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Page 181 blow at British credit which though difficult to assess, may have cost us as much as the money value of the oil. Certainly nothing could do more to restore our credit to-day than the successful recovery of Abadan. In present circumstances, therefore, reductions in our overseas commitments may well prove false economies. But while we should hold our ground, we must also seek to make the best use, in our own interests, of the commitments we have undertaken. Nowadays we seem to accept responsibilities without claiming privileges. This is a luxury we can no longer afford. It seems illogical, for instance, to bear the burden of maintaining large forces in the Canal Zone while at the same time accepting that our refineries at Haifa should remain in enforced idleness as a result of Egyptian intransigence.

(2) Defence

A comprehensive review of the technical character of the Defence Programme is now going on. We all hope that it may lead to economies, both of material and skill. But any serious reduction in real power is more likely to hinder than to assist our eventual recovery. Britain can only maintain a population of 50 million in safety as a Great Power; and to be a Great Power in the world as it is to-day, her armaments must be in good order.

Moreover, the maintenance of good relations with the United States and our hopes of securing further United States aid depend largely upon what we achieve in defence. If we decide to reject, as essential to our economic needs, G.A.T.T. (and all that G.A.T.T. implies), it is all the more important that we should be true to N.A.T.O.

(3) Public Opinion

The British public is becoming increasingly restive of small cuts and privations, without any prospect of better times to come. I believe, however, that they could be brought to accept even greater sacrifices (as they were in the war) provided they were convinced that they worth while. It is not sufficient to warn and to exhort. If we are to persuade them to keep marching through the desert under our leader- ship, they must be given some vision of the Promised Land. In war it is enough to steel men's hearts against the physical enemy who is about to attack them. In an economic crisis they must also see the light at the end of the tunnel. Now they see only the grave.

III. Economic Considerations

Britain became a great trading nation in days when food and raw material prices were low and when the British people were low cost producers. These conditions no longer obtain. For reasons beyond our control, food and raw materials are dear, and are likely to remain dear. As a result of our social and defence policies (and of our burden of debt), we have become increasingly high-cost producers. We have been slow to draw the logical conclusions of this revolution in our circumstances. The chief of them is, surely, that we are no longer in a commanding position as purely competitive traders. After the war, it was assumed that we must and could increase our exports by 75 per cent. Even in a period of inflation and a world" sellers' market," we have not succeeded. Nor is our position likely to improve now that our competitors, particularly the Germans and Japanese, are re-entering the market. Banking, insurance, shipping and other invisibles, even with the profits of entrepôt trade, cannot hope to bridge the gap. If therefore we are to avoid a continuing decline, the emphasis must be less upon Exports, and more upon balanced Production and Investment. These should be concentrated on Great Britain herself, on the sterling area, and on any other areas which we can attract into our sphere of influence.

The need for such a new approach is underlined by the unbalance between the sterling and the dollar areas. The sterling countries do not produce enough food, raw materials, consumer or capital goods to satisfy their needs. Their deficiency can, in theory, be supplied from the dollar world. In practice it cannot, because the dollar countries will not buy enough from the sterling area in return. We have now reached a point where we must make up our minds whether there is any real prospect of a fundamental change in American import policies. I am personally convinced that there is not. Indeed, the more successful our exports, the more they are resented. I, therefore, share to the full the pessimism with which the President of the Board of Trade regards the Chancellor's proposals for increasing our exports to non-sterling markets by 20 per cent. I doubt whether it could be Page 181 of 200

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