London

THE one political belief that shows signs of growth in London is an intuitive and still only barely represented liberalism. The official Liberal Party holds only six out of 630 parliamentary seats. Its platform is nebulous in the public mind. Yet in recent by-elections the Liberals have ousted Labor from second place at the polls four times out of six. And each time they have gained substantially in their share of the vote.

Both major parties are in some trouble: the Conservatives through too wholeheartedly believing their own propaganda; the Laborites from only half believing theirs. For the winter recession, coming after a short, sharp, happy burst of expansion that pushed production up 10 per cent in a year, has eroded the bases of the two classic concepts of economic control, uncovering some flaws. Those two classic methods were each designed to counter problems of poverty. But for Britain, even in recession, this is a time of plenty.

For example, it now seems to economists, and begins to appear to consumers, almost painfully obvious that “dear money,” the traditional remedy of the Conservatives, does not overcome inflation; it overcomes expansion. Nor do the massive variations of government spending that were once the Labor specific seem likely to be effective in regulating the economy.

In the conditions of 1961, it has become essential for any type of economic control to be reasonably steady and expansive. The effort now is at least to get the rate of interest down, if that is possible without encouraging inflation, and to restrict government capital spending to its present level (1.75 billion pounds).

Between 1956 and 1958 the policy of high interest rates and complementary credit restriction, it could be claimed, produced stability. In 1960 the same policy produced fundamental instability. High interest rates, intended to reduce demand at home, drew in quantities of hot money from overseas, largely from America. The flow, partly in gold, has been as potentially dangerous to Britain as to the United States. Just as it has given America the illusion of a balance of payments deficit, it has given Britain the illusion of a surplus. In fact, the British trade gap has reopened.

With exports falling, the first effect of credit restrictions was to turn Britain into perhaps the world’s only “fully underemployed society.” Production fell, yet total “employment” remained high. Seven thousand people lost jobs in the car factories of the English midlands in a month. Most found other jobs. Seventy thousand went onto a threeor four-day week. With demand for labor still very strong, the natural tendency is for firms to keep their workers, even if they have to pay for the luxury in increased costs. To get skilled men back later would cost even more.

British cars

In the automobile industry these contradictory effects of orthodox monetary policy are at their most striking. This is now one of the largest single industries in Britain, employing more than 900,000 men, as many as agriculture and half as many again as coal. In terms of exports, revenue, and wages, it is quite the most productive British industry of all. There is a high natural demand for its products; even when British people lose their jobs, the last possession their families will part with now, whatever the cost, is the car. What is more, the government itself is heavily committed to this particular industry’s further expansion.

Car output in the first half of 1960, before the recession, was running at an annual rate of 1.6 million. Expansion schemes costing 250 million pounds were announced to provide a potential in only three or four years’ time of nearly 2.5 million cars annually. The government is committed to lending more than 10 million pounds toward this expansion as a means of persuasively directing new factories to Scotland, Lancashire, South Wales, and Northern Ireland, where unemployment at present is two or three times the national average (which was 1.7 per cent in December). But production has been allowed to slump to 1.2 million cars.

The immediate cause of trouble in the industry was a relatively small decline in exports, largely of those to the United States. Unsold cars filled thousands of acres of rented fields in the midlands, for meanwhile the credit squeeze and the 50 per cent sales tax made it impossible to increase sales at home.

The threefold need in this industry now is the same as the need in the country as a whole: a new monetary policy specifically directed at achieving steady growth; a new fiscal policy that can more quickly and generally affect consumer spending, but which leaves it to the consumer rather than the Treasury to choose between products; and a considerable expansion of the nation’s exports.

Great Britain, like America, because of the amount of aid it gives, needs a large surplus of trade and payments. The aim, never yet quite attained, is a surplus of $1.2 billion a year. Nineteen sixty produced a deficit instead. It seems now that the rate of industrial expansion at home will be closely geared to the rate of expansion of exports. In this context, the urgency of the immediate political decisions facing Britain can well be understood. The easy thesis, for instance, that it will make “only a marginal difference” to Britain whether there are six or seven or thirteen in any European common market, or whether there is an approach toward a North Atlantic union, has been exploded.

Britain’s best single customer is the United States, until Europe is considered as a unit. Then Europe will come first, America a close second. They are the two prime movers of expansion. Meanwhile, Britain’s own market is largely free to members of the Commonwealth, whien have a total population of more than 700 million, mostly underprivileged. In return, the Commonwealth provides the solid basis of Britain’s day-to-day living.

Joining a limited European market like that of the Seven — the European Free Trade Association — never has made sense in isolation. Even joining the Seven to the Six would not make complete sense if either the Commonwealth or the United States was thereby excluded.

For these reasons, Mr. Macmillan’s personal diplomacy has concentrated on “bridging the division in Europe” without giving up Commonwealth preferences or weakening Britain’s trade links with America. Mr. Macmillan won support in 1960 in principle from both Chancellor Adenauer and Premier Fanfani for an open-ended merger of the two European trading blocs. But he received no encouragement from President de Gaulle. The Council of Europe, the Assembly of Western European Union, and the Assembly of the European Economic Community all have voted support for some kind of merger. But the United States government has not yet shown enthusiasm for the idea.

That is not true of American business, however. To take the car industry, again, as an example, Western Europe as a whole offers in the next ten, or even twenty, years the prospect of the only fast-growing large-scale automobile market in the world. It might possibly expand as much as 10 per cent per annum. Manufacturers on both sides of the Atlantic are already planning on the assumption that it will become a single market. American car firms appear, indeed, to be preparing for an actual Atlantic union.

Gaitskell’s troubles

Because these seem to practical men to be the practical needs now, the dialectical arguments that have split the Labor Party seem even colder and more sterile than before. The greatest blow to Mr. Gaitskell, as to the Labor Party as a whole, is the loss of Aneurin Bevan, the great Welsh Socialist, the supposed maverick. Now that he has gone, nobody can hold the party together.

Bevan’s place as member for Ebbe Vale is filled by Michael Foot, a Socialist as kindly and charming in private life as he is acid and implacable in public. Foot is fervently dedicated to either the reform or removal of Gaitskell.

Gaitskell himself is working for the renunciation at the next annual party conference of the neutralist resolutions that were so narrowly passed at Scarborough in the autumn, with the aid of the massive block votes of the big trade unions, notably the Transport and General Workers, led by Frank Cousins. He believes he can win. But if Gaitskell can refuse to accept the decision of the annual conference as mandatory for parliamentary policy, as he has, why cannot the leit wing do so in its turn?

Three kinds of Socialists

The possibility of reuniting the party is lessened by the fact that there are actually three Labor parties. There are those Socialists who are so close to Communism in their ideal of a planned society that they can, and do, work with Communists.

There are other Socialists, also loosely classed with the left wing, who are simply isolationists, seeing Britain somehow peacefully maintained as the European neutral with the fullest employment, the highest wages, the most complete welfare service, and the most independent foreign policy.

There are, finally, Gaitskell’s followers, still in a two-to-one majority in the Parliamentary Labor Party, who are sufficiently close to the prospect of government to recognize that Britain cannot possibly afford isolation, but who do not see why it should not have a greater degree of central planning and of economic equality than its allies.

Because recent events have underlined the lesson that the best-laid plans often can go astray, and since a new kind of planning clearly needs to be developed and it is agreed that the aim must be steady growth, the Liberals now see nothing inconsistent or unrealistic in their dream of drawing the planner Gaitskell in with them one day. If numbers alone are considered, it can be proved that Liberals united with Gaitskellites could get more votes than the Tories at an election. This is more than the divided Labor Party can hope to do, unless perhaps a recession were to get out of hand.

Is it really impossible? There was a significant moment at a private conference of industralists, mostly traditional Tories, when Sir Hugh Beaver flatly contradicted the former Chancellor of the Exchequer, Lord Amory, who had said in his keynote speech that Britain’s priorities must be, first, a surplus on the balance of payments; second, full employment; and third, a stable price level. Sir Hugh quickly put the new view. The first priority, he said, must be economic growth. The rest can come in any order you like.

The price of gold

Britain’s dilemma today, then, is that while trade is in the red, growth cannot, as things stand, even be contemplated by the Conservatives. It is this that powers the quiet but determined British drive to get the United States to raise the price of gold. For if gold had a higher price, things would certainly be different.

Sir Roy Harrod, Keynes’s pupil and chief open protagonist of revaluation, points out that since 1938 the dollar value of world trade has multiplied five times, while the dollar value of monetary gold stocks has increased only 50 per cent. Too little gold, therefore, has been chasing too much trade. If no change is made, Sir Roy forecasts, the system of multilateral trade established since the war will come to an abrupt end.

Britain needs above all a breathing space while it readjusts to new realities. It may have the lowest rate of growth of all Western industrial countries in the last decade (29 per cent in ten years against a European average of 64 per cent), but it has sustained up to now the highest overseas investment of all, next to America. But if no such luck as revaluation turns up, Britain will have to take a long, hard look at its costs, prices, wages, and politics. They may have been outmoded by prosperity, even in recession.