HE current number of the E.F.T.A. fournal carries a very enlightening article on the economic and historical background to the financial crisis which the economy is going through. The information is given by the official secretariat of the organisation. They stress most the need to take a long term view of the difficulties, as the monetary situation has gradually worsened over the last twelve years, that is during the decade of Conservative government; the figures they disclose ought to dispel any lingering idea that the Conservative administration is a businesslike and efficient one. The crisis year of 1960, when Selwyn Lloyd put the brakes on production and began debating in earnest, was the result of a steady decline in the balance of trade from 1952. Sharp measures taken then reduced the acute downward swing, but they did not halt the trend, and the second crisis year of 1964 produced an overall deficit of £790m., nearly double the previous worst year. Most important in the contributory causes to this massive loss was the dramatic rise in overseas spending. Under this umbrella term comes the old bogey of military bases in other countries. Half the rise on this account has been due to the military build-up since 1952. The amount spent on overseas forces in that year was £50m.; in 1964, the total cost was just over £400 million. This represents a rise from one pound per head of population to about four pounds, to keep up the military prestige of Britain abroad, and to maintain costly wars in “Aden, Arabia, Malaysia, Cyprus, Kenya and: so on. At the same time, foreign defence aid has declined. Shipping also figures as a major loss on the current account, and it is interesting to see the official reason: “At the beginning of the fifties, Britain showed a net income of around £1oom. a year on shipping. This surplus turned into a considerable deficit during 1956, following the Suez crisis, and although there has been a recovery since, Britain now spends fractionally more on shipping than is earned.” So not only are we still paying out interest on the money borrowed to finance the Suez farce, but we are also losing ancillary, but highly
lucrative and vital industries, like shipping. _ ‘ The capital account, which is the truest pointer of confidence in a capitalist economy, shows a similar picture. Foreign investment in Britain has slowed down over a long period of years, and much private British capital has been salted away in overseas investment markets. The only year of Tory administration when there was a net inflow of capital into the country was 1961. This was due to Ford of U.S.A. buying out Ford of the U.K., and though this deal received the blessing of the the Macmillan government, it can hardly be called a triumph of state planning. International confidence in the strength of the economy was not forthcoming, and this has a special interest for those who speculate about the unwillingness of world capital to give the Labour Government a fair try. In fact, capital is there to extend its own influence; not to ‘do down’ an administration, which would hardly be in its own interest. 1964, the bumper year, was indebted to ‘special factors.’ One of these was the ‘ ‘upswing phase of the stockbuilding cycle,” which is just another way of saying that industry was laying up reserves of raw materials, and there was a consequent rise in bulk imports. The capital balance reveals that foreign investment has dropped off very sharply, and there was an increase in the amount of private British capital invested abroad. This is in part the normal course of an election year; and this particular year investors presumably realised a strong possibility of a Labour administration being returned to power. The article admits that “the pending general election may have affected the capital account”; there was a net loss of 380 million pounds on the account in question, by far the largest capital deficit since the Tories took office in 1951. This was the direct result of Tory economic policy of our present difficulties:
“A great deal of Britain’s present economic difficulties, of which the crisis on the external balance is a symptom, are the result of the cumulative effects of reccurring deflations of the economy which have been resorted to on four occasions since 1955 to maintain the ex-
ternal position of the pound when
faced. by speculative movements of
capital.”
Not only the short-term trade balance
is affected by such a_ pronounced
loss of international confidence. Ster-
ling balances abroad and the familiar
gold and dollar reserves are subject to
huge losses: too, and it is upon these
capital holdings that the whole
economy rests; upon the stability of
finance. The Tory government pur-
sued a policy which was bound to
lead to this state, by persistently in-
creasing spending abroad and deflat-
ing at home. By their own trading
organisations, the E.F.T.A., they stand
accused of this.
—Paul Routledge