Despite all the beating of big drums by Wilson during the election that the British economy has never been stronger, and a continual playing up of the improved balance of payments position, there remains serious doubt as to the truth of such talk. The Tories hammering away on the state of the economy during the election, which whilst—obviously being part of their electioneering, had some basis of fact. Firstly, on the question of the balance of payments, whilst during last autumn and winter there was a monthly positive balance of £10 million, this has now been changed into a deficit of £li per month for March-May. Therefore, although the balance of payments had been running at the rate of about £600 million per annum this is unlikely to continue in the coming twelve months.
Of the three elements in the balance of payments, visibles (i.e.goods), invisibles (i.e. services, shipping, insurance etc.) and the long-term capital movements, only only the last two are in positive balance at the moment. Visible trade is still running at the rate of £150 p.a. in deficit; moreover the apparent increase in exports over last period has been largely due to increased prices rather than increased volume. Invisibles are now running at the rate of £480 million in surplus. Capital inflow, which was exceptional last year, was of the order of £50 million net, this is against a normal outflow of £100 million net. Therefore one can see that the balance of payments generated in the last twelve months are hardly likely to be repeated, even if there were no changes in factors affecting the situation. But this is not likely to be the case, since there is now an open and admitted recession in the U.S.A. which is likely to affect British exports in the coming period. Moreover, recent figures tend to point in the direction of British imports
once more rising faster than exports in volume and prices.
Internally also the outlook cannot be said to be much better. GrossDomestic Product is only rising very slowly, whilst prices are rising fast. Also in recent months due to militant action on the part of many sections of the working class there has been a comparatively big:.rise in money wages which will tend to have an inflationary effect upon the economy. Perhaps most significant of all is that manufacturing investment, in terms of GDP, is now only running at the rate of that of 1961.
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The reason for this is not hard to find. With interest rates still running at historically high levels and the squeeze on profits. engendered by the sluggish “S state of the economy it has meant that business men have been reluctant to invest in new plant when there is still excess capacity idle.
Regarding unemployment, while it. is true that the June figures showed a drop in the total numbers, they still remain the highest June figure for thirty years. In consequence one can still say that. the underlying trend for unemployment. is still upwards. However, it should be noted that unemployment is not such a vital indicator as to the state of the economy as it was formerly. The reason for this is because of the higher rates of unemployment benefit and redundancy payments. The latter points have two effects, firstly from the point of view of maintaining a. ctive demand in the economy at a higher level than previously possible with any. given number of unemployed; and secondly they have tended to dampen down the fight against uemployment which the present figures would have seemed to have warranted in the past.
On the question of prices, it is estimated that they could rise as much as 9% in in 1970. Similarly earnings are expected to rise by as much as twelve per cent this year, all things being eaual. Therefore the present government has to face. a. problem very similar to that which faces the Nixon regime in the U.S.A., i.e. growing price inflation side by side with growing uenployment and industrial stagnation or a& very low level of growth in the economy. This means that despite all the efforts || of the Wilson Government British capitalism still faces many of the same problems as in 1964. Any action taken to stimulate investment and/or reduce unemployment could have the effect of re-inforcing the inflationary process. On the cher ie t hand measures to damp down inflation could have the effect of pushing the economy ~ into a recession (which may happen anyway because of external factors). What this points to is that there will be a determined effort made to hold back wage increases either through a new wage freeze or the imposition of some new 'incomes policy' and at the same time give investment grants a boost.
All the above points to the possibility that the Tories will make ‘trade union reform! (sic) a top priority, to enable them to push through economic measures which would probably invoke some response from the trade unions and certainly from the rank and file. At the same time one should expect efforts to be made to extend the introduction of productivity bargaining, whien from the point of view of the bosses is much more preferable in the long-term to that of another wage freeze, because such bargains tend to whittle away rights of the shop stewards, Certainly one can also expect an attack on the social services and an attempt to prune a service. But it is also clear that even in these fields the Torios will have/tread warily, given the slender majority in the House of Commons.
Ken Tarbuck 29-6-70.
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