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have represented a volume of exports a shade below that achieved in 1951. was made clear that the achievement of this total would depend in part on the maintenance of a high rate of export to the overseas sterling Commonwealth. As my colleagues well know, several overseas Commonwealth countries have since imposed severe restrictions upon imports of a wide range of United Kingdom goods.

5. The export outlook has deteriorated since the beginning of the year. In addition to the sterling Commonwealth import cuts, our prospects in many non- sterling markets are far less promising. During the past few months our exports have been running at a high level, but this is not a good guide to what we must expect over the remainder of 1952. Shipments in recent months, especially to the sterling Commonwealth, have reflected a heavy volume of export business booked during the boom conditions in 1950 and the first part of 1951. Export order books are a better guide than past figures. In many industries, notably consumer goods, they have been sharply curtailed.

6. I share the Chancellor's scepticism of export targets.

We cannot gauge how export sales will move during the coming year or so, but the best estimate that the Board of Trade can make to-day is that total earnings from United Kingdom goods in 1952 will be of the order of £2,650 million* about £100 million less than was expected at the beginning of the year. Allowing for price changes, this repre- sents a reduction of roughly 3 or 4 per cent. on the export volume achieved in 1951. During the remaining months of 1952, however, I expect our export earnings to be running at an annual rate well below £2,650 million; perhaps at an annual rate of very roughly £2,550 million.

7. These estimates--which in the nature of things are no more than the best guesses which can be made by reasonably well-informed persons-may turn out to be too optimistic. No changes in policy decided upon now can have much effect upon these figures before the very end of 1952 or the beginning of 1953. This forecast represents a situation of gravity in view of our balance of payments objectives and the required increase in the total volume of our exports.

What we sell

8. Our exports fall into four main classes: -

(a) raw materials and semi-manufactures, e.g., coal, iron and steel and many

chemicals (about one-fifth of all exports);

(b) consumer goods, e.g., textiles and clothing, footwear, toys and many manu-

factured foods (about two-fifths of all exports);

(c) consumer metal goods, e.g., household appliances, motor cars and bicycles

(about one-tenth of all exports);

(d) capital goods (about one-third of all exports).

9. There are two main aspects of the export situation-production and selling. Very broadly, the position is that we are unable to produce enough of the goods which we can sell and we are able to produce more of the goods which we have great difficulty in selling. I explain below the selling problems which confront us over the consumer goods field.

Particular Exports

10. Industrial Raw Materials.-There is a very heavy demand for industrial raw materials and semi-manufactures. They bring less direct return, than many manufactured goods. On the other hand, these raw materials are vital to the economies of many of our important markets, particularly in the Commonwealth and in Western Europe. Our exports of coal to Western Europe are a very small proportion of our pre-war exports and the exports allocated for 1952 are well below the level achieved in 1949-50. Our lack of industrial raw materials, par- ticularly coal, for direct export not only reduces our export earnings but also makes it impossible for us to keep open satisfactory outlets for many of our consumer goods industries. By and large, we have to use the whole of our limited coal and steel export supplies as bargaining counters in obtaining other industrial raw materials and basic food for our own economy.

*These figures cover exports of United Kingdom goods. The figures used in C. (52) 172 and 173 cover also earnings from re-exports and diamonds. I think it best to exclude these items because I am dealing in this memorandum with the problems of producing and selling our own goods.

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Page 94 Chapa Goods.-Demand is still exceptionally heavy Pogen24 afg200 engineering goods commonly called capital goods. Output in the metal-using industries is seriously handicapped by shortage of steel. Recent allocations to the metal-using industries for civil production for the 3rd quarter of this year are low even allowing for the usual seasonal reduction in activity during the summer period. There are many firms who could make and sell more goods abroad but are unable to do so because they have not got the steel. These firms are like troops immobilised whom we cannot throw into the battle.

12. Production Problems.-The Defence production programme is bearing far more heavily on civil production in the engineering industries than is suggested by looking at global figures of production. The whole system is overstrained. Manufacturers of components of vital importance both to defence and civil engineering production are unable to meet the demand. Delays and difficulties therefore arise all along the production line. This situation is reflected in higher costs and longer delivery dates at a time when competitive efficiency is of first importance.

13. New Exports.—I am particularly anxious about the way in which these difficulties are bearing heavily on a wide range of industries which may well be described as new export industries. I attach for the information of my colleagues a note setting out some details of these new exports. (Appendix A.) Notable examples include electronics, civil aircraft, agricultural machinery, heavy crawler tractors, earth moving machinery, diesel locomotives and office machinery, and outside the engineering field there are nylon, other new synthetic textile materials, many chemicals and plastic materials. The pattern of world trade in manufactures has changed a good deal in recent years and there are bound to be further changes. It is vitally important that the structure of United Kingdom industry should reflect these changes and so allow us to gain a large share of world trade in new lines. If we are to survive at all it must be upon the basis of gaining new markets with new ideas at least one jump ahead of our competitors. Our policy must make provision for expansion on these lines or we shall be left far behind.

14. If these new or expanding export industries are to make the contribution we need to filling the gap left by the decline in some of our older trades, they must be able to make a greater call on resources for productive investment. We have taken steps to limit productive investment at home. I recognise the reasons which have impelled us so far to take this course. We cannot, however, continue to restrict the expansion of new business and still retain our competitive power in the markets of the world.

15. The problem of increasing the resources for productive investment, how- ever, goes beyond these new industries. As the Chancellor of the Exchequer has explained in paragraph 15 of C. (52) 173, investment in manufacturing industry has been far too low for very many years now. Control of investment has deprived businesses in all too many cases of the machinery and equipment needed to main- tain or increase productivity, and therefore our competitive power in the world market, and yet we are constantly appealing to them to improve productivity. This is a paradox which is bound to puzzle and discourage industry. I must emphasise the seriousness of the outlook for production and exports unless we can increase investment in manufacturing industry.

16. Tourist Trade.-These restrictions on investment bear very heavily on the tourist industry which, though a service rather than a manufacturing industry, is a considerable earner of foreign exchange-£73 million in 1951, of which £23 million were in dollars. For us it is virtually a new industry, which can be expanded greatly without corresponding increases in raw material and labour requirements. The requirements of this industry are, however, twofold. First we need to inculcate a different attitude of mind: its importance needs to be acknowledged and we must face those comparatively minor changes in policy which will enable our visitors to feel that this country is a welcoming and comfortable place in which to spend a holiday, for we are up against serious competition, especially from France and Switzerland. Secondly we need more investment in hotels, for we have now reached the critical stage where there is little prospect of further expansion unless additional hotel accommodation can be provided especially in London.

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