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John Palmer

The Notebook

The Economy

(Summer 1967)

From International Socialism (1st series), No.29, Summer 1967, pp.4-5.
Thanks to Ted Crawford & the late Will Fancy.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

John Palmer writes: The Callaghan ‘non-budget’ prolongs the essentially balancing strategy of the Government. Primarily this is an attempt to balance between the needs of accumulation and modernisation, which require an assured rate of growth, on the one hand, and the fears of Britain’s banking creditors that too fast a reflation of the economy will result in a fairly short space of time in another, still more severe, balance of payments deficit. By making gestures to both forces Wilson is hoping both to encourage the increase in capital investment, which is vital to the entire modernisation project, and to reassure the bankers that everything is under control.

By hoping to get the best of both worlds, the Government faces the real risk of getting the worst of both. On the one hand the restraints on economic activity are being maintained with sufficient rigour to ensure yet another growthless year. A growthless year for British Industry implies further buffeting for profits. The outlook for capital investment is consequently gloomy since the actual prospect of economic growth is proving a more important factor in boardroom decisions than the unequalled generosity of the Government in handing out public funds in investment; allowances and other incentives to manufacturers.

The wages policy remains Wilson’s best hope of pulling off the balance. By holding back real wages well into next year – with or without TUC co-operation – he can offer industry relief on their profit margins – thus encouraging investment – while also pleasing the bankers who wish to see consumption kept under tight control.

It is vital that banking confidence is retained if only because the Government is going to find things tough in fulfilling its pledge to get the payments into balance on target date. The main question mark remains over the projected increase in exports. Callaghan’s forecast of a continued trend of three per cent plus this year appears to be no more than an extension of the recent trend. The trend takes little account of events in a number of key British markets, however. Not only the West Germans but most of the Six are or have taken deflationary measures which are now resulting in reduced orders for British capital equipment exporters. This erosion of order books will reveal itself in lower export figures later this year.

In spite of some earlier uncertainties it now appears that there will be no serious interruption of economic growth in the United States – for as long as the Vietnam war continues at any rate. This provides a major underpin for the rate of growth possible for both British foreign trade and domestic growth.

With the official announcement of entry talks with the Common Market, it will not be surprising if the hoary old question of devaluation appears. If Wilson feels that he is sufficiently out of the debtor’s corner and if he can cover up the operation with ‘an adjustment of British exchange rates with European’ via a floating rate for sterling, Wilson may yet go for devaluation.

The great virtue of a devaluation this year – as opposed to 1964 or 1965 – is that sterling is no longer under the acute pressure of those periods and, as a result, need not devalue under pressure, but rather in the time and manner best suited to British interests. Again there is now a considerable reserve of unused industrial capacity – thanks to the credit squeeze and 580,000 unemployed. Consequently a British devaluation could be more directly channelled to giving a spurt to British export production. The ideological gymnastics which will accompany such an operation will prove fascinating.

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