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NOTES ON FIRST DISCUSSION OF LONG-TERM PROGRAMME
Present : Mr. E. A. Hitchman, Chief Planning Staff Mr. R. L. Hall, Economic Section of Cabinet Office Mr. E. Roll, Economic Section of Cabinet Office Mr. J. S. Garner, C.M.G., Acting Assistant Under-Secretary of State, Planning Staff
1952 pattern of world trade and payments The general aim underlying the programme is that the United Kingdom will be able to ‘achieve and maintain a satisfactory level of economic activity without extraordinary outside assistance’, but this does not mean that a generally viable pattern of world trade and payments will have been established.
The programme assumes that after 1952 restrictions on imports from dollar areas of a relatively severe character will continue. It is assumed, however, that it will be possible for the United Kingdom’s trade and payments relationship with the rest of the world to be on a multilateral basis by that time. In other words, it is assumed that the surplus built up with the rest of the sterling area and with Western Europe will be available to meet deficiencies in Eastern Europe and other non-participating countries.
The practicability of this assumption depends to a considerable extent upon success of other participating countries in themselves achieving viability both in relation to sterling as well as in relation to dollars. This is probably the weakest part of the plan. The possibility of Western Europe, and in particular France, being able to earn sufficient by sales to non-participating countries to cover her remaining deficiencies with sterling without resort to severe restrictions is perhaps remote.
The aim is, therefore, to establish a multilateral trade and payments system for the world as a whole excluding the United States. Whether making such an assumption precise is likely to assist in impressing on United States Congress the importance of continuing Marshall Aid may perhaps be doubted.
Assumptions underlying estimates of export income The estimates of export income to various markets have been based on probable sales judged in the light of current circumstances and probable developments in those markets. Generally, the high levels of employment and incomes have been assumed and a slow but steady improvement in productivity. It is considered that four years is too short a time to expect major developments, for instance, in the way of recovery in Central Europe or economic development in Eastern Europe and other non-European under-developed countries.
No remarkable recovery in Germany or Japan is assumed although some slight improvement on the present position is allowed for.
It is recognised that given continuance of satisfactory employment conditions in the United States and the world generally, this approach is probably conservative. It produces a result which is significantly less than would be given by an estimate of export capacity in 1952, and is, therefore, less than the United Kingdom hopes to achieve and probably somewhat less than they expect to achieve. They feel it important, however, to keep their estimates conservative both as emphasising the importance of substantial continued aid and so as not to raise hopes unduly in Ministers and in the public. It is clear, however, that there is a fairly substantial margin.
By direction from Paris all estimates have been prepared on the assumption of a continuance of 1948/1949 prices. From some points of view this might be regarded as unsatisfactory to the United Kingdom since they have hopes of some improvement in the general terms of trade. Whether these hopes are likely to be realised is doubtful if their assumptions about employment and incomes throughout the world generally are achieved, but some fall, for instance, in grain prices might be anticipated and have significant effects on the estimates. However, on the other side, it should be noted that two major commodities which weigh very heavily in the improvement expected in the United Kingdom position are at present priced at exceptionally high levels. For instance, a very large increase in coal exports is anticipated and these have been valued at the present high prices which may not be maintained when European production is fully restored. If this happens, the United Kingdom may find difficulty in expanding her sales to the extent estimated because United Kingdom coal is now high priced.
Even more important is the fact that oil is the predominant influence in the remarkable improvement anticipated in invisible exports. United Kingdom owned and controlled oil companies are engaged in a tremendous expansion of output, and this, combined with the belief that there is a steady upward trend of consumption and the United States has permanently become a net importer, have combined to produce this spectacular improvement. Oil prices, however, at the present time are almost at famine levels and some reduction may be anticipated, although it is possible that if the assumptions regarding the supply and demand relationship on which the estimates themselves are based prove valid, the prices themselves may also be sustained.
United Kingdom officials believe that to some extent changes in the terms of trade either generally or in particular commodities will tend to have a balancing effect. The higher the prices of primary products the better their income from exports and consequently the more they will have to spend on imports. On the other hand, if the price expectations for exports are not realised, they win probably get their imports more cheaply.
Consumption levels The programme provides for some increase in consumption levels, but the improvement in food standards is small and to be provided primarily by increased domestic production. This feature of the programme is likely to prove politically unpopular, but if export results exceed those planned for, it will probably be in food supplies that the improvement is reflected, assuming that adequate non-dollar supplies exist at the time.
Invisible exports The most outstanding feature of the prospective balance of payments for 1952/ 1953 is the very great increase in receipts from invisible exports. The two biggest items are shipping and sales and other income from oil. This is expected to be achieved by bringing into operation ships at present in construction to add to foreign-owned shipping at present chartered to provide shipping services for other countries. The major problem is the production of tankers, but the estimates seem reasonably well based.
The whole of the oil position, however, is obscure. The British- owned and controlled companies are at present engaged in very large investment, particularly in the Middle East and Venezuela.
The increased receipts are presumably profits and payment for charges other than the production costs of the oil itself in the country of origin. It is not clear yet to whom these sales are to be made, and, so far as I have been able to discover, Australian expenditure on oil is presumed to continue at present restricted levels.
Coal, Iron and Steel and Engineering products The assumption underlying the British developmental programme is that their future lies in the production of engineering products.
They look to markets in expanding and under-developed economies and believe that there is a market for this type of product as far ahead as they can see, and, furthermore, that the emphasis on Government responsibility for the maintenance of development and for the maintenance of domestic investment in these countries will mean that engineering products will no longer be the most subject to fluctuations with economic conditions generally.
The report seems to indicate a deficiency in available pig iron or basic steel for the carrying out of the projected programme.
Reliance is placed on the availability of steel from Europe or from other sources, but some doubt apparently is felt as to whether this expectation will be realised.
At first glance it seems that iron and steel would be one field in which joint planning between Australia and the United Kingdom might lead to developments in Australia which would contribute substantially to the achievement of the United Kingdom plans.
Given greater supplies of coal it is likely that Australia could within a reasonable time expand its output of basic iron and steel products, and it might be worth while discussing here the importance of United Kingdom assistance in carrying out the Coal Board’s plans for the development of the coal industry in New South Wales and for the development of Queensland and other major deposits. This might be followed up by more detailed consultations on Australian and United Kingdom iron and steel developments.
Arrangements for the continuance of the discussions It is proposed that today I should meet a Committee of departmental officials representing all the Departments who have been concerned in the preparation of the programme. At this meeting they would put to us a number of questions arising out of the long-term programme on which we may be able to advise them.
They hope to be able to present us with a provisional balance of payments between United Kingdom and Australia in 1952/1953 and a statement showing the assumptions they have worked on in relation to Australian trade with dollar and other areas. These will be available to us for study and subsequent discussion.
It is then proposed that detailed discussion should be arranged either at our request or at theirs on particular problems such as- (1) The North Australia meat project;
(2) Developments in New Guinea;
(3) Aluminium;
(4) Coal equipment for Australia;
(5) Iron and steel development;
(6) Long-term timber development; and (7) Possible trade diversions from dollar areas.
[AA: M448, 127]
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[LONDON], 22 September 1948