CAB129-78 — Page 109

Page 109

V.-Price Stability and Economic Progress

114

Eaff Idchof 37 this paper have referregto the possibility of

18. Eather sect future economic expansion, and have discussed the forces which have made for rising prices since 1945. Unless the upward pressure of rising money incomes on prices is moderated, the economy is likely to be exposed to serious and increasing strains. These strains, if not relieved, will prevent us from realising the full potentialities of economic growth and may well lead to unemployment by making it more difficult to pay for our imports.

19. Our overseas earnings must be increased if we are to pay for the imports needed to sustain an expanding 'economy, to provide for overseas investment and to build up our reserves. The necessary expansion of exports will depend for its realisation on two factors-first, a continuing growth of production and trade throughout the world; second, our own ability to secure a sufficient share of this growing trade. The Government's policies are directed, in co-operation with the Governments of many other countries, to securing the maximum expansion of trade and to creating conditions in which this trade can flow freely. But no efforts of Government alone can ensure that this country reaps the fullest advantage from the expansion of world trade.

20. An adequate volume of exports will depend above all upon the competitive strength of our goods in overseas markets. That strength is itself the outcome of many factors-the quality of the product, promptness of delivery, effective salesmanship, good after-sales service, and so forth. But the basic factor is price. If our prices and our costs of production move seriously out of line with those of our competitors, our exports will be inadequate to the needs of our balance of payments, and our currency will not retain its value in world markets.

21. Competition in overseas markets is keen; and this country no longer enjoys the pre-eminent position which it held during the last century. To-day we have to match our selves against formidable rivals, not only in foreign markets, but in the Commonwealth as well. The dislocation caused by the war left the United States of America the only important source of supply for many goods; and the United States' share of world trade in manufactures has risen from about 20 per cent. in 1937 to more than 25 per cent. to-day. As against Western Germany we enjoyed a considerable advantage in the years immediately after the war; even as late as 1950, her share of world exports was little more than 7 per cent. To-day it is more than double that figure. In the same five years the total volume of world trade in manufactures has risen by about 30 per cent.; but our own share has fallen from over 25 per cent. to about 20 per cent.

22. A country's share of world trade is affected by many factors apart from its competitive power, and too much weight should not be attached to the precise percentage at any single point in time. But a continuing downward trend in the share must inevitably be a cause of concern if it reflects the fact that exports are not increasing sufficiently to meet a growing import bill and to finance other external commitments. Such a situation cannot be allowed to remain uncorrected.

23. A weakening of the balance of payments is the most obvious and immediate consequence of a disproportionate rise in costs and prices. But such a rise, if it persists, has other, and no less serious, effects at home. The future growth of the economy will depend upon a sustained expansion of investment; and the rate of investment which we can afford will depend

Page 1'10 of 321

9