 18 months or two years time.