- The Empire Club of Canada Addresses (Toronto, Canada), 4 Oct 1968, p. 1-14
- Jenkins, The Right Hon. Roy, Speaker
- Media Type
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- The economic challenge to the Western world. The responsibility and the duty of leadership for preserving world economic order falling on the small group of wealthy economic countries of the West, including the United Kingdom and Canada. The Organisation for Economic Co-operation and Development (OECD): the statement of aims. These aims as a starting point for redefining the problems that face the Western countries and as a measure of the degree of success so far in dealing with those problems. Consolidating and where possible strengthening the international framework within which the expansion of world trade has taken place. Threats to the international monetary system. The International Monetary Fund. Some crises. Better ways of developing the monetary system so as to underpin the steady growth of world trade and economic activity. The Special Drawing Rights scheme. The Basle arrangements. Economic conditions and development in the United Kingdom. Canada's position. Obligations to developing countries.
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- 4 Oct 1968
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- Full Text
- OCTOBER 4, 1968
The Economic Challenge to the West
AN ADDRESS BY The Right Hon. Roy Jenkins, CHANCELLOR OF THE EXCHEQUER (U.K.)
CHAIRMAN The President, Edward B. Jolliffe, Q.C.
Our guest of honour today is Chancellor of the Exchequer in Her Majesty's Government of Great Britain and Northern Ireland.
Born on Armistice Day, 48 years ago, he could be accused of having grown up in politics because his father was a miners' leader, M.P. and Parliamentary Secretary to Lord Attlee during the second world war, but under his own power he had a brilliant academic career at Cardiff and Oxford, served in the field with the Royal Artillery and after the war wrote a number of books including biographies of Lord Attlee and an earlier Prime Minister, Lord Asquith. He spent two years with the Industrial and Commercial Finance Corporation, was Chairman of the Fabian Society, contributed extensively to many newspapers and periodicals as well as to statements of Labour Party policy.
The Chancellor was first elected to the House of Commons in 1948 and members of this Club will be interested to know that he quickly became Parliamentary Secretary to the Secretary of State for Commonwealth Relations.
Later, while sitting in opposition he achieved the rare and difficult, if not impossible feat of getting a private member's bill through Parliament, the Obscene Publications Act of 1959. He had also played a very active part in the Council of Europe and the Assembly of the Western European Union. Among his other interests he has been a member of the Management Committee of the Society of Authors and a Governor of the British Film Institute.
On Labour's return to power in 1964 under Prime Minister Wilson, he became successively Minister of Aviation, Home Secretary, and then, almost a year ago, Chancellor of the Exchequer. In any modern government there is perhaps no more difficult or demanding post. We are told in the 10th chapter of Ecclesiastes that "Wine maketh merry, but money answereth all things," and Ben Franklin more recently added the depressing observation that "If you would know the value of money, go and try to borrow some." It's difficult to get along with and even more difficult to get along without.
In a period when the pound, the United States dollar--and the Canadian dollar-have all had their trials and tribulations, the British Chancellor has acquitted himself with courage, vigour and distinction. We warmly welcome him here today: the Right Honourable Roy Harris Jenkins.
Mr. Chairman, Ministers, Treasurer, and Gentlemen: It's a great pleasure and honour for me to be here today. This is the first time I have ever been to the city of Toronto, and it is the first time I have ever made a speech on Canadian soil. And I think it particularly appropriate that I should have the opportunity of doing so to this old and distinguished club which I know has been kind enough to invite many English visitors, including I am sure, some of my predecessors as Chancellor, to address them over the 65 years and a little more that it has been meeting regularly on these luncheon occasions. I'm most grateful to those who have come to support me today: Mr. Benson, the Minister of Finance whom I have seen in the past fortnight, both in London at the Commonwealth Finance Ministers' meeting and in Washington at the meeting of the IMF and the World Bank. He has not only been good enough to turn up but he was good enough to send an aeroplane in order to enable me to get here at all. So I am particularly grateful to him. And I am also delighted to see the Treasurer from the Government of Ontario here. Indeed it's quite a gathering of Finance Ministers which we have got today.
Being a Finance Minister--as I am sure my two colleagues will agree--is a fairly hazardous occupation. We are on the whole a poor but honest group of the population--much down-trodden by central bankers. Not because, contrary to the views of some people, central bankers try to impose policies upon Finance Ministers but because central bankers on the whole have much more agreeable lives than Finance Ministers do; much greater security of tenure; much less criticism and on the whole an easier time generally. I have been rather riccocheting from conference to conference in the last fortnight because, apart from the two at which I had the pleasure of meeting Mr. Benson-the Commonwealth Finance Ministers' at which I presided and then the IMF -I had to put in a short appearance in the middle of a somewhat different form of gathering, the Labour Party Conference at Blackpool, and I was in a little danger of addressing the IMF under the impression they were the Labour Party-they didn't actually look all that different. And I suppose there is a certain danger of my addressing you today as though you were the IMF. And I don't know what gathering I shall address next week as though they were the Empire Club of Toronto; this is always possible.
Now I am due today, as you know, to talk to you about "The Economic Challenge to the West".
In recent years in the western community of nations, we have been preoccupied, although with somewhat varying intensity, both from country to country and from time to time, with the political and military challenge presented by the advance of the Communist world. And certainly events this summer in Czechoslovakia have shown the justification for this pre-occupation. But today, as is indeed implied in my title, I want to talk to you about a somewhat different form of challenge: the challenge which must be met if we are to seize the economic opportunities in front of us-opportunities both for enhancing our own prosperity as members of the advanced western world and for contributing to the well-being of the rest of the world.
For I think if there is one lesson that the economic history of this century has taught us or should have taught us, it is that, for the developed industrialised world at least, prosperity is indivisible, probably a good deal more so even than peace. Time and again we have seen the actions of one country have a direct and unavoidable influence on the economic conditions of the rest of the world. This interdependence of economies one upon another was, of course, given recognition in the structure of the institutions, and of the international treaty obligations, designed to foster world-wide financial and commercial co-operation that was built up during the early post-war years. And those organisations and those treaty arrangements have grown very big. We had, I think, 111 members of the Bank and 110 members of the Fund represented in Washington this week. But the heaviest responsibility and certainly the duty of leadership for preserving world economic order falls inevitably on the fairly small group of wealthy economic countries, the relatively wealthy economic countries in the West, with whom we in the United Kingdom and you in Canada certainly form a part.
Now by and large these are the countries which came together in 1960 to form the Organisation for Economic Co-operation and Development. The Convention under which the OECD was set up embodied a statement of aims. And I should just like to remind you of these aims for they make a convenient starting point for defining the problems that face us in this field, and for measuring the degree of success we have so far had in dealing with them.
In that statement of aims the members of OECD agreed to promote policies which would be designed:
First, to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries while maintaining financial stability;
Second, to contribute to sound expansion in those countries--both member and non-member--that were in the process of economic development;
And third, to contribute to the expansion of world trade on a multilateral non-discriminatory basis in accordance with international obligations.
How successful have we been in realising these aims? Let me begin with economic growth. There is no question that, by any past standards, output among the wealthy countries has grown remarkably--remarkably, and on the whole fairly consistently. Since the late 1940s the OECD countries have enjoyed a period of unprecedented prosperity looking back at the whole history of the industrialised world. In 1960, the members set themselves a target of raising their combined output in the ensuing decade by a half--by 50 percent. At the time, there were a lot of people who thought this very rash--50 percent increase in ten years. But looking back at the half-way stage two years ago, the OECD countries were able to report that they were ahead of the target. Nor has growth been confined to domestic economies, operating in isolation from each other. For during this period there has been a still more rapid growth in international trade, and indeed the most rapid period of growth the world has known. Now it's true, unfortunately, that not all have shared that growth in equal measure. Progress amongst the industrial countries themselves has been uneven; and perhaps still more disturbing the gap between richer and poorer nations has certainly not narrowed-it has on the contrary tended to widen. But the achievement of those years is still not, in my view, to be lightly regarded. It is upon the activity of the more powerful economies that the level of growth of world trade depends; and if that growth falters the prospects of the poorer nations will become very dim indeed.
So the first challenge we face is to consolidate, and where possible strengthen, the international framework within which that expansion of world trade has taken place. Now one danger we have seen has been a threat to the stability of the international monetary system, which on several occasions in the past year has reached fairly acute proportions. I believe that the post-war monetary system, with the IMF at its core, has on the whole served the world well. It has underpinned the greatest period of expansion in output and trade in history and that is one of the best tests which one can apply to a monetary system. And it has been supported by two further developments: by the habit of close collaboration that has grown up between the leading Central Banks, and by the network of regular intergovernmental consultations on financial and other economic matters which have been developed within the machinery provided by the OECD.
Recently, however, doubts have arisen about the capacity of this system to stand up to acute stress. It has long been known that the supply of new gold--much of which, in any case, has disappeared into private hoards--was inadequate to meet the world's needs for increasing liquidity. That inadequacy was masked for a time by the large and persistent outflow of dollars from the United States caused by the United States deficit. But earlier this year it became apparent that this outflow, while certainly a contribution to world liquidity, could not continue indefinitely without itself becoming a danger to the stability of the system.
In March of this year we had a major gold crisis and a very serious test that week-end of the 17th of March of international monetary co-operation. The two-tier system which was then worked out and agreed upon in Washington in a very short time was a signal achievement--it wasn't a perfect answer but it was the best practical answer to the situation we were in, and the general feeling that I found among Finance Ministers in Washington this week was that it is continuing to work well, surprisingly well perhaps. There are some, of course, who want to see the international monetary system more firmly based on gold, and on gold increased in price. I do not myself believe that this is the right answer. I think it would be inflationary. I think it would feed speculation on a further change in price and thus create instability rather than restore stability. And I am perfectly sure that the windfall profits which a price change would create would be distributed in an arbitrary and an unfair way.
At the meeting of Finance Ministers in Stockholm at the end of March, the meeting of the Group of Ten, I became more convinced than before even that there were other and better ways of developing the monetary system so as to underpin the steady growth of world trade--and economic activity.
Of course the Special Drawing Rights scheme which was agreed in outline at Rio last September and since approved in its detailed form by the IMF is not going to solve all our problems overnight. It will be a fairly limited contribution. But it is an important step in the right direction. It is to some extent a symbolic step because it does help to provide a rational way and a fair way, too, I think, of adding to world liquidity when the need is there. And I hope very much that we will see the scheme activated at an early date. I was glad to find this view widely shared by my colleagues in Washington.
Also during this year and more recently we have seen the Basle arrangements in order to give greater stability to sterling, in order to enable us to be able to carry some diversification of the sterling balances which has taken place in order to share some part of that burden, in the short run at any rate, with some other countries. Canada of course, although a member of the Commonwealth, the only member of the Commonwealth, has been a member of the group of Basle countries which helped to provide the facilities. And I am most grateful to the Canadian Government for the farsightedness which they and the other countries have shown in proceeding in this direction. The sterling balances were debts accumulated basically as long ago as World War II--they have changed in composition but not greatly in amounts since then--and which have been a considerable potential burden on the United Kingdom and a considerable possible element of instability in the world financial situation. And I think the arrangements which we have been able to make over the past few months, first with the group of countries represented at Basle, broadly speaking the developed richer countries, and secondly with forty Sterling Area countries, most but not all of them in the Commonwealth, mark a major step towards recognising the place, possibly the slightly more limited place, which sterling will play in the world of the future, and remove an element of instability which could restrict our rate of economic progress in the United Kingdom and could also threaten the stability of the system as a whole. Now liquidity which I have mainly but not entirely been talking about so far, Mr. Chairman, is one major aspect of the international problem, but another which confronts us very sharply at the present time is to find ways of bringing about adjustments in countries' balance of payments with the least avoidable disturbance. During the past ten years, the United States has run persistent deficits and the United Kingdom has run recurring, varying, but on the whole substantial deficits too. At the same time the Common Market countries together have been substantially in surplus. Other countries have varied between the two positions. But the imbalance between the EEC countries on the one hand and the United States and Britain on the other has been the dominant feature in the international payments situation during the past decade. And I think it is generally agreed that this is a position which should not and cannot persist. I may say that it has also introduced one other element of imbalance into the situation which I think from some arrangements you have just been making here so far as the Government of Ontario is concerned you may be well aware of. The imbalance I think has arisen from the fact that the two countries in the world whose capitals, London and New York, have traditionally been outward looking financial capitals with a tradition of overseas lending, have been the capitals of countries with these big and on the whole persistent balance of payments deficits. Whereas the surplus countries have had capital markets which traditionally have been inward looking, have not been geared to overseas lending. And this, the countries with the surpluses not having capital markets so arranged, the countries with the deficits having them so arranged has clearly been an element of asymmetry in the situation here and I know that you have done recently, so far as the Government of Ontario is concerned, something to tap the capital resources of the German capital markets which I think is an entirely sensible direction to go in, both for developed countries like Canada and developing countries elsewhere in the world. But I think that this imbalance, this persistent imbalance, on the part of the U.S. and the United Kingdom is something which must now come to an end. We in the United Kingdom believe that we are now firmly in the process of eliminating the deficit in our balance which has bedeviled our economy for so long. Following devaluation of sterling last November, the hard budget which I had to bring in in March and the other measures we have taken to restrain the growth of domestic demand, I believe the prospects for a lasting solution to this problem are now vastly more encouraging than they have been for a long time past. We always knew that the benefits, the effects, the beneficial effects of devaluation on the balance of payments would take some time to come through. But we are now beginning to see the effects in better trade figures, with a particularly buoyant trend in our exports. We have already reached the export performance, the level of export performance, by the late summer of this year, which we expected to reach in the early months of 1969. It is true that our imports are also somewhat higher than we hoped they would be but if we can reach the same result which we want and must reach, the same substantial surplus, and a slightly higher level of trade on both sides of the account, that would be equally satisfactory from the point of view of our needs and rather more beneficial and helpful to world trade as a whole.
And I firmly believe that this strong upward trend in exports can continue because it is fortified by other perhaps more significant improvements in our competitive position than those arising from devaluation. We have this year seen a very substantial improvement in productivity. We have seen a substantial restructuring of British industry involving some difficult mergers but I believe with worthwhile results in the end taking place. And I think that as a result of these and other measures we are seeing apart from the devaluation effects itself, a strong improvement in our general competitive position. What we have to do here and what is of crucial importance to the future of the British economy, is to make a marginal but very important shift in resources--from consuming a little too much, from importing a little too much, and exporting a little too little. One is dealing only with matters of one or two per cent. But in each case these one or two per cents can be absolutely crucial because not only have they produced this series of balance of payments crises but through having these balance of payments crises on our shoulders, this has had an inhibiting effect upon our being able to get a steady and secure growth rate in the past couple of decades. And we are at the moment absolutely resolved to make every sacrifice which may be necessary in order to make sure that we make these shifts in resources and achieve not just a short-term but a decisive long-term improvement in our payments position because we believe that this is our duty to the world, it's our duty to repay a debt, it's our duty to strengthen our reserves, it's the best contribution we can make to the stability of the system.
We believe that, but we also believe extremely firmly that it is in our long-term interests to put this old fault right even at some considerable sacrifice at the present time because that is the key to secure growth and a higher prosperity in the future. And we have not hesitated in the past year to take difficult, major measures in order to make sure that this happens. The budget, as I say, which I had to introduce in March, was probably the harshest in peace or war which any Chancellor has ever had to introduce. We also made-my two colleagues will know how difficult these decisions are to make-some difficult, unpopular decisions so far as public expenditure is concerned. We are applying a very rigid credit squeeze. We are applying, and shall continue to apply, a wages policy, a prices and incomes policy backed by legal powers, really without parallel in the western world. Such a policy is by its very nature not an easy policy, certainly not a popular policy, to carry through. The British Government has suffered politically to some extent both within the party and outside from doing this. But we are quite resolved to carry on with whatever measures are necessary in order to achieve the results, not really to get us into a balance of payments surplus in 1969-although goodness knows, that is essential and well within our grasp but to get us on to a plane of a different balance of payments performance for the 70s than anything we have seen in the 50s or the 60s so far. It is also the case that the United States is also endeavouring-and will, I believe, succeed in bringing about a substantial improvement in its own balance of payments position. That in itself we all welcome, but let's not underestimate the task which faces the western world. To see both the United Kingdom and the United States-they are much more important from this point of view--swinging out of deficit and into--in the case of the United Kingdom certainly--into substantial surplus at the same time, and to achieve these big turn-arounds without a damaging effect upon the rate of growth of world trade, is going to demand very high economic statesmanship indeed. And it is going to demand it particularly from the surplus countries. A deficit country has many disadvantages for the world. To be too big a surplus country can also have many disadvantages. And there are great responsibilities which rest upon and are broadly recognised by the persistent surplus countries mainly in Europe, and whether we can in the next year achieve this essential swing-round in the performance of the United Kingdom and the United States without damaging effects on trade between all the industrial countries, with very damaging repercussions on the developing countries does depend very much on as we and the United States move out of deficit, so other countries should move out of surplus or at any rate away from very substantial surpluses which they are running at the present time. The vast growth of world trade which we have seen so far has largely been caused by the determined policies of economic growth in all the major countries but I think that what we have achieved by moving towards greater freedom of trade has also been very important. And certainly the moves that we have seen in recent years, as exemplified for example by the successful conclusion of the Kennedy Round in Geneva last year, doesn't begin to justify complacency on the part of any of us. We have achieved some notable reductions in tariffs through international negotiations but the development of trade can be threatened by the emergence of balance of payments difficulties in particular countries. It would be a tragedy if so soon after the achievement of last summer, the world were to show any signs of lapsing into protectionism and permitting the recreation of new barriers to trade. And now Canada, I believe, Mr. Chairman, has a most important part to play in all these developments. And it was extremely satisfactory to me and to many others and, I am sure, to you, to note that the pressure on the Canadian dollar, which was a feature of the early months of this year, was so quickly and efficiently brought under control. And now it appears to me that the excellent performance of Canadian exports during the current year should provide some substantial safeguards against a recurrence of any such pressure and enable Canada to pursue a policy of fair expansion.
Now so far I have not said anything, but I only want to speak very briefly, about our obligations to the developing countries. Nothing is more important for those countries than that we in the West should maintain a high level of economic activity and so generate a high demand for their raw materials and other exports. And therefore, while discussing Western problems, one is also discussing the problems of the under-developed world. But their need for financial assistance as well as for good export markets is also great. And while there is now a very substantial flow of resources, not all of which is aid from the West to the developing countries, the total is far from sufficient. I believe that Canada has an outstanding record in this respect. It is certainly making its full contribution towards what is sometimes called the development decade.
But whether or not it is the development decade we have yet to produce a repetition of the great upsurge in aid that came about in the late 1950s. It is, I suppose, inevitable that balance of payments restraints should be reflected in the need to redirect our national resources that has now caused us in Britain to restrain what had hitherto been a steady rise in annual aid disbursements. But I suspect that, taking the Western world at large, the failure to promote a large flow of aid owes as much to a lack of political will as to purely economic or financial reasons. And I think the will to help must be recreated, because unless we can find a solution to this problem, I think that all our economic achievements in the West will not be reflected in the level of achievement throughout the world as a whole. And this is bound to have dangerous repercussions upon all of us. Looking back therefore, over the past year, I see some reason for satisfaction. We have overcome very great monetary crises. We have overcome them quickly and with good nerve and in a good co-operative spirit. We have got a fair amount of momentum behind the SDR scheme to which, as I indicated earlier, I attach importance beyond its arithmetical content because I think it marks the beginning of our ability to make rational world liquidity. We are I think seeing both the United States and the United Kingdom on the way to eliminating their persistent deficits which have been a destabilising force. The big question mark is whether in these circumstances we can achieve this necessary swing-around in these two big countries without any undue restriction upon the growth of world trade. It will be more possible to answer that in a year's time. But it will certainly be a great set-back to many of our hopes if we are not able to achieve this. It will on the contrary be, as I say, a great tribute to general economic statesmanship in the developed countries if we can so achieve it. And at the same time we have a great demand for help from the rest of the world, only very partially met at the moment, but the possibility of meeting it, depending essentially on our keeping full prosperity going within the developed world itself.
Thanks of the meeting were expressed by Mr. E. A. Royce.