The Economy

Part of Opposition Day – in the House of Commons at 6:12 pm on 19th January 1983.

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Photo of Mr Roy Jenkins Mr Roy Jenkins , Glasgow Hillhead 6:12 pm, 19th January 1983

That is the last time that I shall give way to the hon. Gentleman.

What is the Government's present position? They almost always look inward. That is true of other Governments, too. Each country tries to find its own solution. Occasionally it tries to lecture other countries into more restrictive postures at home, particularly those with heavy debts. Nothing can be worse for the whole world than a collapse and further restriction of world markets. On the contrary, this is the moment when it would be both highly desirable and possible for the major trading nations of the world to proclaim a change of course.

The basic cause of the trouble, to some extent since 1973, and more so since 1979, has been two oil crises. There were massive increases in oil prices followed by restrictive monetary policies by Governments to try to contain the inflationary consequences. That has been made substantially worse by wildly fluctuating exchanges.

It is not true, as the Prime Minister is fond of telling us, that exchange markets reflect reality. How could that be so when for the past two years Japanese exports have been flooding the world, yet the yen has been depressed far below its real value until recently? That is not the true position. To a substantial extent, far from trade patterns setting exchange rates, exchange rates have set trade patterns. This has been very damaging. It has certainly damaged the prospects for world trade.

On top of that, there has been the over-extended position of many private banks lending, in itself desirable, to countries that can now hardly meet their debt charges from their total exports.

Conditions are changing. A real window of opportunity is now open, but it may not remain open for very long.

We shall not see a repetition of the oil crisis. It is more likely that there will be a decline, not an increase, in oil prices. In most places around the world, interest rates have temporarily been coming down. There is mounting concern, to a greater extent elsewhere than in this country, about unemployment. There is deep concern in Germany, and there is a growing appreciation in the United States, even in influential sections of the Administration, that it is not desirable to have anti-inflationery policies, whatever the consequences in other areas.—[HON. MEMBERS: "What about employment in Glasgow?"] We should seize the moment for co-ordinated action to try to reverse this decline.

Action is required along three lines. There must be joint expansion among the leading trading nations. A country on its own can do a certain amount—and much more should be done in this country than is being undertaken at the present time—but it is much better and safer if countries can expand together. Otherwise there is the risk of a balance of payments problem with exchange rate and inflationary consequences. Now is the moment at which this could be done. Such an exercise was attempted at the Bonn economic summit in 1978. It was agreed, following some expansionary moves by the United States and the United Kingdom, that Japan would expand by 1·5 per cent. and Germany by 1 per cent. Canada, France and Italy agreed to make moves of their own.

The conventional wisdom is that that exercise was misconceived because it proved abortive for one isolatable reason that is highly unlikely to be repeated—the oil price increase that came six months later. Whatever else happens, that will not be repeated. That lion will not be in the path again. The basic rationale of Bonn was sensible and should be revived. There would be much support throughout the world if that happened. Relatively small concerted changes in the fiscal stances of different countries would make a substantial difference to the GDP of all of them collectively and to levels of unemployment.