British Economy on the Move—Encouraging Trends

MR. JOLLIFFE:

In the long history of this Club, we have often heard speakers from the sceptered isle, including some of those who--in Britain's finest hour--stood almost alone in defence of freedom and the free world. They are always welcome, not only for their personal qualities but because of the very real kinship between The Empire Club and the British tradition. This Club does not forget that our inheritance is "something of value."

There is not only a gap between the older generation and young people in most countries today. There are also certain gaps between the oldest and the youngest members of the Commonwealth. There are new bridges to be built as well as old bridges to be repaired and maintained. This is a fact which gives special importance to those envoys known as High Commissioners, the men who interpret members of the Commonwealth to each other, as our Governor-General did in New Delhi for some years, and as Sir Colin Crowe does in Ottawa today.

Our distinguished guest (a son of Sir Edward Crowe), on completing his education at Oxford, joined the British Diplomatic Service. He served at Peking from 1936 to 1938, at Shanghai from 1938 to 1940, at Washington from 1940 to 1945, and at the Foreign Office in London from 1945 to 1948 and 1953 to 1956. He was at Paris in 19481949, Tel Aviv 1949-1950, the Imperial Defence College 1957, and the Britain Property Commission, Cairo, 1959; Charge at Cairo 1959-1961, Deputy U.K. Representative to the U.N. 1961-1968; Ambassador to Saudi Arabia 19631964. He served as Chief of Administration in H.M. Diplomatic Service from September 1965 to August 1968. Not forgetting Oxford, he is a Fellow of St. Antony's College. Although Sir Colin Crowe took up his appointment in Ottawa only a few months ago, it is clear that no envoy has wider or more varied experience in diplomacy and administration. I have the honour to introduce the High Commissioner for the United Kingdom in Canada, Sir Colin Crowe.

SIR COLIN CROWE:

The Chancellor of the Exchequer, Mr. Roy Jenkins, addressed the Empire Club on 4 October last year. He spoke to you very largely about international monetary cooperation since he had come straight from the meetings of the International Monetary Fund (I.M.F.) and the International Bank. But he also told you something about what was being done in Britain. Since then we have had another international monetary crisis--not the fault of the British I hasten to add, but which has had repercussions upon us all the same. Indeed this crisis bears out one of the major lessons that Mr. Jenkins was at pains to make, namely that in this twentieth century, for the developed industrial world at least, prosperity is indivisible, probably as much if not more than peace. Time and time again, he said, we have seen the actions of one country exercise direct and unavoidable influence on the economic conditions of the rest of the world. Similarly, no country's economy, and particularly not the economy of a developed country, can be isolated from what goes on elsewhere. But this is something that you in Toronto know very well.

The title of my address is I am afraid rather pedestrian, not to say corny. But I make no apology for it because I am not going to stimulate you with fireworks or take your breath away with startling new developments, but I propose to try to paint you a picture of what is actually going on in Britain--a picture of steady, undramatic and painstaking effort. And I want to talk about Britain because I think it is really important that you in modern Canada and we in modern Britain should know each other as we really are, and not in stereotypes or fixed images which at the best distort and blur the picture and at the worst can lead to real misunderstanding and wrong decisions. As I said recently indeed it was the theme of a speech I made the other day--I believe we are apt to take each other too much for granted: we are in danger of thinking that we know all about the other when in fact the reality has moved on.

I must confess that I have been somewhat bothered on certain occasions in Canada by a tendency to write down Britain, almost indeed to write off Britain. It is an unrewarding exercise. It has been tried before in the recent, and even the remoter, past and the answer it produces is always wrong. It is often done not out of ill-will but sometimes out of too much goodwill, a pitching of expectations too high, a looking for a past which sometimes never existed. Whatever the causes it leads to misunderstanding and a misunderstanding we must try to clear up.

I shall be telling you about what we are doing in Britain today. But if the steps we are taking and the progress we are making are to be properly understood I think one must go back to take a quick look at the immediate post war position.

The war affected Britain worse than almost anybody else--worse than Germany, Japan or Russia, whose economies perhaps suffered more material damage. We came out on the winning side, but we had fought ourselves to a standstill. Our industry was disoriented, our resources had gone and we had a pile of debts instead of substantial overseas investments. But there was another decisive reason why we were faced with difficulties not shared with other nations, some on the winning, some on the losing side. It is that the war made the world more difficult for us than for anybody else. The fact is not that Britain has failed to adjust to a changing world, but that we had a great many more adjustments than anybody else.

One major element in this adjustment was the fact that we now have to depend upon competitive exports for practically our whole livelihood. Before the war we had of course much the same kind of expenditure abroad as we have now. But then we had a substantial income from extensive investments overseas. During the war we had to sell some $3 billion worth of our overseas investments and instead accumulated something of the order of over $8 billion worth of debts. All this to fight a war. Before the war our exports paid for about half of our imports. Now they have to pay for something like 90 % of them. And we are a country which does not, like Canada, have vast natural resources of raw materials, minerals, forests and wheatlands. We have to import 90% of our raw materials and 50% of our food. We depend for our existence on our ability to sell in the competitive markets of the world, on our technological know-how and on our manufacturing skill.

At the end of the war we also had immense obligations all over the world. The process of freeing our dependencies, the process by which we launched one quarter of the world's population into independence, took time and money and human resources. We tried to start the new nations off with viable economies and viable governments. Considering the difficulties it was an extraordinary achievement and now today you have the modern Commonwealth. I am not going to talk about the Commonwealth here today, but it is in fact a very remarkable and unique association of 28 independent countries of all sizes, colours, creeds and stages of development who, as the January meeting of Prime Ministers showed, can discuss their problems among themselves in a completely open and easy manner which no other worldwide grouping of nations can do.

But all this meant that we had defence commitments all over the world. We had a sort of policeman's role. It was peace keeping. And we did it well. But it was expensive, it imposed a continuous strain on our balance of payments and it could not go on. Hence our decisions last year to withdraw from East of Suez and the Persian Gulf by 1971.

These external commitments diverted resources and money which we would have preferred to spend to our own more immediate benefit at home. And we had a major job at home in the restructuring and reorganizing of industry, in the re-settlement of labour and redevelopment of large areas where the old industries from the nineteenth century had been concentrated, i.e. the coal mines and the shipyards and the textile mills, in South Wales and the north-east of England and in southern Scotland. And we had to switch our main effort into export markets. We had to do all this, moreover, with a currency which was used by one half of the world's traders. As I pointed out at the beginning, no country can isolate itself from the world, but the wide use of sterling in international trade meant that we were particularly susceptible to waves of crisis and lack of confidence in any part of the world about almost any subject and there have been quite sufficient number of crises in all parts of the world over these past twenty years.

All right, you may say. So it has been tough, but you are not interested in the past. You want to know what we have done about it and are going to do about it now. The answer is--plenty.

There was the devaluation of the pound, there was a major decision to reduce our defence commitments and expenditure and to withdraw from East of Suez by 1971, concentrating our major defence effort on Europe. There was the severe brake on public expenditure. There was the fierce domestic budget of a year ago. And more recently there was the import deposit scheme in order to check imports and restrain consumer demand. There was a prices and incomes policy such as no other country in the world has been able to develop. We have of course also taken positive measures to restructure, reorganize and re-equip our industries, our docks and our transportation system and to encourage exports. In my previous job in London I was on the management side of the Diplomatic Service--which is one of our institutions which has been reorganized from top to bottom--and I can assure you that this is the case. There is a continuous questioning of accepted attitudes, a searching for better ways of doing things and a new attitude to management. I think it is fair to say that broadly speaking we have now got our commitments and our capacities much more into harmony. Of course it all takes time. An elaborate, complicated, modern economy cannot be turned around by the flick of a switch or the drafting of a plan.

But to expand a bit on these various measures that we have taken. There is, first of all, defence. Thanks to these new measures, in his recent new defence proposals last month, Mr. Healey, the Defence Secretary, was able to show not only that he had been able to make savings on our defence budget, which in these days of rising prices is a very remarkable thing to be able to do at all, but, at the same time, and this is even more remarkable, to be able to improve our contribution to European defence in NATO and to play a major part in the strengthening of NATO forces that was made necessary by the Czechoslovak crisis last summer. Even after 1971 we will still retain a capability to operate in any part of the world but the main emphasis will be in Europe. Of our 413,000 men under arms, all of them volunteers, over 75% are based on the mainland of Europe or in the U.K. and most of those in Britain are firmly committed to NATO.

We dare not skimp on this and we still spend 6% of our gross national product on defence. For the heart of our security lies in Europe and the North Atlantic area and it is NATO that provides our protection. You must remember that among the difficulties that I described and which have led to such a strain on our resources for the past generation, there has been the threat from the Soviet Union that has loomed over Western Europe, and indeed the world. From the Berlin blockade to the first communist takeover in Czechoslovakia twenty years ago and to the crisis of last summer, it was NATO that held the line and it is NATO that still does. It is the only means by which we may be able to achieve in due course a detente with the Russians.

But to turn to the economic front, and that is what our livelihood depends on. If we are going to get out of the red and repay our debts as we shall, we have got to do it by exports and, given the loss of our investments, though we do still have certain considerable ones abroad, we shall have to do it mostly by an increase in our visible trade. And we have got to do this on a long term basis. The projection as of now is that we shall need to achieve a balance of payments surplus annually of the order of £ 500 million, i.e. $1,300 million. Out of this some £300 million plus or minus must come from the balance of visible trade. This is quite a target but we think we can do it. It will mean an increase of something like 51/2-7% in the growth of the volume of our exports. We reckon that in the ordinary course of events the growth of world trade and the expansion of our exports to fast growing markets should produce about 4% a year, but on top of this, with devaluation and additional export effort, we should be able to produce the extra 2-3%.

Much of this of course will depend upon the continued expansion of world trade which, in manufactures, continues to expand at around 8 % per annum.

How far are we getting towards this target? There is quite a way to go but things are moving in the right direction. Unfortunately some misguided enthusiasts in London started some years ago to produce British export and import figures every month. I suppose they thought this helped people to keep their finger on the pulse of events. These monthly figures have become a positively harmful factor. There are always special features in any one month's figures. If too much attention is paid to them people are unnecessarily cast down by one month's bad figures but equally get too excited by one month's good figures. One has to see what the trend is doing. And here the trend is very encouraging. On the basis of a three month moving average, a deficit of visible trade of $223 million for May last year had been halved by December, and then very nearly halved again in January. Indeed, in January, on our overall balance of payments account, we were slightly in surplus. We are not by any means out of the wood yet, but this is very encouraging.

This has been based, broadly speaking, on an increase of about 11% of our exports in volume and we have started getting back a greater share of world trade. To Canada, with which we are immediately concerned, the picture I am glad to say is also very encouraging. Our exports last year rose from $618 million in 1967 to $673 million, an increase of some $551/2 million. In terms of volume our exports were 11% up.

And you yourselves have not done so badly. Indeed I venture to say that you have done rather better, since your own exports to Britain went up by some 13.8% over 1967 to $1,333 million.

It is very difficult to keep figures in one's head when read out, but I think you will agree that those I have recited show a very serious imbalance in the trade between our two countries. It is not my purpose to discuss this here today--it is a very big subject. But it is very much my purpose and my job and will be all the time that I am here to get this imbalance straightened out so far as we possibly can. We must increase our exports so far as we possibly can to this rich and expanding market and bring our accounts into better balance.

Increases in exports, of course, require that necessary action should be taken domestically and there has been a great deal going on in Britain. There has been a great deal in the press about the British public indulging in a spending spree, a lot of which has been grossly exaggerated. As you yourselves will know, in an expanding economy with increasing productivity, it is extremely difficult to persuade workers and people generally not to spend what they have earned from the increased productivity that they have brought about. People want more and I think it is fair to say that it is very largely the business of business to persuade them precisely that more is what they want. What, after all are advertising campaigns about. Nevertheless, by heavy taxation, restraint of credit and import deposit schemes we have succeeded in holding down the increase in personal consumption to only 1 % in 1967/68. That is, I venture to suggest, a very remarkable achievement. In earlier periods of relatively fast growth in 1958/59 and in 1962/63, our experience was that consumer expenditure grew much faster than exports. This is a trend which I am glad to say we have reversed and the growth of our economy last year was export-led. There are therefore real grounds to suppose that devaluation and the other measures we have taken are bringing about the essential structural changes in our economy.

We have also, and this is very important indeed, succeeded in checking the expansion of Government expenditure. There is a certain tendency to equate Government expenditure entirely with bureaucracy and to think that it merely consists of employing more and more civil servants, but of course it is also extremely productive and in Britain at any rate means roads, schools, and hospitals among other things. We expect, however, to hold Government expenditure back to an increase of only 1% in 1969/70 which is well within the projected growth of the economy as a whole; to only 2% in 1970/71 and thereafter it will still be inside the planned expansion of output. I think this can compare with the record of any Government in the world.

I am afraid I have been giving you rather a lot of statistics, and general economic trends are dull things, but you must remember that behind all this are men and women working their way through a period of exceptional strains and stresses. The British people after the last war were determined that they would build for themselves in their country a better society, with wider opportunities for all, where people would not be destroyed by old age or medical costs.

There really has been a social revolution in England. It covers nearly every aspect of our national life but in no field have there been greater or more important changes than in new attitudes to management that have developed and in the expansion of education. It is now the case in England that any student, boy or girl, whatever his family background or income, can reach any rung on the educational ladder by brains and ability alone. I sometimes feel there is too much of a tendency in Canada, and in the media generally, when commenting on Britain to concentrate too much on what is trivial, on Carnaby Street and the miniskirt without seeing what they represent in terms of idealism, of desires for reform to change and better the world. Your own young people feel the same way.

And now I think, thanks to the strict measures I have described, we are getting our obligations and resources better into harmony. Externally our feet are set towards getting into Europe and we are quite sure that Europe and the North Atlantic Community is the place where we belong and must make our way. Over our entry into the Common Market, there may be a case to argue on the economic front but, politically, the position is absolutely clear. And I venture to suggest that, so far as Canada is concerned, whatever inconveniences there may be when Britain goes into the Common Market--as indeed there will be for us--a Britain that is part of Europe and a Europe in which Britain is, playing its full part will be very much more satisfactory partners in the sort of world that you and we wish to live in. What I have been talking about, Britain's economic, defence and foreign policies and the development of her people, are not just of academic interest to Canada. What we do in Britain has its impact on you, even as what you do in Canada has its impact on us. You are our sixth largest export market and we are your second. We are tied together in all sorts of activities all over the world, in the United Nations, in the Commonwealth, in NATO, in the O.E.C.D. in Paris and in the Group of Ten and, above all, we are neighbours across the Atlantic. It is vitally important that we should understand each other. We already have old ties and old associations; rather than worry about the erosion of these, we should look at where we stand today--a new Canada and a new Britain and we shall see how close we are, how much we can gain from each other and how much we can do together in this modern world.

Thanks of the meeting were expressed by Mr. John Irwin.