As a serious bourgeois commentator, the ECONOMIST is not usually gushing with optimism when it analyses the current fortunes of the British economy. However, in the June 28th edition, the editorial and another article entitled: "Up to Our Necks," reached new depths of gloom, not only through an examination of the extent of British capitalism's present dire position, but also, through not being able to conceive of any solution which would lead to disaster being averted.
In weighing the significance of the latest loan from the International Monetary Fund, the ECONOMIST noted that Britain's IMF debts (including those incurred in past years), debts to international banks and foreign countries, short term debts to central bankers, as well as the sum borrowed under the Basle stand by credit of September, 1968, produce a present total debt of the order of $7 billion to $8 billion. "...And this ignores any interest charges, even though these fortunately do not reflect present-day high levels, they tot up to a very large sum. Indeed, to as much as £87 million this year - and this official estimate was made before the new IMF stand by credit, which will add another £20 million or so a year if fully drawn. Moreover, to these sums must be added charges on central bank borrowings. It is becoming just a little too reminiscent of the Indians' plight..."
This is the position of an economy, which possesses one of the world's two reserve currencies. Anxious to avert the international financial crisis that would ensue if sterling were to collapse, and also anxious to prevent the British Government taking steps to introduce further import controls, the chain reaction effects of which would be to depress world trade, the brokers of the IMF have felt obliged to grant Britain a loan of $500 million right now and a further $500 million to follow over the next 12 months. The strings attached to the extra $500 million, however, are quite amazing.
The ECONOMIST notes: "...The disagreement that arose between it (the IMF) and the British Government over the conditions attached to the new credit simply confirms the extraordinary position into which Britain has got itself. Britain is the first highly developed country to be a persistent debtor; no other industrialised country has ever had to roll over its debts to the IMF for so long before. It is borrowing from the IMF in the 'fourth credit tranche'; that is to say, entirely at the IMF's discretion and under the least easy arrangements usually reserved for what are known as banana republics. Trigger clauses which stipulate that no money can be drawn by the borrowing country unless it is conforming to precise undertakings about public finance, bank credit and so on are usual features of such agreements with persistent debtors."
TEN YEARS OF CUTS IN LIVING STANDARDS
One undertaking that Jenkins had to give to the IMF was that a balance of payments surplus of £390 million would be achieved in the current financial year. As a figure, this does not look particularly great when measured against Britain's overseas debts. The ECONOMIST calculates that "...It would require ten years of that kind of performance - which Jenkins is looking for in 12 months to next March 31st - to wipe out Britain's short term and medium term debts. If this repayment were persisted in, it would imply that for ten years the British standard of living must be held back to do no more than pay for the mismanagements of the past..."
The second undertaking also looks innocuous at first sight, but is, in actual fact, very important indeed. It is that Britain intends to keep its domestic credit expansion (DCE) down to £200 millions in the year to the end of March, 1970. This compares with an expansion of some £1,225 million in the previous twelve months. It is reported that the IMF brokers are particularly determined that this undertaking should be obeyed. Broadly, DCE means the increase in the money supply excluding the effect of the balance of payments. "...If Britain's overseas accounts were in exact balance this financial year, then the new formula would allow money supply to increase by £400 million (i.e. by about 2½%); if we really do get a balance of payments surplus that leads to an inflow of £500 million of foreign exchange, then money supply should be allowed to increase by some £700 million (or nearly 4½%); but if we again run a balance of payments deficit of £400 million, then the permitted increase in money supply will be [illegible]..."
The significance of the Government's undertaking on the [illegible] of the level of DCE is that it has been by the manipulation of the level of money supply that successive British governments, or any other governments that have adhered to Keynesian methods, have attempted to even out the extreme vacillations of the trade cycle, the phenomena of boom and slump. There are various ways in which this has been done. In times of threatened recession, governments have lowered bank rates, reduced hire purchase restrictions, encouraged commercial banks to loan money, increased social welfare spending and government spending in general. In times of inflation, converse measures have been taken coupled with increases in taxation, increases in government borrowing from within the domestic economy and wage freezes, [illegible] slumps of the magnitude of the 1929-33 trade depression from occurring. Now, the British Government, by agreeing to limit DCE so drastically, come what may, has abandoned these Keynesian methods.
ONLY TWICE BEFORE
Since the level of money supply in the coming year will depend to a great extent on the balance of payments situation, it would be apposite, at this stage, to examine the likelihood of the British economy achieving the £500 million surplus, the other undertaking given to the IMF. If past precedent is anything to go by, the likelihood is very slight indeed. Callaghan, when chancellor, gave an undertaking of a £200 million surplus to the IMF for 1968. In spite of devaluation and in spite of a general expansion in world trade, a deficit of £60 million was all that was achieved. Going further into the past, Britain last had a surplus on its balance of payments in 1962, one of £50 million. Only in two post-war years, 1948 and 1956, have surpluses of the order of £300 million been achieved. As for the future, with stringent monetary measures being applied internationally and with a slowdown in American trade and consequently of world trade being confidently predicted, the hopes of Jenkins and his IMF brokers look very grim indeed.
If, in fact, the balance of payments surplus is not achieved, a very small if, and if there is a recession in Britain, due, in the first instance, to a decline in exports responding to a decline in world trade, then in response to the deflation and extra unemployment thus created, the Government's commitments with regard to the DCE level will lead to further deflation and yet higher unemployment. The ECONOMIST editorial laments as follows: "...The Chancellor appears to have said that if the squeeze does show up on Government accounts (less revenue from income tax and purchase tax) he will squeeze still further; but if inflation shows up in Government accounts, he will feel less obliged to disinflate. Keynes will be turning in his grave...Mr. Jenkins was also insistent...that he expects exports to show a strong rise in the second half of this year, because the export order books of the engineering industry are so healthy. Even if this proves right in the short term, a pessimist can only say that the recent monetary squeeze round the world makes an eventual slowdown in international trade all too likely. It is this slowdown that is the danger. If Britain does go into an export led recession in the next twelve months with its balance of payments deficit rising at the same time as its unemployment, the country will now be committed to meet it by squeezing the money supply and making unemployment higher still. That is what is implied in living by the letter incorporating IMF's law. With the enthronement of DCE, Britain now has an automatic deflator - not unlike the old Victorian gold standard - which will be triggered as soon as there is any drain of foreign exchange out of the country.
NO "GIVE-AWAY" BUDGET POSSIBLE
A few general conclusions can be drawn from this picture. In the short term, living standards of working people in the fields of wages and conditions, education and social welfare will continue to be attacked viciously, making it inconceivable to think of a Labour Government being re-elected. There will be no room for a give-away pre-election budget this time.
These attacks will be in collision with a rise in industrial militancy, as shown by rising strike figures, the increasing awareness of women workers and the mushrooming of trade union defence committees, pledged to vigorously oppose any curtailment of trade union powers. Cuts in education will run counter to the growth in militancy amongst students and teachers. Cutbacks in local authority housing programmes together with the prohibitive rises in building society mortgage rates, that have already occurred, taken with any future measures of this kind, will lead to sharpening struggles in this field, which have already led to militant squatters and tenants organisations being formed in increasing numbers.
Even accepting the most favourable possibility for British capitalism that the ECONOMIST presents, the attainment of a £300 million balance of payments surplus this year, and the maintenance of boom conditions within world capitalism, the standard of living of the British working people will have to be held back for ten years, simply so that past debts can be paid off, by the attainment of similar balance of payments surpluses. Within ten years, something will have to give.
POLITICAL STABILITY THREATENED
Taking the more likely possibility, that an adequate balance of payments surplus will not be gained this year or in the next two or three years; that world trade will decline, and that with the British Government carrying out its pledges to deflate at the same time, unemployment will rise sharply, probably approaching classical slump proportions, it is safe to say that Britain's political system, which has enjoyed relative stability for generations, will be severely threatened.
On the one hand, millions of workers who have enjoyed relative prosperity since the second world war and who are suddenly threatened with poverty, will question the validity of the political and economic system, which produces such a catastrophe. On the other hand, sectors of the capitalist class, seeing both Labour and Tory governments (the Conservatives under Heath have certainly not got the policies to cope with a crisis of this magnitude) failing to solve their problems, and feeling the foundations of their system threatened, will in all probability look for an extra-parliamentary solution: at most a neo-fascist solution; at least a "strong state" solution, using demagogic, racialist, anti-trade union, anti-student and anti-left arguments to try to develop a mass following.
Whatever happens, we have to ensure that the socialist alternative is put so forcibly to ever-increasing numbers of working people, that it is the labour movement which is on the offensive.