BRITAIN’S INVESTMENTS A POLITICAL AND ECONOMIC PROBLEM

Press, Volume LXXXVIII, Issue 26848, 29 September 1952, Page 6

BRITAIN’S INVESTMENTS A POLITICAL AND ECONOMIC PROBLEM

London, September 16.—The problem of foreign investment looms large both in the political and the economic world today. It is by the development of the comparatively undeveloped countries that the Western democracies will rally to their sid. of the cold war the vast areas and peoples of Asia and Africa. Such development is strategically necessary to provide the new resources of materials that will replace the reserves which modern industrial Civilisation is gobbling up at such a pace. The galley report published in the United States recently proved beyond all doubt the growing dependence of the dominant economy of the United States on ™ported material. Those resources of new materials have, in most Cases, yet to be developed. The required programme of invest* ment will be important not only tor the direct cause it will serve but tor the incidental reason that it will help to solve the seemingly chronic dollar problem with which the world is faced. If, as is almost inevitable, the United States provides, the bulk of the finance required for this programme dollars will be flowing out and will continue to flow out aS the Uni tea States imports the materials that are to be produced. On all counts the problem of overseas investment islikely, therefore, to be our constant companion at international political and economic conferences in the years to come. As for the British Commonwealth, that problem will loom large in the economic discussions which are beginning this month among officials of the Commonwealth. These are to be taken up in November at the highest ministerial level. The Colombo plan for . development in sbuth and south-east Asia will raise its head—and With a certain show of Impatience, because so far the schemes that it envisaged have gtfne very little further than the “blueprint” stage. Australia, if we may judge from recent pronouncements by its Prime Minister, Mr Menzies, will press its claim for the most rapid implementation of the ambitious capital programme to which it has set its hand. Mr Menzies claimed that one of Australia’s greatest shortages was that of capital; and he added that the rest of the world must supply it. Who will supply this capital not only to Australia but to the countless other claimants (many of them more deserving that Australia) for new capital resources? The answer to this question involves a§ many political as economic issues. For if the United States IB to be the main fount of Capital, even in the sterling area, it is evident that a disintegrating force would be introduced into the sterling system. That system was built on the financial and trading supremacy of Britain. Britain’s role as banker and investor was *one *of the cornerstones in the edifice of the sterling area. Remove that stsne and the danger of subsidence immediately arises. Two Sides In analysing this problem two sides Of international investment Should be Clearly distinguished. The first is the provision of finance —the pounds, Swiss francs or any other currency—needed for the project in contemplation. The second is the provision Of physical resources and the human skill required to complete each project. The two are by no means part of the Batne Operation. Whfen British Investors were achieving their prodigies of overseas investment in the latter part of -the nineteenth and early twentieth centuries the recipients of the loans issued in London were at complete liberty to spend the proceeds Where they wished. A railway in China might have been financed largely in London but it might have been constructed by Belgian engineers, Using Belgian rails and rolling stock.

(From’the Economist Intelligence Unit]

This was an illustration of “Untied” loan, made long before such an expression had to be invented, ft the export of capital from the Unites States is to achieve its greatest bene! ficial effect it should take the form of “untied” loans of this kind. Th? dollars exported in this way must ultimately go back to the VnitS States. Many of them will return directly because the United States may be the Country in which the actiuj capital goods required can be obtained cheapest and quickest. But if the .whole world can compete ©J equal terms lor the supply of these capital goods the development proje-t will have been completed on the most economical terms and the export and subsequent repatriation of -ffo e dollars financing this project will hive irrigated a volume of international trade many times that of the original outlay. It will, in the process, have helped to cure the dollar shortage. Capital Exports

The greatest danger in general discussions of this problem is the assumption that the problem of capital exports is merely a question of the first of these issues—the provision of the necessary finance and that “the rest follows.” That fallacy has recently been exposed in the form of a homily to the City of London by Lord Bruce, formerly High Commhsioner for Australia in London and now chairman of the Finance Corporation for Industry. His theme was that the banks and issuing houSe s of the City must not fail in their dirty to finance the Commonwealth.

This was followed by a more pf®. else injunction—the formation of a Commonwealth development corpora, tioh. The creation of new machindy will do nothing to solve the problem of Britain’s relegation to a lower levef in the ranks of International lenders To believe that it Will is to mistake the shadow of overseas investmifit for its substance. The City of Lor. don could no doubt make of pounds available for overseas investment; indeed, the pounds ate largely there within the £ 4.OOO,(XXXQOO of sterling balances deposited in London on overseas account. The real question is whether there are sufficient capital goods into which to convert these pounds. And the answer to that Question is, at the moment, none too reassuring, The proposal for establishing toll new corporation wm. by an interesting coincidence, made on the very day on which the British Government statisticians published their estimates of the national income for 1951. Th? most disturbing and ominous fact revealed by this document is that Britain' is at the moment consuming more than it is producing. If can do so partly by running down stocks and not putting to depreciation amounts appropriate to the task. Another fault of this habit of living beyond the country’s real income II the balance of payments deficit that Britain is still incurring. Far from investing abroad, Britain Is running through reserves, receiving assistance and accumulating debts. That is not the basis from which Britain can suddenly step up its overseas investments. To do that, more must be produced, less consumed and more saved. At present, savings in Britain are inadequate even to provide for domestic investment. That investment programme is being financed by definitely inflationary means. The margin for making large overseai loans does not exist. It will not be created by any appeal* to the City to do its duty or by creating hew financial corporations. Something much more basic is heeded to step tip production and reduce consumption at home if Britain is to'play in the overseas investment programme of the future a part in any way fitting with its traditions and with its present position in the Commonwealth. ■ 1