v
9
THIS D O C U M E N T IS THE PROPERTY OF HIS B R I T A N N I C MAJESTY'5 G O V E R N M E N T .
The circulation
of this p a p e r has b e e n s t r i c t l y l i m i t e d .
It is issued for t h e p e r s o n a l
\f
"
use of
TOP SECRET
C P . (h8)
A
6"
Copy No....^J
161
23rd J u n e ,
191+8.
CABINET
ECONOMIC CONSEP.USNCBS OF RECEIVING NO EUROPEAN
RECOVERY PROGRAMME AID
Memorandum by t h e C h a n c e l l o r
of t h e
Exchequer
I t h i n k my c o l l e a g u e s s h o u l d b e a w a r e of t h e
s t u d y made i n M a r c h a b o u t t h e e c o n o m i c c o n s e q u e n c e s of
no E u r o p e a n R e c o v e r y P r o g r a m m e A i d .
attached
receiving
Introduction
2.
Although t h r e e months have p a s s e d s i n c e t h e s t u d y
was made t h e g e n e r a l c o n c l u s i o n s a r e n o t t h o u g h t t o b e a f f e c t e d . .
I n p a r t i c u l a r t h e b a l a n c e of p a y m e n t s s t a t e m e n t i n p a r a g r a p h /
i s s t i l l b r o a d l y c o r r e c t in i t s c o n c l u s i o n , namely t h a t t h e r e
w o u l d b e a g a p t o b e c l o s e d i n 1914.8/49 of t h e o r d e r o f £ 3 7 0
millions.
The p a p e r a s s u m e d t h a t t h o u g h t h e U n i t e d Kingdom
r e c e i v e d no a i d o t h e r European c o u n t r i e s would r e c e i v e a s m a l l
The c o n t i n g e n c y t o b e c o n s i d e r e d now i s t h a t
amount of r e l i e f .
His M a j e s t y ' s Government f i n d s i t s e l f u n a b l e t o c o n c l u d e t h e
B i l a t e r a l A g r e e m e n t w i t h t h e U n i t e d S t a t e s w h i l e some a t l e a s t
of t h e o t h e r p a r t i c i p a t i n g c o u n t r i e s a r e u n l i k e l y t o t a k e t h i s
line.
3.
The s a l i e n t
follows:­
(i)
Gold
p o i n t s a r i s i n g from t h i s
paper are
as
Reserves
I n t h e i n t e r v a l s i n c e t h e p a p e r w a s w r i t t e n we h a v e
b e e n o p e r a t i n g on t h e a s s u m p t i o n t h a t we w o u l d r e c e i v e a d e q u a t e
European R e c o v e r y Programme a i d .
Our t o t a l r e s e r v e s a t e n d
J u n e w i l l s t a n d a t a b o u t £1+50 m i l l i o n s .
The d r a i n d u r i n g
t h e f i r s t q u a r t e r was £11+7 m i l l i o n s a n d d u r i n g t h e s e c o n d
q u a r t e r i t i s u n l i k e l y t o b e l e s s t h a n £100 m i l l i o n s , a t o t a l of
about £250 m i l l i o n s f o r s i x m o n t h s .
We may e x p e c t t h a t t h e
d r a i n in t h e l a t t e r h a l f of t h e y e a r w i l l b e a t a r e d u c e d r a t e
b u t i t i s u n l i k e l y t o be l e s s t h a n £180 m i l l i o n s f o r t h e s e c o n d
s i x m o n t h s of t h e y e a r .
C o n s e q u e n t l y a t t h e e n d of t h e y e a r
i n t h e a b s e n c e of a n y d r a s t i c m e a s u r e s t h e r e s e r v e s w o u l d b e
r e d u c e d t o £270 m i l l i o n s .
N a t u r a l l y i f no E u r o p e a n R e c o v e r y
P r o g r a m m e a i d i s r e c e i v e d we s h o u l d h a v e t o t a k e d r a s t i c
m e a s u r e s , b u t we c a n n o t a s s u m e t h a t t h e d r a i n w i l l b e s t o p p e d
i m m e d i a t e l y ( s e e p a r a g r a p h 5 of t h e r e p o r t ) .
As we r e g a r d
£ 5 0 0 m i l l i o n s a s t h e minimum s a f e r e s e r v e , and h o v e i n f a c t
t o l d t h e A m e r i c a n s s o , t h e p o s i t i o n w o u l d b e o n e of t h e u t m o s t
gravity.
-1­
( i i )
Consequences
t o t h e Home Economy;
I f a l l t h e m e t h o d s of c l o s i n g t h e g a p d e a l t w i t h i n
p a r a g r a p h s 8 - 15 of t h e r e p o r t were taken s u c c e s s f u l l y (and
t h e r e m u s t "be d o u b t s a b o u t t h e S t e r l i n g Area on w h i c h we comment
b e l o w ) , t h e r e would, o n l y r e m a i n s o m e t h i n g of t h e o r d e r of
£215 m i l l i o n s a v a i l a b l e t o f i n a n c e d o l l a r i m p o r t s .
T h i s would,
mean c u t s a s f o l l o w s : ­
in
( a )
IHO f u r t h e r p u r c h a s e s of d o l l a r t o b a c c o .
The e f f e c t
ox t h i s w o u l d b e v e r y g r a v e a n d we m i g h t n o t b e a b l e
t o a p p l y so rigorous a policy.
I f we c o u l d n o t ,
a d d i t i o n a l c u t s w o u l d h a v e t o b e made e l s e w h e r e .
( b )
A b o l i t i o n of s t a n d a r d p e t r o l , c u t i n s u p p l e m e n t a r y
r a t i o n , e x t e n s i v e r e c o n v e r s i o n t o c o a l and economics
i n a g r i c u l t u r e and. c i v i l a v i a t i o n .
( c )
S e d u c t i o n o f t h e d o l l a r food i m p o r t programme t o
Canadian wheat o n l y .
(in the l a s t n e g o t i a t i o n s
Canada s a i d t h a t a l l t h e food c o n t r a c t s s t o o d or
f e l l t o g e t h e r a n d we h o v e no m e a n s o f b e i n g c e r t a i n
t h a t s h e would change h e r a t t i t u d e now.)
( d )
.4 c u t of a b o u t 12% i n t h e t o t a l raw m a t e r i a l i m p o r t
programme, b u t n o t s p r e a d a t a l l e v e n l y s i n c e some,
e . g . w o o l s come w h o l l y o r i n l a r g e p a r t from n o n ­
dollar sources.
The maximum c u t s i n raw m a t e r i a l s
w o u l d "be b e t w e e n 15 t o 20 p e r c e n t o f t h e home
I n d u s t r y a s c o m p a r e d w i t h l a s t h a l f of 19h-7*
(iii)
The a p p l i c a t i o n o f t h e s e c u t s i s d e a l t w i t h i n
p a r a g r a p h s 2b,-33 o n d may b e s u m m a r i s e d a s f o l l o w s : ­
detail
( a )
T h e r e would, h a v e t o b e r e d u c t i o n s i n t h e r a t i o n s
of t e a , s u g a r ( 8 t o 5 o s s . ) , b u t t e r (3 t o a l i t t l e
under 2 ) , bacon ( t o 1 o z . ) , cheese ( t o 1 0 3 . and
even l e s s ) and c u t s in e g g s , meat and c o f f e e s u p p l i e s .
The r e s u l t i n g c a l o r i e l e v e l would b e in t h e r e g i o n
of 26?Q p e r d a y , i . e . a l i t t l e b e l o w t h e l e v e l d u r i n g
t h e s p r i n g p o t a t o s h o r t a g e and o v e r 10% b e l o w t h e
pre-war average (paragraph 26).
( d )
I\Fg p r o s p e c t of i m p l e m e n t i n g t h e a g r i c u l t u r a l
programme i n s o f a r a s i t d e p e n d s on i m p o r t e d
stuffs (paragraph 27).
( c )
G e n e r a l r e s t r i c t i o n of c o n s u m e r g o o d s , p a r t i c u l a r l y
c o t t o n , l e s s paper f o r n e w s p a p e r s and b o o k s , l e s s
g o o d s made o f n o n - f e r r o u s m e t a l s ( p a r a g r a p h 2 8 ) .
( d )
There -souid be e x t r e m e i n d u s t r i a l d i s l o c a t i o n ,
i n v o l v i n g u n e m p l o y m e n t o f p e r h a p s a s much a s 1-g­
m i l l i o n , p o s s i b l y more a t f i r s t . , F u r t h e r m o r e , i t
would n o t b e p o s s i b l e t o f o r e c a s t in d e t a i l which
s e c t i o n s e-f i n d u s t r y w o u l d b e a f f e c t e d a n d t h e r e f o r e
i t i s n o t p o s s i b l e t o make p l a n s a g a i n s t s u c h
dislocation.
I t may t a k e a c o n s i d e r a b l e t i m e b e f o r e
r e v i s e d m a c h i n e r y t o d i s t r i b u t e r e d u c e d q u a n t i t i e s of
raw m a t e r i a l s c o u l d be g o t i n t o p r o p e r w o r k i n g o r d e r .
( e )
C l e a r l y some of t h e m e a s u r e s p r o p o s e d c o u l d o n l y "be
r e a l l y e f f e c t i v e b y h a v i n g much t i g h t e r c o n t r o l s t h a n
those at present exercised.
Qualified staff to
u n d e r t a k e t h e s e t a s k s c o u l d n o t b e c o l l e c t e d and
o r g a n i s e d f o r many m o n t h s .
o
expansion
feeding­
(iv)
S t e r l i n g Area
Deficit
T h i s i s d e a l t w i t h i n p a r a g r a p h s 1 0 a n d 11 of t h e
report.
The a t t i t u d e of t h e S t e r l i n g Area would o b v i o u s l y
be i n f l u e n c e d by t h e c i r c u m s t a n c e s i n which t h e n e g o t i a t i o n ; ;
on t h e B i l a t e r a l A g r e e m e n t w i t h A m e r i c a b r o k e down.
There
i s no a s s u r a n c e t h a t many o f t h e a s s u m p t i o n s t h e r e made w o u l d
be r e a l i s e d .
In f a c t n e g o t i a t i o n s , e . g . with India and
P a k i s t a n s u p p o r t t h e v i e w t h a t t h e y wool"! n o t b e r e a l i s e d .
J+.
I h a v e n o d o u b t t h a t I f we r e c e i v e n o E u r o p e a n
R e c o v e r y P r o g r a m m e a i d some of t h e c o n s e q u e n c e s w o u l d n o t bo
p r e c i s e l y t h o s e s e t o u t i n t h i s p a p e r b u t we s h a l l t h e n bo
in t h e p o s i t i o n t h a t any a l l e v i a t i o n s s a d s u n d e r one h e a d i n g
h a v e t o b e met u n d e r e q u i v a l e n t c u t s u n d e r o t h e r s .
There
i s n o d o u b t t h a t t h e b r o a d p i c t u r e of t h e g a p t o b e f i l l e d a n d
t h e m e t h o d s t o b e t a k e n t o do i t a r e a s s t a t e d .
T r e a s u r y Chambers, S.W.1.
2 3 r d J u n e , 19k 8.
ECONOMIC CONSEQUENCES OF RECEIVING WO E . R . F . AID
Ai INTRODUCTORY
1.
The o b j e c t of t h i s s e c t i o n i s t o a t t e m p t t o t r a c e o u t t h e
m a i n c o n s e q u e n c e s t o t h e U n i t e d K i n g d o m ' s economy i f we s h o u l d
r e c e i v e no U n i t e d S t a t e s a i d i n 1 9 4 8 / 9 o r i n s u b s e q u e n t y e a r s .
T h i s c o n t i n g e n c y i s now r e m o t e .
I t is however, i m p o s s i b l e
f u l l y t o a p p r a i s e t h e e c o n o m i c c o n s e q u e n c e s of A m e r i c a n A i d ,
o u t l i n e d i n t h e p r e c e d i n g s e c t i o n s of t h i s r e p o r t , w i t h o u t a
s t a t e m e n t of t h e a l t e r n a t i v e .
Moreover a i d i s not l i k e l y t o
be a d e q u a t e t o o u r n e e d s - o u r r e s e r v e s w i l l c o n t i n u e t o f a l l ­
nor i s i t s c o n t i n u a n c e beyond, t h e f i r s t y e a r c e r t a i n .
The
t e n d e n c i e s d e s c r i b e d in t h e f o l l o w i n g p a r a g r a p h s a r e , t h e r e f o r e ,
of c o n t i n u e d r e l e v a n c e t o o u r f u n d a m e n t a l e c o n o m i c p r o b l e m of
the s h o r t - t e r m f u t u r e .
2.
What f o l l o w s i s n o t a p l a n , or a s e t of p r o p o s a l s .
The
c h a n g e s t h a t w o u l d t a k e p l a c e w o u l d b e s o c o m p l e x and i r i t o x u - n r l - i ,
t h e r e w o u l d be s o many u n c e r t a i n f a c t o r s , t h a t p r e c i s e f o r e c a s t s
a r e o u t of t h e q u e s t i o n .
M o r e o v e r , much w o u l d d e p e n d on c h o i c e s
between a l t e r n a t i v e p o l i c i e s .
T h e s e , we c a n n o t a n t i c i p a t e :
we
can o n l y s u p p o s e t h a t p a r t i c u l a r d e c i s i o n s a r e t a k e n .
B u t we
have a t t e m p t e d to make our a s s u m p t i o n s c l e a r .
3*
Assumptions.
To d e f i n e
the
p r o b l e m v/e s t a r t b y
assuming:
( a ) t h a t , t h o u g h t h e U n i t e d . Kingdom r e c e i v e s n o d i r e c t a i l ,
the U n i t e d S t a t e s g i v e E u r o p e r e l i e f s u f f i c i e n t t o p r e v e n t
famine a n d u n r e s t , b u t i n s u f f i c i e n t i n i t s e l f t o a l l o w an;/
f u r t h e r r e c o v e r y of o u t p u t , a n d a n y a d d e d c o m p e t i t i o n w i t h u s
f o r i m p o r t s or i n e x p o r t m a r k e t s .
(b)
that
dicisions with
"necessary.
But
avoid a n y s t e p s
Europe,
i t i s o u t s i d e our p r o v i n c e t o d i s c u s s economic
s t r a t e g i c i m p l i c a t i o n s which might w e l l be
we h a v e a s s u m e d t h a t we s h a l l b o a n x i o u s t o
t h a t would g r o s s l y a f f e c t t h e economic l i f e or
(c)
t h a t t h e c o u n t r i e s of t h e E m p i r e r e d u c e t h e i r c a l l s
on d o l l a r s and m a x i m i s e t h e i r e a r n i n g s of them b y g e n w o n s a f TVU,- (..*
of economy and p r o d u c t i o n .
Method of A r g u m e n t .
As s o o n a s i t b e c a m e c l e a r t h a t we "ere t o r e c e i v e n o a i d , ' we s h o u l d h a v e t o make a s e t of d r a s t i c "V-Vf-isn oixs w h i c h w o u l d p r o d u c e r a p i d a n d l a r g e l y
unpredictable changes,
F o r e x a m p l e , we would, t r y t o ' " b r e a k d o l l a r c o n t r a c t s but i t i s i m p o s s i b l e t o s a y how f a s t o r i n w h a t way we c o u l d -o s o ; we w o u l d h a v e t o r e - n e g o t i a t e many b i - l a t e r a l t r a d e - f r e e m e n t s , b u t we c a n n o t s a y p r ^ o i s o l r w h a t o u r b a r g a i n i n g Position would b e ; t h e r e m i g h t b e l a r g e and sudden changes in l o r l d t r a d e and p r i c e s , b u t t h e i r d i r e c t i o n i s n o t e a s y t o tore c a s t .
We t h e r e f o r e , d o n o t a t t e m p t t o f o r e c a s t t h e p r e c i s e chain of e v e n t s a f t e r t h e f i r s t s e r i e s of d e c i s i o n s .
I n s t e a d , we
teve a t t e m p t e d t o d e f i n e a s i n g l e p o s i t i o n t h r o u g h w h i c h t h e sconomy w o u l d p r o b a b l y move f a i r l y Soon a n d t o d e s c r i b e w h a t ould b e h a p p e n i n g a t t h a t d a t e .
:;
5.
Wo s t a r t w i t h t h e p r e s e n t p l a n s f o r t h e y e a r 1 9 4 8 / 9 . ( T h o s e a r e i n e f f e c t b a s e d on a t a c i t a s s u m p t i o n of f a i r l y We h a v e t h e n s u p p o s e d t h a t wo h a v e ample B . R . P . a s s i s t a n c e ) .
i n a few m o n t h s e n t i r e l y t o s t o p a n y f u r t h e r d r a i n '-on o u r s o l d and d o l l a r r e s e r v e s . This approach d i s r e g a r d s t h r e e f a c t o r s t h a t would in
f a c t d e l a y t h e d e c l i n e of t h e e c o n o m y :
( a ) c l e a r l y wo c o u l d
n o t i n f a c t - s t o p t h e d r a i n on r e s e r v e s o v e r n i g h t , a n d we w o u l d
p r o b a b l y h a v e a few r e s e r v e s s t i l l t o l o s e .
But t h e d r a i n
could, n o t l a s t l o n g f o r t h e s i m p l e r e a s o n t h a t t h e r e s e r v e s
are small.
( b ) S t o c k s o f f o o d a n d m a t e r i a l s c o u l d b o r u n down:
but not for long.
( c ) We m i g h t f i n d , i f r e a l l y p u s h e d t o i t ,
t h a t wo c o u l d s e l l a few more f o r e i g n a s s e t s f o r g o l d o r
dollars.
( T h i s i s a h i g h l y t e c h n i c a l s u b j e c t and i t i s
c e r t a i n l y not c l e a r t h a t oven s h o r t - p e r i o d a d v a n t a g e c o u l d be
g a i n e d , b u t c e r t a i n l y in p r e c i s e plans f o r a "non-Marshall w o r l d "
i t would need s t u d y . ;
T h e r e a r e many i m p o n d e r a b l e s , t h e s h o r t t e r m e f f e c t s of
v/hich we h a v e a l s o h a d t o i g n o r e : i n d u n t r i a l u n r e s t , m a l n n i - v i t i o i i ,
g r e a t e r l a b o u r mob 1.1 i t y , m o r e r e a l i s m a n d , t h e r e f o r e , m o r e e r r o r h
among m a n a g e r s a n d w o r k e r s , a n d a t a f u r t h e r r e m o v e c h a n g e s i n
t h e t e r m s of t r a d e a n d t h e v o l u m e of w o r l d t r a d e .
P r i m a f a c i e t h e r e f o r e t h e b r o a d a s s u m p t i o n s made may f a i r l y d e s c r i b e a s t a t e of a f f a i r s v/hich w i t h o u t E . R . P . a i d ' e s h o u l d r e a c h i n a few m o n t h s , s a y a t some d a t e i n 1 9 4 9 .
The
q u a n t i t i e s g i v e n may t h e r e f o r e b e t h o u g h t of a s r a t e s a t t h a t time. 7
6
S e c t i o n B shows t h e g a p t o b e c l o s e d .
I n S e c t i o n C wc
'Tff.-!.u-ibe t h e b i g a d j u s t m e n t s we h a v e a s s u m e d t o c l o s e t h e g a p .
i n S e c t i o n D we d e s c r i b e t h e c o n s e q u e n c e s t o t h e m a i n s e c t o r s
of trie home e c o n o m y , a n d i n S e c t i o n E we b r i e f l y e x a m i n e
some of t h e l o n g e r t e r m o r m o r e i n d i r e c t e f f e c t s of t h e i n i t i a l
and more d e l i b e r a t e a d j u s t m e n t s p r e v i o u s l y d e f i n e d .
fc
B
*
THE GAP TO 5E CLOSED
7.
The f o l l o w i n g t a b l e g i v e s a n e x t r e m e l y r o u g h e s t i m a t e o f
t h e b a l a n c e of p a y m e n t s w i t h t h e d o l l a r a r e a ( U n i t e d S t a t e s
of A m e r i c a , Canada and A m e r i c a n a c c o u n t c o u n t r i e s ) i n 1 9 4 6 / 9 .
I t u s e s t h e i m p o r t p r o g r a m m e s r e c e n t l y p r e p a r e d ( t h e "X"
p r o g r a m m e s ) t o i l l u s t r a t e d e s i r a b l e i m p o r t s on a c o n t i n u e d b a s i s
of a u s t e r i t y .
The l a s t t w o c o l u m n s s t a t e t h e a d j u s t m e n t s t h a t
we a s s u m e w o u l d b e m a d e , a n d t h e r e s u l t i n g r a t e s o f e x p e n d i
a n d e a r n i n g s on t h e i r c o m p l e t i o n ( a n d b e f o r e a l l t h e pewojifl u r e
o r long; t e r m c o n s e q u e n c e s o f t h e s e Ghrvnges w o r k e d o a t ) . O irl a T V
;.-3co
of P a y m e n t s w i t h D o l l a r A r e a
£ million
1947
1948/9
A d j u s t - Assumed
(Approximate) on P r e s e n t
ments
Balance
Policies
assumed
without
33.R.P.
K. I m p o r t s
tram
Itollar- A r e a s
bod & A g r i c u l t u r e
lav/ M a t e r i a l s
Eanuf a c t u r e s ,
fiil ( C i v i l I m p o r t s )
obacco 'ilms ?otal
Ether g e t G o l d a n d
ibollar P a y m e n t s
fell ( M i l i t a r y a n d
Bil T r a n s a c t i o n s ( n e t )
Ether I t e m s
p s t of S t e r l i n g A r e a
jeficit w i t h D o l l a r
Bold and D o l l a r p a y ­
Bents t o o t h e r n o a ­
,ollar c o u n t r i e s
old p u r c h a s e s ( n e t )
Total
drain
-55
-75
-25
-20
75
90
20
50
560
395
-180
215
** *
55
-15
-20
-10
35
265
60
-60
155
** *
65
-10
-60
";80
[Receipts f r o m S b c p o r t s
iEd H e - e x p o r t s
Total
130
165
45
50
1
Rt;
115
180
1025
370
5
-10
-150
440
220
G. METHODS OP CLOSInG THE GAP
8.
A d o l l a r g a p o f £ 3 7 0 m . w o u l d h a v e t o "be c l o s e d .
The p r o b l e m
^ould b e t o c u t t h e v a r i o u s e x p e n d i t u r e s o r I n c r e a s e t h e v a r i o u s
e a r n i n g s i n w a y s w h i c h mads t h e t o t a l r e a d j u s t m e n t t o t h e economy
with t h e minimum d i s l o c a t i o n .
To d o t h i s e v e n r o u g h l y r e q u i r e s
that we ta.ke a v i e w on s u c h q u e s t i o n s a s w h e t h e r a d e q u a t e f o o d i s
More i m p o r t a n t t h e m f u l l e m p l o y m e n t ; t h e s e t of a d j u s t m e n t a s s u m e d
is t h e r e f o r e a r b i t r a r y .
S,
EXPORTS. The m o s t s t r e n u o u s e f f o r t w o u l d h a v e t o b e made t o
expand e x p o r t s t o t h e d o l l a r a r e a .
As a f i n a n c i a l t o t a l , t h e g a p
is l e s s t h a n a q u a r t e r o f t h e t o t a l e x p o r t s t o a l l d e s t i n a t i o n s
Planned f o r 1 9 4 8 .
I t s i i g h t , t h e r e f o r e , b e s u p p o s e d t h a t we c o u l d
go f a r t o c l o s e i t "by t h e " d i v e r s i o n " o f e x p o r t g o o d s .
Presumably
s h o u l d b e p r e p a r e d t-o a d o p t t h e m o s t d r a s t i c m e a s u r e s .
B u t on
P r a c t i c a l g r o u n d s we h a v e b e e n f o r c e d t o c o n c l u d e t h a t an a n n u a l
"ate of a d d i t i o n a l d o l l a r e x p o r t e a r n i n g s of £ 4 0 m . i s a s much a s
could b e e x p e c t e d w i t h i n a y e a r .
M o s t of t h i s w o u l d h a v e t o c o n s i s t
of c o t t o n t e x t i l e s , w o o l e n g o o d s a n d c o a l b e i n g t h e o t h e r m a i n i t e m s
'hile m e t a l g o o d s o f a i l k i n d s c o u l d c e r t a i n l y b e i n c r e a s e d t h e y
a t n r e s e n t s o s m a l l an i t e m i n o u r e x p o r t s t o t h e d o l l a r a r e a
their
VSSCm. i n 1 9 4 7 ) , t h a t i n t h e s h o r t t e r m n o l a r g e a l l o w a n c e f o r
Xpansion i s r e a s o n a b l e .
v
5
- 3 ­
10, S t e r l i n g Area d e f i c i t ; ,
The s t e r l i n g sores, d e f i c i t o f £ 6 0 m .
i s made u p of a C o l o n i a l s u r p l u s OF £ r l G o , a n d a a o f i c i t on
a c c o u n t of t h e r e s t of t h e s t e r l i n g a r e s OF SLOOm. The C o l o n i a l
s u r p l u s m i g h t b e i m p r o v e d t o £-50 a s a r e s u l t o f t h e d i v e r s i o n s
from U n i t e d Kingdom a n d o t h e r s o f t CUCTEUIEY c o n s u m p t i o n : c o f f e e ,
r u b b e r , t i n a n d h a r d w o o d (£Sm o r £ 9 m , ) s i d e s , s i s a l , a s b e s t o s
J, * D i v e r s i o n s f r o m
a n d n o n - f e r r o u s m e t a l s ( a n o t h e r £ l a , OR
t h e r e s t of t h e s t e r l i n g a r e a WOULD a l s o "be n e e d e d .
Ten f r o m
I n d i a s h o u l d y i e l d an a d d i t i o n a l JSSEL. ( a l t h o u g h t h e r e a r e
c o m p l i c a t i o n s a b o u t t h e r e l a t i o n s h i p Ibetweeu C a l c u t t a a n d
M i n c i n g L a n e ) ; f r u i t ( m a i n l y a p p l e s ) FROM A U S T R A L I A a n d New
Z e a l a n d c o u l d y i e l d a n o t h e r £5m,
On thus a s s u m p t i o n t h a t t h e
p o l i t i c a l d i f f i c u l t i e s w e r e o v e r c o m e , " b u t t e r from. A u s t r a l i a a n d
New Z e a l a n d c o u l d y i e l d n e a r l y £ 2 0 m , v h i c h i s o n e h a l f t h e
p r e s e n t r a t e o f i m p o r t f r o m t h e s e TWO c o u n t r i e s - , a n d w h i c h
w o u l d i n v o l v e u s i n A l o s s of two f i f t h s OF o a r p r e s e n t s u p p l i e s .
8
5
a
11.
To s t o p t h i s d r a i n a l t o g e t h e r a n o t h e r ££Cm. w o u l d h a v e t o
be s a v e d f r o m d o l l a r i m p o r t s i n t o t h e r e s t ; o f t h e s t e r l i n g a r e a .
To a c h i e v e t h i s I n d i a a n d P a k i s t a n i n p a r t i c u l a r -would h a v e to­
be k e p t f i r m l y down. A p l e n t i f u l s u p p l y of t e x t i l e s w o u l d ­
b e n e c e s s a r y : t h e S t e r l i n g A r e a h a s r e c e n t l y "been t a k i n g u n i t e d
Other exports
S t a t e s t e x t i l e s a t t h e r a t e of a b o u t £SOnu a y e a r .
from t h e U n i t e d Kingdom w o u l d a l s o h a v e t o h e s t i m u l a t e d .
It­
s h o u l d b e r e m e m b e r e d t h a t t h e a t t e m p t TO xnapose e x c e s s i v e economy
upon some D o m i n i o n s m i g h t s e t u p s t r o n g p r e s s u r e s t-owerds t h e i r
l e a v i n g t h e s t e r l i n g a r e a , o r d i v e r t i n g S U P P L I E S w h i c h we w o u l d
wish t o r e t a i n or d o l l a r i n v o i c i n g f o r t h e i r e x p o r t s t o u s .
a
12.
G-old a n d D o l l a r
Payments t o o t h e r ^ o s - d o l l a r
countries,
The a g g r e g a t e f i g u r e f o r 1 9 4 8 / 9 h a s o f n e c e s s i t y b e e n somewhat
arbitrarily estimated,
I t c o n t a i n s a n a l l o w a n c e of £50m. f o r the
A r g e n t i n e - t h i s b e i n g t h e a p p r o x i m a t e c u r r e n t d e f i c i t on t h e
h a l f y e a r f o l l o w i n g - t h e end of o u r c u r r e n t a g r e e m e n t , - £ 1 0 m . f o r
Germany a n d a v a r i e t y o f s m a l l e r p a y m e n t s f o r S g y p t , P e r s i a ,
F i n l a n d , B e l g i u m and so on.
We s h a l l h a v e some d o l l a r e a r n i n g ; ? , f r o x i n t e r e s t , s h i p p i n g ,
e t c . t h a t we c o u l d u s e w i t h o u t d i f f i c u l t y TO c o n t i n u e p a y m e n t s o f
t h i s k i n d , b u t we s h o u l d p r o b a b l y n o t b e a l l o w e d , i n b i l a t e r a l
agreements, to convert a n e t surplus w i t h , s a y , Canada (which
i t s e l f has a d o l l a r d e f i c i t with t h e Iff.3.1.) i n t o g o l d or U.S.
dollars for other non-dollar c o u n t r i e s .
We a s s u m e t h e r e f o r e
t h a t t h e s e p a y m e n t s h a v e t o b e r e d u c e d t o a t r i c k l e , "by c u t t i n g
i m p o r t s and e x p a n d i n g e x p o r t s .
As a n a n n u a l r a t e i n 1 9 4 9 o u r J i r g e m t i n e d e f i c i t may b e
e s t i m a t e d a t a b o u t £ 6 0 m . We m i g h t c o n c e i v a b l y i n c r e a s e e x p o r t s
by £ 1 0 m . , t h o u g h t h i s i m p l i e s a 2 5 ^ i n c r e a s e i n a v e r y s h o r t
period.
T h u s t h e r e m a i n d e r of t h e g a p h a s t o b e c l o s e d b y a
c u t of £50m. i n i m p o r t s .
The s t o p p i n g of t h e o t h e r d r a i n s w o u l d r a i s e d i f f i c u l t
p o l i c y d e c i s i o n s on Germany a n d o n m i l i t a r y e x p e n d i t u r e i n
Egypt;
i t would c e r t a i n l y r e q u i r e the most s t r e n u o u s e f f o r t s
t o e x p a n d e x p o r t s t o B e l g i u m , F i n l a n d a n d E g y p t , among w h i c h
o i l and c a p i t a l goods would have t o be p r o v i d e d .
E q u a l l y we
m i g h t h a v e t o f o r e g o i m p o r t s of t h e m o s t e s s e n t i a l k i n d ­
among t h e m , t i m b e r , c o t t o n and. s t e e l .
13.
Oil T r a n s a c t i o n s .
The £55m. h e r o shown r e p r e s e n t s t h e
n e t d o l l a r c o s t of o i l now s o l d t o n o n - d o l l a r c o u n t r i e s , . t h e
d o l l a r c o s t of t h e o v e r s e a s o i l e x p a n s i o n p r o g r a m m e , a n d i t
i n c l u d e s a l s o some £8m. f o r a l l U n i t e d Kingdom m i l i t a r y
requirements.
We a s s u m e t h a t no l a r g e r e d u c t i o n i n t l i e
latter is possible.
The o i l e x p a n s i o n p r o g r a m m e i s l i k e l y t o
y i e l d a very high r e t u r n in hard currency or hard currency
saving.
The m a j o r b u r d e n of r e d u c t i o n m u s t t h e r e f o r e f a l l o n
t h e s o f t c u r r e n c y p u r c h a . s e r s of o i l f r o m U n i t e d K i n g d o m
sources.
By arid l a r g e t h i s m u s t i m p l y r e d u c t i o n s i n E u r o p e a n
and s t e r l i n g a r e a p u r c h a s e s of o i l ( o r - t h e p r o v i s i o n of d o l l a r s
a t t h e e x p e n s e of o t h e r d o l l a r p u r c h a s e s ) .
We h a v e t a k e n a
f i g u r e of £20m. a s t h e s a v i n g t o b e a c h i e v e d .
The m e a s u r e s
e n t a i l e d would hamper European r e c o v e r y and would t h e r e f o r e be
only r e l u c t a n t l y taken:
hut the cuts i n t h e i r consumption
v / o u l d n o t p r o p o r t i o n a t e l y h e v e r y d i f f e r e n t f r o m t h o s e we a r e
a s s u m i n g f o r o u r s e l v e s ( s e e p a r a g r a p h 17 b e l o w ) ;
a n d we may
a s s u m e t h a t we s h o u l d b e a b l e t o i n c r e a s e c o a l e x p o r t s a s
some m e a s u r e of c o m p e n s a t i o n . " " B u t we m i g h t h a v e t o f a c e
i n d i r e c t e f f e c t s on o u r i m p o r t s a s a r e s u l t e s p e c i a l l y of
C o l o n i a l and Dominion economies,
1
11+.
The i t e r n s of g o l d p u r c h a s e s a n d o t h e r i t e m s c o v e r a
w i d e m i s c e l l a n y of t r a n s a c t i o n s .
We h a v e a s s u m e d t h a t b y
a t t e m p t i n g s t r i c t c o n t r o l of r e m i t t a n c e s ( i n c l u d i n g p r o f i t s
of s u b s i d i a r i e s , e n t e r t a i n m e n t e a r n i n g s , r o y a l t i e s e t c . )
r e s t r i c t i o n of s e l l i n g e x p e n s e s , e t c . , o u r e a r n i n g s m i g h t b e
i n c r e a s e d by a s m a l l amount.
15.
These a d j u s t m e n t s imply t h a t , a f t e r a l l o w i n g f o r
i n v i s i b l e e a r n i n g s , a l l b u t £5m. of o u r d o l l a r areei e x p o r t
e a r n i n g s o f £220m, w o u l d b e a v a i l a b l e t o f i n a n c e t h e i m p o r t
programme.
The c u r r e n t l y p l a n n e d r a t e of i m p o r t s of a b o u t
£395m, w o u l d h a v e a c c o r d i n g l y t o b e r e d u c e d b y n e a r l y h a l f t o
£21 5m,
16,
The a l l o c a t i o n of t h o s e £215m, b e t w e e n a l t e r n a t i v e u s e s
would be e x t r a o r d i n a r i l y d i f f i c u l t .
The s m a l l t o t a l o f £5m.
f o r f i l m r e m i t t a n c e s would have t o go, a t a c o s t , which c o u l d
b e v a r i o u s l y a s s e s s e d , t o t h e a m e n i t i e s of l i f e i n t h i s
country.
No e x p e n d i t u r e i s shown f o r 190,8/9 i n T a b l e I o n
t o b a c c o , s i n c e t h e r e i s a c u r r e n t d e c i s i o n t o malce no f u r t h e r
purchases.
To m a i n t a i n p r e s e n t c o n s u m p t i o n l e v e l s when s t o c k s
a r e e x h a u s t e d w o u l d i n f a c t c o s t a b o u t £20m, i n U n i t e d S t a t e s
a n d C a n a d i a n d o l l a r s , and t h i s w o u l d p r o v i d e a b o u t t h r e e ­
q u a r t e r s of t o t a l s u p p l y .
We a s s u m e t h a t d e s p i t e t h e g r a v e
f i s c a l a n d o t h e r i m p l i c a t i o n s of a l l o w i n g c o n s u m p t i o n t o f a l l
t o a q u a r t e r , - t h i s w o u l d be f a c e d ,
( S e e p a r a g r a p h s 2k and 28
belowJ,
^ The f i n a n c i a l s t a t i s t i c s of t h e o i l i n d u s t r y a r e now b e i n g
r e - e x a m i n e d and i t i s l i k e l y t o e m e r g e t h a t t h e d o l l a r
drains used in the paper are r a t h e r too high.
17.
The 1 9 k 8 / 9 d o l l a r - e x p e n d i t u r e o n U n i t e d K i n g d o m c i v i l
i m p o r t s o f o i l o f £50m. r e p r e s e n t s a b o u t h a l f of t o t a l p l a n n e d
e x p e n d i t u r e on o i l .
A t 15*9m. t o n s , t h e s e i m p o r t s a r e
s u b s t a n t i a l l y a b o v e 19u,7 f i g u r e s , ( w h e n s t o c k s f e l l f a s t ) e v e n
t h o u g h t h e y a s s u m e no b a s i c p e t r o l r a t i o n , a n d no f u r t h e r f u e l
o i l c o n v e r s i o n s beyond those a t p r e s e n t i n p r o g r e s s .
But t h e y
a l s o assume t h a t i n d u s t r i a l Output would c o n t i n u e t o r i s e ,
t h a t t h e motor t r a n s p o r t i n d u s t r y would c o n t i n u e t o e x p a n d ,
t h a t we s h o u l d p r o v i d e o i l f o r t h e new o i l u s i n g p l a n t s
now b e i n g " i n s t a l l e d ( p a r t l y a s a r e s u l t of G o v e r n m e n t e n c o u r a g e m e n t ) ,
and t h a t t h e m e c h a n i s a t i o n of a g r i c u l t u r e w o u l d b e c o n t i n u e d .
We h a v e a s s u m e d t h a t we c o u l d r e a s o n a b l y a t t e m p t a
s a v i n g of £20m. i n t h e 19^+8 p r o g r a m m e o r s a y 3 - U m i l l i o n t o n s
of p l a n n e d c o n s u m p t i o n .
This would involve ( a ) a heavy c u t
b a c k b e l o w 1QLtf l e v e l s of m o t o r s p i r i t c o n s u m p t i o n , i n c l u d i n g
n o t o n l y t h e a b o l i t i o n of s u p p l e m e n t a r y p e t r o l t o p r i v a t e
m o t o r i s t s , but a sharp r e d u c t i o n i n commercial and t r a n s p o r t
usage:
(b) extensive reconversion to coal usage in industry;
( c ) a v e r y t i g h t c o n t r o l o v e r a g r i c u l t u r a l - u s a g e . , and
(d) p r o p o r t i o n a t e economies i n minor u s a g e s suoh a s c i v i l
aviation.
Such a s h a r p r e v e r s a l of c u r r e n t t r e n d s w o u l d
i n v o l v e t e m p o r a r y d i s l o c a t i o n i n i m p o r t a n t f i e l d s of i n d u s t r y ,
and a c o n t i n u i n g r e s t r a i n t on i n d u s t r i a l p r o d u c t i v i t y .
It
would a l s o i n c r e a s e p r e s s u r e on c o a l s u p p l i e s a n d r a i l
transport;
b u t t h i s m i g h t be b o r n e .
18.
On p r e s e n t i n t e n t i o n s we s h a l l s p e n d some £h.5m. o n
manufactures i n the d o l l a r area i n 19^8/9.
By f o r t h e g r e a t e r ­
p a r t o f t h i s i s m a c h i n e r y (£3h.m, ) , a n d m o s t of t h e r e m a i n d e r
are "goods f o r i n d u s t r y " (£9m.) - s p e c i a l i s e d m a n u f a c t u r e s ,
s p a r e s , components and the l i k e .
Both c a t e g o r i e s a r e e x t r e m e l y
diverse - p l a n t for opencast coal and a g r i c u l t u r e are the
l a r g e s t s i n g l e programmes, and t h e r e s t i s s p e c i a l i s e d p l a n t
f o r a w i d e r a n g e of i n d u s t r y .
As w i t h o u t E , R , P . a i d we m i g h t
f o r some y e a r s be u n a b l e s o - m u c h a s t o m a i n t a i n o u t p u t o n
e x i s t i n g e q u i p m e n t w i t h t h e i m p o r t s of m a t e r i a l s we c o u l d
a f f o r d , i t would be bad p o l i c y to u s e our r e s o u r c e s to add t o
our t o t a l e q u i p m e n t .
We h a v e , t h e r e f o r e , a s s u m e d t h a t t h i s
e x p e n d i t u r e m i g h t b e r e d u c e d t o £20m.
19.
T h e s e o u t s l e a v e £165m. a v a i l a b l e f o r d o l l a r a r e a f o o d and raw m a t e r i a l s .
The d i v i s i o n of t h i s r e d u c e d sum w o u l d p r e s e n t t h e w o r s t of a l l t h e p l a n n i n g d i l e m m a s .
Among t h e p o s s i b l e a l t e r n a t i v e s , we h a v e c h o s e n a r a w m a t e r i a l p r o g r a m m e of £90m, a n d a f o o d p r o g r a m m e of £75m.
T h e l a t t e r happens to be a b o u t t h e minimum l e v e l t h a t w o u l d l e a v e o u r b r e a d s u p p l i e s unaffected:
the former allows i n d u s t r i a l output to continue at p e r h a p s some 10% b e l o w t h e r a t e i n t h e l a s t h a l f
a? 1"9U7 b u t has d r a s t i c e f f e c t s u p o n b u i l d i n g . '
But o t h e r patterns are possible.
F o r e x a m p l e , we c o u l d m a i n t a i n b u i l d i n g or m a i n t a i n i n d u s t r i a l o u t p u t b y c u t t i n g b r e a d ;
o r we c o u l d r e s t o r e b a c o n and s u g a r , ( w h i c h t a k e t h e w o r s t c u t s ) , b y further reductions in i n d u s t r i a l output. v
20.
The £90m. d o l l a r a r e a raw m a t e r i a l p r o g r a m m e i m p l i e s c u t s
of £75m. We may a l s o s u p p o s e t h a t of t h e £hOm. c u t o n A r g e n t i n e
p r o g r a m m e s , £3ra. i s t a k e n o n : t h e s m a l l r a w m a t e r i a l c o m p o n e n t , almost a l l h i d e s .
E x c l u d i n g t h e c u t s from o t h e r c o u n t r i e s t h a t
have a l r e a d y b e e n m e n t i o n e d i n p a r a g r a p h s 11 a n d 12 a b o v e , t h e a g g r e g a t e r e d u c t i o n a m o u n t s o n l y t o some 12% of t h e t o t a l r a w m a t e r i a l programme.
But t h i s i s a m i s l e a d i n g p r o p o r t i o n .
The
programme we h a v e c o n s i d e r e d a l l o w s g e n e r a l l y f o r r i s i n g consumption, and i n c r e a s e d s t o c k s .
Some c u t c a n t h e r e f o r e b e t a k e n w i t h o u t r e d u c t i o n of o u t p u t b e l o w r e c e n t l e v e l s .
On t h e o t h e r - h a n d , t h e c u t s c a n n o t h e e v e n l y s p r e a d , s i n c e some
commodities - of which w o o l . i s t h e most i m p o r t a n t example ­
come w h o l l y f r o m a r e a s w h e r e no c u t w o u l d h e r e q u i r e d , w h i l e
o t h e r s o n l y come t o a v e r y s m a l l e x t e n t f r o m t h e W e s t e r n
Hemisphere.
In y e t other cases without the dollar supplies
o t h e r n o n - d o l l a r i m p o r t s c a n n o t he e f f i c i e n t l y u s e d - " c a r b o n
b l o c k r e q u i r e d f o r motor t y r e p r o d u c t i o n i s a c a s e i n "point.
21.
T h e maximum c u t s w o u l d a m o u n t t o some 1 5-20?a o n s u p p l i e s
t o home i n d u s t r y b y c o m p a r i s o n w i t h c o n s u m p t i o n d u r i n g t h e
l a t t e r h a l f "of 1 9 h 7 .
This would a p p l y . t o n o n - f e r r o u s and
l i g h t m e t a l s , s o f t w o o d , - p a p e r a n d p u l p a n d t o . a l a r g e r a n g e of
miscellaneous materials.
A t t h e o t h e r e x t r e m e w i t h some
m a t e r i a l s , such a s s t e e l and hardwoods, t h e complete e x c i s i o n
of t h e d o l l a r s u p p l i e s w o u l d s t i l l l e a v e s u f f i c i e n t . t o a l l o w
U n i t e d Kingdom c o n s u m p t i o n
t o be a t or above p r e s e n t l e v e l s .
The e f f e c t s o f t h e c u t s w o u l d t h e r e f o r e b o w i d e s p r e a d , b u t
t h e y --would n o t b e u n i v e r s a l .
They would c a u s e an a c u t e
d i s t o r t i o n , rss w e l l a s s .mo g e n e r a l c o n t r a c t i o n .
22.
The c u t s i n f o o d a n d f e e d i n g s t u f f s p r o g r a m m e s , m u s t r e a c h
£55m. f r o m d o l l a r s o u r c e s a n d r a t h e r o v e r £h5m, f r o m t h e
A r g e n t i n e , w i t h f u r t h e r c u t s on s t e r l i n g a r e a programmes-.which,
a s h a s b e e n s u g g e s t e d i n p a r a g r a p h s 10-11 m i g h t be of t h e o r d e r '
of £50m.
The programmes on w h i c h t h e s e c u t s f a l l s t a n d a t
£790m, f o r f o o d a n d £110m. f o r f e e d i n g s t u f f s f o r 19k&/9 f r o m
t h e w o r l d a s a w h o l e , b u t i n t h e s e .. t o t a l s t h e £22.5m. a l l o w e d .
from the W e s t e r n H e m i s p h e r e i n c l u d e s t h r e e q u a r t e r s of t h e
wheat, t w o - f i f t h s of t h e c a r c a s e meat and t h e s u g a r , and over
h a l f the f e e d i n g s t u f f s .
25.
We s h o u l d n o t h a v e a f r e e c h o i c e b e t w e e n t h e a l t e r n a t i v e
ways of m a k i n g t h e s e c u t s a n d we w o u l d b e f a c e d w i t h e x t r e m e l y
difficult bilateral negotiations.
We c a n n o t g u e s s w h a t
a g r e e m e n t s c o u l d b e m a d e , b u t we s u p p o s e t h a t we k e e p t h e
Canadian w h e a t , and f l o u r b u t abandon ..all o t h e r d o l l a r f o o d
s u p p l i e s , of w h i c h t h e C a n a d i a n b a c o n , t h e C a r i b b e a n s u g a r and
Canadian eggs and cheese are the g r e a t e r p a r t .
(This is almost
certainly too optimistic).
The A r g e n t i n e c u t s we c o n c e n t r a t e
p a r t l y o n l i n s e e d o i l ( w h i c h m i g h t " g r a d u a l l y be made up f r o m home
a g r i c u l t u r e ) o n some a n i m a l f a t s we a r e now t a k i n g u n w i l l i n g l y ,
b u t m o s t o f a l l o n c o a r s e g r a i n s of w h i c h 1-g-ra. t o n s c o s t i n g o v e r
-ShOm. a r e i n t h e p r o g r a m m e .
I f we c o u l d d i s p e n s e w i t h t h r e e ­
i m m e d i a t e m e a s u r e ) , c a r c a s e - m e a t and
q u a r t e r s of t h e s e (
o i l c a k e a - u l d be l e f t u n a f f e c t e d .
a
D.
s
a
n
CONSEQUENCES TO THE HOME ECONOMY
2k.
T h e s e r e a d j u s t m e n t s t o . t h e b a l a n c e of p a y m e n t s w o u l d
a d m i n i s t e r a n u m b e r of v i o l e n t s h o c k s t o t h e home e c o n o m y a t a
number of s e p a r a t e p o i n t s .
The r e s u l t s t o t h e s t r u c t u r e of
o u t p u t , e x p o r t s , I n v e s t m e n t , consumption and employment a r e
extremely d i f f i c u l t to a s s e s s .
We s h o u l d b e f a c e d w i t h a n
abrupt t r a n s i t i o n from a p a r t i a l l y s u p p r e s s e d i n f l a t i o n t o
something not u n l i k e a slump.
I t is conceivable that after
t h e I n i t i a l p e r i o d o f d i s l o c a t i o n we w o u l d i n f a c t move i n t o a
d e p r e s s i o n of t h e c l a s s i c a l k i n d , w i t h h e a v y r e d u c t i o n s i n
i n v e s t m e n t due t o g e n e r a l p e s s i m i s m and u n c e r t a i n t y i n t h e
b u s i n e s s w o r l d l e a d i n g o n t o a s p i r a l o f d e c l i n i n g i n c o m e and
demand.
B u t we h a v e a s s u m e d t h a t t h i s i s a v o i d e d , i f o n l y
b e c a u s e some t y p e s o f i n v e s t m e n t c o u l d b e e x p a n d e d i n
n a t i o n a l i s e d i n d u s t r y and o t h e r p u b l i c s e c t o r s , and b e c a u s e
t a x a t i o n c o u l d i f n e c e s s a r y be r e l a x e d p r o m p t l y .
25.
^dniinlstratiwe
Problems
The r a p i d i t y o f a d j u s t m e n t t h a t w o u l d - b e r e q u i r e d w o u l d
b e much g r e a t e r t h a n a n y t h i n g a c h i e v e d i n t h e p a s t , a n d w o u l d
almost c e r t a i n l y os beyond the a d m i n i s t r a t i v e means a v a i l a b l e .
No c o n t r o l s s i m i l a r t o t h o s e we h a v e t o d a y c o u l d e n s u r e t h e
e x p a n s i o n of b a r d , s a r r e n s j e x p o r t s s u p p o s e d ;
nor d i s t r i b u t e
i n a n i d e a l a n d f a i r way t h e r e d u c e d s u p p l i e s o f e . g * n o n ­
f e r r o u s m e t a l s , t h e e n d - u s e s o f w h i c h we do n o t now a t t e m p t
to control.
I t i s v i r t u a l l y c e r t a i n t h a t we s h o u l d h a v e t o
a d e p t r o u g h a n d r e a d y m e t h o d s . We w o u l d h a v e t o l o o s e n many
p r i c e c o n t r o l s w h i c h c o u l d s c a r c e l y work w i t h raw m a t e r i a l
s u p p l i e s reduced and widespread s u b s t i t u t i o n b e i n g c a l l e d f o r .
Wo m i g h t h a v e
e m s l d o r d e v a l u e t i TQ i n a n a t t e m p t t j a i d
e x p e r t s t o d o l l a r m a r k e t s , and t o d i s c o u r a g e t h e i
demand f o r d o l l a r m a t e r i a l s .
We s h o u l d h a v e t o p r o h i b i t
r a t h e r t h a n r e s t r a i n t h e use- of e . g , n o n - f e r r o u s m e t a l s i n
i n e s s e n t i a l u s e s i f we w e r e t o p r o t e c t e x p o r t o u t p u t .
We
s h o u l d h a v e t o b e p r e p a r e d f o r o b v i o u s m a l d i s t r i b u t i o n s of
r e s o u r c e s , c r i t i c a l B o t t l e n e c k s , and p a r a d o x i c a l s u r p l u s e s
t o a much g r e a t e r e x t e n t t h a n t o d a y .
This applies e s p e c i a l l y
t o m a n u f a c t u r e s , b u t t h e r e w wild : f c o u r s e ais-o be , s e s i e r e '"
s t r a i n jn agricaxilaar&X p o l i c y and c o n s u m e r r a t i o n i n g and
a n e x p a n s i o n sf a l l k i n d s vf b l a c k m a r k e t .
N
The f i s c a l p r o b l e m s w o u l d b e m o s t d i f f i c u l t .
Some
e x p e n d i t u r e s would r i s e ( e . g . unemployment b e n e f i t by
;3150-200ra,);
some r e v e n u e s w o u l d f a l l ( e , g . t o b a c c o d u t i e s
b y s o m e t h i n g l i k e MiOQss.). I n t h e e a r l y s t a g e s t h e s p e n d i n g
of a c c u m u l a t e d s a v i n g s , m i g h t o f f s e t t h e f a l l i n i n c o m e d u e t o
unemployment.
The c u t s i n b u i l d i n g w o u l d r e d u c e t h e c a l l f o r
savings.
I f t h e r e w a r e -a p e r i o d of d i s l o c a t i o n d u r i n g w h i c h
o u t p u t was l o w b a t e x p e n d i t u r e r e m a i n e d h i g h , i t m i g h t e v e n
be t h a t a c u t e l y i n f l a t i o n a r y c o n d i t i o n s d e v e l o p e d , d e s p i t e
r i s i n g unem.pl o y r a e n t ,
26.
I m p l i c a t i o n s t o t h e l e v e l of f o o d
consumption
The c u t s a s s u m e d i n C a n a d i a n a n d o t h e r d o l l a r i m p o r t s ,
and i n Empire b u t t e r , t e a , and coffee imply heavy r e d u c t i o n s
in r a t i o n s ;
sugar,
t o 5 -unces;
b u t t e r , 3 to' 1.0;'
bac n , t o 1 ounce t h e y e a r t h r a u r h ;
cheese to even l e s s ;
w i t h o t h e r c u t s i n e g g s a n d m-wat.
Miscellaneous non-dollar
i m p o r t s w o u l d a l s o p r o b a b l y come down.
The r e d u c t i o n i n c a l o r i e
i n t a k e b e l o w t h e p r o g r e s s e d l e v e l of 2 , 8 9 0 w o u l d p r o b a b l y b e
a b o u t 220;
i . e . t h e l e v e l would p r o b a b l y be a l i t t l e below t h e
l e v e l d u r i n g t h e p r e s e n t p e r i o d of p o t a t o s h o r t a g e , a n d o v e r
1,05ft b e l o w t h e p r e - - w a r a v e r a g e .
But e v e n i f i n t h e l o n g r u n
a g r i c u l t u r a l adjustments restored t o t a l c a l o r i e s , the d i e t
would be even more d i s t o r t e d from t h e t r a d i t i o n a l paiaacm,,than
the present.
27.
Implications
to Agricultural
Policy
I n p a r a g r a p h 2 2 we s u p p o s e d t h a t a s a n i m m e d i a t e m e a s u r e
A r g e n t i n e meat i m p o r t s were n o t r e d u c e d , and t h a t the whole
r e d u c t i o n f e l l on c o a r s e g r a i n s .
This implied a reduction in
t h e l a t t e r t h a t Blight ( i f c e r t a i n c o m p e n s a t i n g s u p p l i e s could,
be o b t a i n e d e l s e w h e r e ) p e r m i t f e e d i n g s t u f f r a t i o n s t o c o n t i n u e
as a t p r e s e n t , b u t which would wholly wipe out any development
of t h e l i v e s t o c k e x p a n s i o n , p r o g r a m m e .
Whether i t would i n f a c t
be b e t t e r t o r e d u c e o v e r s e a s meat s u p p l i e s and t a k e more c o a r s e
g r a i n s , or l o w e r t h e e x t r a c t i o n r a t e and p r o v i d e f e e d i n g s t u f f s
a t t h e e x p e n s e of d i r e c t b r e a d s u p p l i e s a n d a f u r t h e r c u t i n
c a l o r i e i n t a k e would of c o u r s e be i m p o r t a n t i s s u e s of p o l i c y .
I t i s a t - l e a s t c l e a r t h a t t h e a g r i c u l t u r a l p o l i c y as a whole
would need r e - e x a m i n a t i o n .
Much w o u l d d e p e n d u p o n e s t i m a t e s of
l o n g e r t e r m c h a n g e s i n , e . g . , t h e t e r m s of t r a d e a n d r e l a t i v e
p r i c e s of c e r e a l s and. l i v e s t o c k ,
. . -.
-8­
28.
Implications
to
other
Consumption
The m a i n d i r e c t l y a d v e r s e e f f e c t s u p o n t h e l e v e l of
c o n s u m p t i o n of i t e m s o t h e r t h a n f o o d h a v e m o s t l y a l r e a d y b e e n
mentioned.
P r e s s u r e on c o t t o n s u p p l i e s and t h e n e e d t o
e x p o r t a.major d o l l a r s a v e r a n d d o l l a r e a r n e r w o u l d v i r t u a l l y
remove c o n s u m e r c o t t o n g o o d s from t h e home m a r k e t . The r e d u c t i o n i n
l e a t h e r i m p o r t s w o u l d h a v e a l a r g e e f f e c t u p o n t h e s u p p l i e s or
t h e q u a l i t y of f o o t w e a r .
P a r l e s s m o t o r t r a f f i c t h a n i s now
p e r m i t t e d would b e p o s s i b l e ,
n e w s p a p e r s and b o o k s would b e
reduced.
The w h o l e r a n g e o f c o n s u m p t i o n u s i n g n o n - f e r r o u s
m e t a l s f r o m t r i v i a l i t i e s t o e l e c t r i c a l g e a r of a l l k i n d s w o u l d
be c u r t a i l e d .
The c i n e m a i n d u s t r y w o u l d b e -worse d i s o r g a n i s e d - ­
. than i t has been r e c e n t l y ,
A r e d u c t i o n by t h r e e s - " I. q u a r t e r s i n t o b a c c o consumption would g r e a t l y a f f e c t m o r a l e , a n d , h a v i n g r e g a r d a l s o t o t h e f i s c a l e f f e c t s , i t may b e -thought t h a t we h a v e b e e n u n r e a l i s t i c i n n o t a s s u m i n g t h a t we -would i n t h e e v e n t p r e f e r t o c u t f o o d o r r a w m a t e r i a l s r a t h e r 'than c i g a r e t t e s .
On
other
s e r v i c e i n d u s t r i e s w o u l d be free
and
s h o r t a g e of d o m e s t i c w o r k e r s b o t h i n
­
" i n s t i t u t i o n s and - p r i v a t e homes m i g h t b e r e l i e v e d .
(Indeed suca
work m i g h t
be a f i t object for encouragement as pro via m g
work r e q u i r i n g l i t t l e m a t e r i a l ) .
These changes would between
Vaem a m o u n t t o a v e r y s h a r e c h a n g e i n the s t a n d a r d of l i v i n g .
I t s h o u l d n o t b e u n b e a r a b l e b u t i t w o u l d c e r t a i n l y c a l l , f o r mncU
- p a t i e n c e and a w i l l i n g n e s s t o change old e s t a b l i s h e s n a o i t o .
to"expand,
the
the
hand
i
even
go.
general implications
to. i n d u s t r i a l
Output
Thw e f f e c t s pf some f f t h e c u t s i n i m p o r t s , s u c h a s t h o s e
in t i m b e r a n d - h i d e s w o u l d o r c o u l d b e c o n f i n e d t o p a r t i c u l a r
industries.
Other c u t s , such as t h o s e i n * i l , n o n - f e r r o u s
m e t a l s , and i n t h e w h o l e r a n g e of c h e m i c a l s vand m i s c e l l a n e o u s
m a t e r i a l s w o u l d d i r e c t l y o r a t few r e m o v e s , a f f e c t
all
m a n u f a c t u r e s a n d w o u l d t e n d , w h e r e t h e y d i d n o t reduce output o u t r i g h t ,
at l e a s t t o r a i s e s c s t s and l o w e r p r o d u c t i v i t y .
There would n e e d
to b e , i f o u t p u t w e r e t o b e m a i n t a i n e d , an e a r l y a d o p t i o n of
s u b s t i t u t e s ? and t h e r e would be l i t t l e t i m e f o r t h e i r d i s c o v e r y .
But g i v e n a s t r o n g e n o u g h money m o t i v e a g o o d d e a l m i g h t be done
(no d o u b t a t t h e c o s t of l o w e r i n g s t a n d a r d s ) b y f o r e x a m p l e ,
u s i n g s t e e l , w h i c h w o u l d b e r e l a t i v e l y p l e n t i f u l , i n p l a c e of
,aluminium o r t i m b e r , c o n c r e t e i n p l a c e of t i m b e r , a l t e r n a t i v e [ m a t e r i a l s f o r p a p e r m a k i n g , r u b b e r i n p l a c e of l e a t h e r , w o o l i n iPlace r f c o t t o n and s o o n . j30,
Consequences to
Investment;
T h e m o s t o b v i o u s e f f e c t s w o u l d f l o w f r o m t h e r e d u c t i o n c-f
imports.
G i v e n r b h e r r - o c u i r e m e n t s t h i s m i g h t mean --- c u t
of some 2 5 0 , 0 0 0 s t a n d a r d s i n t h e b u i l d i n g i n d u s t r y , a n d though-.
a r e d u c t i o n of new h o u s e
Inot a l l t h i s n e e d f a l l an new
t o s o m e t h i n g of t h e o r d e r r f 5 0 , 0 0 0 m i g h t b e i n e v i t a b l e ,
Respite t h e u s e of s u b s t i t u t e s .
The e l e c t r i c i t y g e n e r a t i n g
IprOgramme w o u l d a l m o s t c e r t a i n l y h a ^ e t o b e c u r t a i l e d , m a i n l y
lbs c a u s e of t h e r e d u c t i o n i n n o n - f e r r o u s m e t a l s .
, Further
j d i r e c t e f f e c t s w o u l d b e t h e r e d u c t i o n i n c a p i t a l g o o d s im.po.rhs
and the- w i d e s p r e a d c o n s e q u e n c e s t o o u t p u t of t h e d i s l o c a t i o n s
lalready d i s c u s s e d ,
srftwbod
Ijktilding
housing
1 )1,
T h e s e a r e e f f e c t s on s u p p l y , b u t a s h a s b e e n s a i d ,
s t i m u l a t e d by l a b o u r s h o r t a g e , would a l s o c h a n g e .
" U p b u i l d i n g , and m e c h a n i c a l
ai*e
i n which
Remand, now
engineering
sectors
slump c o n d i t i o n s m i g h t e a s i l y o c c u r .
B u t some of t h e
adjustments, in p a r t i c u l a r , reconversion to coal usage,
wwuld e n t a i l f r e s h e x p e n s e ;
public investment, r a i l transport
r o a d s , l a n d r e c l a m a t i o n a n d some p a r t s of i r o n a n d s t e e l c o u l d
be e x p a n d e d and t h e r e would be a v e r y s t r o n g c a s e f o r
a p r o m p t e x p a n s i o n of d o l l a r s a v i n g i n v e s t m e n t , i f n e c e s s a r y
by Government a c t i o n , e s p e c i a l l y i n the c h e m i c a l and o i l
refinery fields.
A w h o l e s a l e c o l l a p s e of i n v e s t m e n t c o u l d
be avoided.
Moreover e x p o r t demand m i g h t c o n t i n u e a t
a g e n e r a l l y high l e v e l :
we have a l r e a d y p r e s u p p o s e d s p e c i a l
e f f o r t s t o s u p p l y c a p i t a l g o o d s t o some c o u n t r i e s i n p l a c e
of g o l d o r d o l l a r s .
32.
Consequences
to
Exports
We h a v e . a l r e a d y a s s u m e d t h a t e x p o r t s t o h a r d c u r r e n c y
a r e a s , and d o l l a r s a v i n g e x p o r t s t o t h e s t e r l i n g a r e a have t o
b e p u s h e d e x t r e m e l y h a r d , a t a t i m e when c o s t s g e n e r a l l y
w-:uld p r o b a b l y b e r i f l i n g .
But the m a t e r i a l
c u t s c o u l d n o t b e c o n f i n e d t o home m a r k e t p r o d u c t i o n a n d we
should almost c e r t a i n l y find i t impossible to maintain t o t a l
exports for production reasons;
a n d , as m e n t i o n e d b e l o v / ,
o v e r s e a s demand a l s o m i g h t c o n t r a c t ,
We have t a k e n n o
a c c o u n t of t h e s e p o s s i b i l i t i e s i n t h e r e v i e w -of t h e s h o r t t e r m
c r i s i s , however, b e c a u s e i t might be p o s s i b l e f o r a time to
c o n c e n t r a t e t h e r e d u c t i o n of e x p o r t s on t h e l e s s e s s e n t i a l
e x p o r t s tm a r e a s w i t h w h i c h we s h o u l d o t h e r w i s e b e c u r r e n t l y ­
i n s u r p l u s , i . e . on " u n r e q u i t e d " e x p o r t s .
33*
Consequences to
Employment
T h e r e w o u l d b e l a r g e p r i m a r y e f f e c t s on e m p l o y m e n t
i n m e t a l u s i n g i n d u s t r i e s , b u i l d i n g , c l o t h i n g , r o a d TRANSPORT,
and p a p e r c o n s u m i n g t r a d e s .
Borne of t h e s e m i g h t b e o f f s e t
b y r e d u c t i o n i n s p e c i f i c a t i o n s , t h e u s e of s u b s t i t u t e s , a n d s o
*n.
There m i g h t a l s o be a s e c o n d a r y r e d u c t i o n i n t h e
distributive trades.
On t h e o t h e r h a n d t h e s e r v i c e t r a d e s ,
a n d d o m e s t i c s e r v i c e c o u l d i n c r e a s e , a n d m i n i n g , f a r m i n g , and
wool t e x t i l e s could expand.
Women m i g h t l e a v e i n d u s t r y i n
l a r g e n u m b e r s , and t h e p r e s e n t o r e s s u r e f o r t h e o l d e r w o r k e r s
t o s t a y w o u l d b e r e v e r s e d . On b a l a n c e we e s t i m a t e thattjneuiployme:­
m i g h t , a p a r t f r o m t h e w o r k s p r e a d i n g e f f e c t s of s h o r t - t i m e and
reduced hours, r i s e to something l i k e 1,300,000.
E
* LONGER TERM PROSPECTS
3k.
The b r o a d s k e t c h g i v e n i n t h e p r e c e d i n g s e c t i o n s t r i e s
t*- d e p i c t t h e m o s t f a v o u r a b l e s t a t e of t h e economy t h a t we
m i g h t m a n a g e t o r e a c h i n . s a y , a y e a r a f t e r i t had b e c o m e
c e r t a i n t h a t we w o u l d g e t n o E R . P . A i d .
Things might well
b e w o r s e i f t h e downward r e a d j u s t m e n t c o u l d n o t b e a c h i e v e d
i n an o r d e r l y m a n n e r .
They c p u l d p r o b a b l y n o t b e much b e t t e r .
B u t t h i s s k e t c h p r e s e n t s o n l y one p h a s e .
Pour major longer­
term f a c t o r s sh*uld be mentioned.
35,
F i r s t , the dreariness
of t h e c o n s u m p t i o n s t a n d a r d s t o
w h i c h we s h o u l d f a l l , t h e inrale-ouacy of t h e n a t i o n a l d i e t . , and
t h e i n c r e a s e i n Ufeomplavnieut m i g h t g i v e r i s e t.; n a v & s t one!
Inefficiency.
T h e s e w:.'Uld p r o b a b l y l o w e r o u t p u t and expocr-tr. .
s t i l l furtha.r.,..ond"'might s t a r t a ' &-3wnwaav3- e p i r a 1 ' t o w h i c h
t h e r e would be no o b v i o u s e n d .
36.
Secondly,
in our favour.
t h e r e m i g h t be a c h a n g e i n t h e t e r m s of
T h i s m i g h t come a b o u t i n two s e p a r a t e
trade
ways.
(a)
S i n c e tow U n i t e d Kingdom i s b y f a r t h e l a r g e s t i m p o r t e r ­
from Canada and t h e A r g e n t i n e t h e r e d u c t i o n s i n o u r p u r c h a s e s
m i g h t s t a r t m o v e m e n t s i a t h e p r i c e s of t h e i r p r o d u c t s .
In
i t s e l f , a f a i l i n i m p o r t p r i c e s would be b e n e f i c i a l s i n c e i t
would r e d u c e t h e q u a n t i t a t i v e c u t s i n i m p o r t s a n d r a i s e t h e
r e a l v a l u e of o u r r e m a i n i n g r e s e r v e s .
B u t t h e same f a l l i n
p r i m a r y p r o d u c t p r i c e s w o u l d , i f due t o t h i s c a u s e , v e r y
p r o b a b l y r e d u c e t h e demand f o r o u r m a n u f a c t u r e s .
On
b a l a n c e , , we m i g h t g a i n somewhat i f t h e s e e f f e c t s w e r e
confined to these c o u n t r i e s ;
b u t i f t h e r e were a g e n e r a l
r e d u c t i o n of w o r l d t r a d e t h e g a i n w o u l d be much m o r e
problematical.
(b)
T h e r e m i g h t , i n d e p e n d e n t l y , of a n y t h i n g o u r c r i s i s
c o m p e l s u s t o d o , b e a l o w e r i n g of i m p o r t p r i c e s a s a r e s u l t
of i n c r e a s e d e f f i c i e n c y and o u t p u t among p r i m a r y p r o d u c e r s
f o l l o w i n g u p o n t h e h i g h p r i c e s t h e y now e n j o y and t h e f a d i n g
of t h e e f f e c t s of w a r .
T h i s w o u l d n o t a f f e c t t h e demand
f o r o u r e x p o r t s , and w o u l d t h e r e f o r e b e w h o l l y f a v o u r a b l e .
B u t c h a n g e s of t h i s k i n d c o u l d o n l y be g r a d u a l :
they could
n o t be r e l i e d upon t o e x t r i c a t e u s q u i c k l y .
37*
T h i r d l y , we m i g h t i n two o r t h r e e y e a r s e x p a n d o u r
e x p o r t s , e s p e c i a l l y of c a p i t a l g o o d s .
L i t t l e allowance
f o r t h i s had b e e n made i n t h e a c c o u n t g i v e n of s h o r t p e r i o d
a d j u s t m e n t s , s i n c e the time l a g s a r e v e r y s u b s t a n t i a l .
But t h e r e are p h y s i c a l l i m i t s to t h e s e a d d i t i o n a l e x p o r t s
( w h i c h i n any c a s e a r e v e r y v u l n e r a b l e i n a w o r l d s l u m p
s i t u a t i o n ) and t h e y w o u l d b e a l t e r n a t i v e t o home i n v e s t m e n t ,
and t h i s m i g h t n o t be much a b o v e t h e m a i n t e n a n c e l e v e l .
B u t we c o u l d t r y t o p l a n more d e l i b e r a t e l y t h a n we do t o d a y
t h a t wo s e l l c a p i t a l g o o d s t h a t w o u l d d i r e c t l y o r i n d i r e c t l y
i n c r e a s e t n e o u t p u t of g o o d s we w o u l d w i s h t o i m p o r t .
If
we s e c u r e d t h e c l o s e c o - o p e r a t i o n of E u r o p e and t h e E m p i r e
i n a j o i n t e f f o r t of t h i s k i n d we m i g h t g r a d u a l l y end t h e
w o r s t of t h e l i m i t a t i o n s on o u t p u t .
3'3* L a s t l y , we m i g h t h o p e f o r a r i s e i n t h e l e v e l of t h e
U n i t e d S t a t e s i m p o r t s and of A m e r i c a n f o r e i g n i n v e s t m e n t .
E i t h e r of t h e s e d e v e l o p m e n t s m i g h t r e p l e n i s h t h e s u p p l y of
d o l l a r s t o t h e r e s t of t h e w o r l d and p e r m i t a r e s u m p t i o n
of m u l t i l a t e r a l t r a d e .
T h i s would r e l i e v e u s by r e m o v i n g
t h e p r i m e cause of the whole c r i s i s .
D e v e l o p m e n t s of t h i s
k i n d a l t h o u g h p e r f e c t l y p o s s i b l e a r e n o t i n a n y way c e r t a i n ,
and t h e y a r e w h o l l y o u t s i d e o u r c o n t r o l .
39.
We g i v e t h i s b r i e f r e v i e w of t h e l o n g e r - t e r m p r o s p e c t
t o show t h a t t h e r e i s no r e a s o n t o s u p p o s e t h a t t h e s h o r t ­
t e r m c r i s i s we h a v e d e s c r i b e d w o u l d n e c e s s a r i l y b e t r a n s i e n t .
All the longer-term developments are extremely u n c e r t a i n but
i t s e e m s o n t h e w h o l e l i k e l y t h a t t h e e c o n o m y , h a v i n g moved
t o a g e n e r a l l y l o w e r l e v e l , would t e n d t o s t a y t h e r e f o r a
considerable time.
Larch-
- 9lt 8
:
%