Policy After Brussels “TIME TO SLAUGHTER SACRED COWS”

Press, Volume CII, Issue 30056, 14 February 1963, Page 9

Policy After Brussels “TIME TO SLAUGHTER SACRED COWS”

(By /i

MICHAEL GARDNER

of tht "economist”]

(From tht '‘Economist" Intelligence Unit)

London February 7.—After the breakdown of Brussels opinion within the British Government on future economic policy seems to be divided into at least three schools. They might fairlv be ? Ued the school of eloquent dither, the school in favour of quick abdication, also known as passing the buckand the school which wants to do something dramatic. Quite knowing what. T “ ere ** much excuse for the school ot eloquent dither The Foreign Office is now apparently eager to save Europe simply by not exerting itself. The idea is that Britain should wait for de Gaulles influence to wane and then move into a more receptive Common Market. The road along which de Gaulle is at present seeking to lead Europe is a road to narrow nationalism, to a reversal of alliances, to an incredibly blinkered isolationism; his aim is that his Europe should do without the

Anglo-Saxons—which means, bluntly, eventually without the presence of American troops, the Continent’s main prop and shield through these last seven lean years. The other five E.E.C. countries, including (to their immense credit) the present generation of wiser Germans like Dr. Schroeder, realise this. That is why it seems so important to them, and to the British Foreign Office, that Britain’s talks at Brussels should be regarded as merely ‘suspended," not broken off. The argument is that Britain must stand ready, above all, to join and help restore an outward-looking Europe as soon as de Gaulle (or de Gaullism) dies or loses full power. An Economic Mess Meanwhile, the theory runs, Britain must not join any other ventures which could make eventual junction with Europe more difficult It. may be all right, on this view, for Britain to enter into some vague talks about freer trade with EJ.T.A., with the Americans, even with the Commonwealth. But no alternative block-building, no hard-and-fast new long-term commitments which could make eventual renewal of the Brussels talks any stickier. The difficulty about this noble policy of non-exertion is that it would leave Britain ticking over, waiting for.de Gaulle to die, and in a devil of an economic mess. Unemployment in Britain is already high, and it may now go even higher for two reasons. First, because some plans for business investment which were based on the assumption that Britain was going into the Common Market are already being abandoned. Second, because businessmen may be holding back from investment because they fear that a General Election may soon bring into power a Labour government, led by one of two rather inexperienced men whose competence and purposes businessmen (rightly or wrongly) distrust.

From this springs the second school of thought within the Government, the school in favour of not proceeding with a new economic policy but holding instead a quick General Election, probably in May. If the Tories won that election, the argument runs, then would be the time to implement a new policy. If. as is much more likely. Labour won it, then it would be left to handle the present mess. The Tories could sit on the Opposition benches, washing their hands of all that Labour did for four years. By about 1967, when the next Parliament could be due to end. de Gaullism should be dead; the Tories could then hope to be swept into power ready to put their policy of a new approach to Europe Into more successful effect The Boldest Course

There is some reason to believe that Mr Macmillan belongs to the school that might prefer an early election. There is even more reason to suppose that Mr Macleod and other younger members do not. A self-immolating act of surrendering inconvenient power naturally has more appeal to a man who is nearing the end of his innings as Prime Minister than to a man who has been rather hoping that he might have the next whack.

There remains the school which is in favour of some dramatic new initiatives. This is the boldest and bravest school, if only somebody can cut through the cackle and recommend what these initiatives should be. There is no point in supposing that they can take the form of calling trade conferences with the Commonwealth, E.F.TA, the United States, Latin America, the Communist block, or anywhere and everywhere else that enthusiasts can find on the map. The difficulty here is that there is no real reason to suppose that any of these areas will really want (or find it profitable) to buy much more from us now that we are to be temporarily outside Europe instead of inside it By all means let us proceed to mutual tariff cuts (discriminatory ones, if need be) with anyone who will listen to us; but to suppose that anybody will be keen to listen very hard is to embrace an illusion. Britain therefore should face the fact that it is likely to be left in the cold in a not very liberal world, dependent on its own efforts. That is why, in facing up to our new problems, it is important to remember what the economic advantages of freer trade, with Europe or anyone else, were and are supposed to be. On the importing side the advantages were that competition from abroad would ruthlessly cut down the least efficient industries and firms in Britain. Those industries and firms that cannot stand up to free imports from European competitors are quite obviously the ones that cannot compete with them in export markets. Nor will they be able to compete with an ever-increasing

flow of similar goods from Japan and other swiftlydeveloping new countries tomorrow. We need to shake our productive resources out of these industries. That must be one objective of any post-Brussels economic policy for Britain.

Stimulating Competition One means to this end could smd-should be unilateral cuts in our rates of tariffs, even if foreigners do not reciprocate. Other means should be new steps to stimulate internal competition in Britain. These should include breaking down restrictive practices (by trades unions,’ by retailers, by farm marketing boards, by manufacturing rings); a new scheme for retraining workers (both young and old) who are no longer needed in dying industries but must move to expanding ones; and a tax policy not only to allow efficient businessmen to make and keep higher profits but to force inefficient businessmen to go bankrupt and shut up shop. The second advantage of entering Europe was that it could have provided a new opening for our exports of sophisticated goods. That opening is now denied to us. The alternative way of stimulating our exports is to make them cheaper; partly by a sterner incomes policy (including sacking any chairmen of nationalised industries who give wage increases more inflationary than the government’s guiding light); partly by new taxation policies, perhaps including direct tax subsidies to exporters (even though this would be contrary to the present rules of both E.F.T.A. and G.A.T.T.); or third—and this is a possibility which has to be faced —devaluation of the pound itself.

The formation of a policy of this kind is urgent It is highly probable that, unless Britain visibly captures a new dynamic of growth and competitiveness and efficiency, this summer will see another run against sterling. And if that is met by all the same old restrictive measures as in 1957 and 1961, then we will relapse into the gloomier aspects of policy (including pay pauses and eventually devaluation) but without the dynamism of growth to accompany them. This is a time for counter-attack instead of for trench warfare, for daring instead of caution, for 8 policy of wholesale slaughter of sacred cows.