FIVE YEARS CLEAR BRITISH POLL AVERTED AN ECONOMIC DISASTER

Press, Volume XCI, Issue 27679, 8 June 1955, Page 12

FIVE YEARS CLEAR BRITISH POLL AVERTED AN ECONOMIC DISASTER

By

"LYNCEUS”

of the “Economist"] mist Intelliaence Unit]

[From the Economist Intelligence Unit]

London. May 31.—The General Election may have been devoid of passion and of stridently controversial issues, but it was none the less significant for Britain’s economic future. Behind the election lay three and a half years of steady progress towards economic freedom. It Had involved the dismantling of most of the economic controls that the Labour Government had inherited intact from the war-time Coalition administration. . Not least in this armoury of controls was control of sterling exchange, the machinery of which, at the Bank of England, is today but a shadow of its former size—and, one might add, of its former efficacy. The efficiency of the control of sterling exchange was bound to deteriorate with the expansion of world trade. In war, exchange control was propped up and reinforced by mail censorship and complete Government control of shipping. Since 1945, the efficiency of exchange control has been steadily weakening, and today, over a large segment of the use of sterling in international trade, it has virtually abdicated.

Had Labour come back to power, the general direction of this trend of economic policy would have been changed. The move towards greater freedom would presumably have been arrested and might even have been reversed. We must beware of exaggerating the substance of such a change. Had it occurred, the industrial structure of Britain would have remained unchanged. Rolls Royce would still be making the best engines in the world;, English Electric would still be able to compete for electrical generating power plants throughout the world, including the United States; the electrification of the British railway system, the development of nuclear power stations, would go forward unaffected by the changes at Westminster.

Effect on Sterling But, admitting all this, the fact remains that a change of administration and of the economic philosophy that would go with it would have caused enormous problems and difficulties. The first of these groups of problems would have derived from the loss of foreign confidence in sterling. Had a Labour Government been elected, sterling, instead of strengthening as it did to 2.79 J dollars on the morrow of the election, would, without a doubt, have dropped like a stone to the lower limit of its tolerated margin of fluctuations. Another sterling crisis would have been on us. It would have been met, in part, by drawing on the reserve; but it is doubtful whether this would have sufficed to stem the tide, particularly as -the defence works of exchange control have in so large a measure been removed over the last three years.

In the circumstances, it is probable that the Government would have had to reinforce its defensive measures by imposing new import restrictions and retreating from the policy of liberalising imports from Europe. This, in its tum, might well have led to re tahation from other countries, and the Western world would once again have been off on the road to economic recriminations and contraction of trade Convertibility, by the same token’ would' have been indefinitely post- : th t a t^- OUl A have ? een “eood-bye „ j *’ These changes in diree- ‘ nd P°l'cy would not have affected the basic structure of British industry; but they would have had a ? h r ° £ 2, Un , d and unfavourable effect on Lr t,sh econoni y and on the tempo or its recovery. Similarly with domestic policy A Labour Government, if its electoral promises are to be believed would ?teXi ,P r . oc ; eded to renationalise the steel industry and to nationalise large sections of the chemical and machine

tools industries. The justification this would have been none other than -the satisfaction of doctrinal belirf Nothing but harm could have attends the intervention of the State in th conduct of industries with such im portant export markets as the mar™ facture of chemicals and machin tools. It is. however, significant the largest swing from the Labour I! the Conservative Party noted in an. constituency in the United Kingdom was that which occurred in Middle/ brough, the town where the chtsniS and iron and steel industries are/! largely represented. Here was a mart of what the workers in these indtu tries think of the prospect of nation' alisation. It will be duly noted at Labour Party headquarters. It seem, reasonable to assume that, in th. fundamental reconsideration of Labour policy which is likely to take nla» in the near future, nationalisation win be relegated to a back place. Labour Relations Critical All these dangers have been avoided The Conservatives, with little but thrir record to plead for them, have beer returned to power with a strengthened majority and a clear mandate from the nation to carry on for another five years Those five years will be usJ to reinforce what has already beai achieved in the progress towards economic freedom, and to maintain the advance towards the objective so ofim described by the Chancellor of th. Exchequer as the doubling of the standard of living wi,thin this getters

The first economic problem to which the Government will have to tum ite attention will be that of labour rela tions. The dock and railway stiik« give the issue of wages policy an ur gency that cannot be ignored. This fortunately, is a matter on which the Government can count on the fullest ■co-operation from the Trades Union Congress. The only fundamental and satisfactory solution to the problem of wages and salaries is to restore stabil ity and integrity to the value of money The present troubles, due to such nrob-' lems as the vanishing differentials in wages, are the direct product of yean of inflation. The honesty of moneya matter which occupied all too Irttie space in the electoral debate—is the prime condition of a satisfactory solution of the wages problem, and* of much else besides. Compulsion of Convertibility This is one of the considerations that should encourage the Government to proceed more determinedly towards the goal of convertibility. A convertible currency must be an honest currency, because, if it is not, it will be converted into something more worthy of confidence. Within the next few weeks this problem of convertibility will be occupying the finance ministers of Western Europe, who will be giving their assent to another extension of the European Payments Union. It seems probable that these discussions will bring the question of convertibility to the fore. Barrin'’ disasters on the balance-of-payments front, the stage should be ready for another major advance on the road to convertibility by September, when the Governors of the International Monetary Fund are due to meet again. A move towards convertibility will require further measures to deal with the balance-of-payments situation. Thorthodox measures already taken in Britain are beginning to have effect. The April trade figures were satisfactory. The terms of trade are once again moving in favour of Britain. The recovery in United States production is creating a demand for sterling-area raw materials, which will play its part *u expanding the dollar-earning power of the non-doUar world. It is 'doubly unfortunate, in the circumstances, that strikes in Britain should again v?jl the progress made in solving the bal-ance-of-payments difficulties. This is one more reason for giving the problem of labour relations priority.