BUSINESS ABROAD: Britain: Best of Two Worlds

Nothing perhaps pleased Tory Chancellor of the Exchequer Rab Butler and his Conservatives so much as the designation: “Chancellor of the Continuing Boom.” Britain’s boom and its attendant pleasures—the highest standard of living ever, the end of all rationing, a 50% increase of production over prewar years—was the largest single reason for the Tory sweep in the May general elections. After six years of war and half a dozen more of stiff austerity, all this seemed too good to be true.

It was. Last week Rab Butler rose in the House of Commons, and to the discomfiture of his party and the pleasure of the Laborites, announced that the boom had gone too far. Britons were buying too many of their own goods, exporting too few to maintain the island’s economic balance. One immediate result: 1955’s first half saw Britain’s chronic trade deficit rise by a walloping $767 million over the same period a year ago.

To restrict the spending spree, Rab Butler slapped restrictions on installment buying of autos, large appliances, etc., warned banks to clamp down on loans, appealed to private businessmen to postpone capital spending that would not boost exports.

Second Warning. This was the second Butler anti-inflation warning. Last February Butler had hiked bank rates on loans from 3½% to 4½%, also curbed installment buying. But it had little effect. Labor, its hand strengthened by overfull employment and Tory Party unwillingness to antagonize trade unions, had demanded and received higher wages, causing increased domestic demand. Manufacturers, beset by higher costs, found it harder to compete in world markets. They took the easy way out by selling their products in the clamoring home market.

The Tory leadership itself, while freeing the economy of Labor Party restrictions, maintained in full Labor’s expensive, revenue-gobbling welfare-state programs.

In effect, it tried to give Britons the best of both worlds—Labor as well as Conservative. Even when Butler finished enunciating his anti-inflationary program last week, his government was still committed to a heavy program of capital expenditures, socially sound but inevitably inflationary (since they yielded no immediate production). Among them: $3.4 billion for railroad modernization over 15 years, housing at the rate of 300,000 homes yearly, some $400 million for road improvement, a vast program of rural school and hospital construction.

No Solution. The Labor M.P.s, who heckled Butler’s report from the floor of the House of Commons last week, made it plain that while Labor could criticize, it had little to contribute to a solution. Its standard formula—a return to rationing —would cut spending, but it would also mean that Britons would have to return to the well-remembered austerity they detest.

But to many Conservatives the present government course was no permanent solution either. The continuation of big welfare-state programs, e.g., large-scale public housing, was based on the erroneous idea that Britain enjoyed a surplus that could pay for these nonproductive items. Unlike the U.S., where a housing boom is good for the economy. Britain cannot afford the big boom now going on; it not only takes men and materials from export industries, but helps boost prices in general, thus makes it harder to compete abroad. In short, the government would have to choose between whether it wanted to continue the popular program or whether it wanted to curtail its own spending enough to check inflation.