Does Britain Face Economic Disaster?

Wanganui Chronicle, 30 March 1948, Page 8

Does Britain Face Economic Disaster?

ECONOMIST EXAMINES THE POSITION MARSHALL AID VITAL. (By N.Z.P.A. Special Correspondents.) Great Britain —and the British Commonwealth—today face possibly the gravest economic crisis in their history, andwithin the next tour months it will be proved whether the Home Country is to be able to meet its urgent commitments or whether there is to be a tragic fall in the standard of living, widespread unemployment and much suffering. Already the loan of £937,500,000 which America made in 1946 to last live years is exhausted. To obtain an informed analysis of the situation, N.Z.P.A. special London correspondents, A. W. Mitchell and E. G. Webber, in association with London correspondents of Canadian, Australian and South African newspapers, submitted a series of eight questions to Professor Dennis Robertson, Professor of Political Economy in the University of Cambridge and one of Britain’s most distinguished economists. The questions, and Professor Robeftson’s replies are published in three articles, the first appearing today. Question No. 1 Sir Stafford Cripps states that the position has deteriorated ;atly in the last six months Is it not likely that it will continue to deteriorate? By that I mean that most of the countries in the sterling area w'll be unable to close the gap in then ja'ance of payments by existing methods. 1. I must not presume to interpret Str Stafford, but I may point out that the word "deteriorate” is ambiguous. According to the recent White Paper, (Crrd. 7324) the rate at which the' United Kingdom was losing net gold and dollar reserves declined progressively from August to December, though there seems reason to fear that the decline did not continue in January and February. In this sense the position lias not deteriorated in the last six months, though of course in another sense, so long as the drain on net reserves continues, the position continues to deteriorate.

I should have thought there was still reason to hope that as the measures already, taken in the United Kingdom and the other parts of the sterling area become increasingly effective the rate of net. loss will decline; but I see no hope of its sinking to zero in the near future in default of Marshall aid Question No. 2

Do you regaru the Marshall Plan as an effective instrument for the economic recovery of Western Europe, or could it not be a mere repetition of the 1946 American loan to Britain? 2. The question carries a certain implication that the American loan to, Britain has been ineffective as an instrument of recovery. To this I would not agree. Some of the conditions attached to the loan, and some of the uses to which it has in fact been put, are a fair subject for criticism or at least for argument. But Britain is in a far better position to work her way towards solvency than she could have been if the loan had not been received. Phrases like “slushed away’’ have been too lightly used. Provided the Marshall Pro gramme is not pared down in scale or duration or disfigured with unwise strings in the suppooec interest of American exporter..;, and provided that the European co-operation which has been promised develops on sensible lines, there is good reason to hope that the Programme will prove an effective instrument of recovery. There are dangers ahead -that European politicians, to please American opinion may speai brave words aoout tne removal of in-ira-European barriers from the implications of which they afterwards drew back: that hence the American people, disappointed with what turns out to be really practicable in the way of European union at an early date, may grow weary in well-doing: that doctrinaire “planners” may seek to distort the co-operation for which the Programme calls into rigid arrangements which inhibit instead of releasing productive energy. But these

things need not happen: and the Programme remains our sheet-anchor for the next four years. After which arises: Question No. 3 Would it be lair to suggest that even in the event of partial world recovery, the tendency for hard currency to be sucked into the United States and sterilised there will continue? 3_ A very searching question, perhaps a little oddly phrased, but let that pass, for th e meaning is clear, 1 don't believe anybody now can tell the answer for sure. It is not impossible that a rich area should trade with a poor one to the advantage of both, especially if as in the case of the United States, one consequence of being rich is that you gobble up your own supplies of irreplaceable minerals, and thus have to look around to see where you can buy more; while another consequence is that you itch to travel and see the world. But it is made more difficult if the rich area clings from inertia to certain occupations (shall we say cotton-growing?) which are a hang-over from its days of poverty, or from policy to certain others (shall we say merchant shipping?) in which the poor area happens to excel. It is made more difficult, too, if the poor area is always kidding itself that it is richer than it really is, thus putting a chronic strain on the mechanism of exchange by aiming at inappropriate levels of money income.

Even if everybody behaves as sensibly as it is in human nature to do, continuing imbalance of endowment and of need may make it wise and right that for many years to come an eastward How of private investment into Europe ana Africa should follow the public (and, let us hope, mainly gratis) investment of the Marshall Programme; and if th e Programme is successful there is no reason why that should not happen. If to this someone replies “Yes, but ‘respice finem'—look at the final end of all this lending,” 1 can only reply that I have not forgotten that, but'ihat I think it is reasonable in these days, when the future is at best so dim, sometimes to look at it through the wrong end of the telescope. There is danger, however, lest if she finds herself afflicted again with severe depression the United States may suspend the flow of beneficent investment, and indulge instead in that kind of ‘‘investment’' whch consists in attempting to force your exports at the cost of draining trom the recipients their resources of gold or balances. Also I hope our American friends will increasingly turn over in their minds the thought that, from the standpoint of the happiness of the human race, an eastward flow of capital may often be a poor second-best to a westward flow of population. Question No. 4 Ca.i the world shortage of dollars be appeased within reasonable time by existing methods? 4. J-lave I dealt with this sufficiently under <1) for pre-Marshall, (2) for Marshall and (3) for post-Marshall period? Or do those words “by existing methods” suggest that there is some trick just round the corner for eliminating dollar shortage which I ought to have thought of, and the discovery of which would enable me to join Lord Beaverbrook in politely consigning the Marshall Programme to perdition? If so, th e examiner has got me beat!

Of course you cease to be “short” of a thing not only if you get it, but if you cease to need it. To the extent that we of the Sterling Area (and Western Europe?) can develop our own and each other’s resources in such wise as to reduce our thirst for dollars, that isall to the good. But it is a long job; our present needs are such that the resources we can dedicate to distant ends are severely limited —much more limited than we liked to pretend a year or two ago. In other words, we need dollars to deliver us from dollar shortage. So we come back to the Marshall Programme, the International Bank for Reconstruction and Development, even the poor old harassed International Monetary Fund, trying to do its bit in a world for which it was not built.

In the next series Professor Robertson will deal with the suggestion that the financial system of the Western World is in danger of collapse.