The Edge of the Bed

On the day the nine finance ministers of the British Commonwealth gathered to talk about their troubles under Australia's summer sun, Queen Elizabeth appointed Britain's cool, crisp Chancellor of the Exchequer "Rab" Butler to be a Companion of Honor.* It was one way of dramatizing the fact that Rab Butler was in undisputed charge for Britain at the Sydney conference.

Two years ago, when the Commonwealth ministers rnet in London, Butler's authority was far from assured. He had just taken office. Britain's dollars were bleeding away; the Commonwealth and colonies were earning more dollars than Britain itself. Butler had to combine stern advice with discreet pleadings.

But last week Butler could speak for Britain with the authority of strength befitting the leader of the Commonwealth. In two years, he had restored the British economy to good if unspectacular health. In the first half of 1953, Britain earned more dollars than all the rest of the sterling area combined. Overall, Rab Butler could report Britain's and the sterling bloc's best year since the war.

The British report card for 1953: P: British industrial production was the highest ever, up 5% over 1952 and about 28% above prewar (not as sensational as West Germany's, but good nonetheless). P: Employment, instead of dropping as predicted, actually increased by 150,000.

P: Steel production was a record 17.5 million tons.

P: Houses were abuilding at more than the 300,000-a-year rate the Socialists had declared impossible.

P: The pound was steady and increasingly in demand in the world's marts. In New York, 90-day futures were quoted at $2.81 1/2 v. the official rate of $2.80.

P: Most controls have been struck off the British economy.

P: Outstanding failure of 1953 was Britain's chronic failure--getting coal out of the ground. In 1953, coal production fell more than 1,000,000 tons from the preceding year. And British industry's progress toward modernization still had a long way to go.

Best index of Britain's and the sterling bloc's success in a competitive world was the solid increase in its gold and dollar earnings in 1953. Even after paying off $181 million on its U.S. and Canadian loans, the sterling area earned a $672 million surplus in 1953, bringing the total dollar reserves to $2.5 billion v. the dangerous low of $1.7 billion in March 1952 when Butler submitted his first budget.

Question of Mood. Did Britain's good report card mean that the sterling bloc is now strong enough to take its chances in free competition with the world's wealthiest money bloc, the dollar area? At Sydney, the finance ministers agreed doughtily, as they did a year ago, that their objective is "a wider, freer system of trade and finance in which the convertibility of sterling is essential." But the fact is that convertibility--i.e., making the pound freely convertible into dollars--is no longer considered urgent. Partly the reason is economic realities. Experts agree that the Commonwealth cannot safely risk convertibility until dollar reserves have increased to at least three times their present level. Unofficially, British Treasury men reckon that that would take about 14 years.

Another reason for hesitation is a new reading of the U.S. mood. A year agor the ministers agreed that convertibility was possible only if the U.S. lowered its tariff barriers, Britons have been getting increasingly gloomy reports from Washington, and doubt that the U.S. Congress will appreciably lower tariffs in the predictable future. Britons think they also detect a subtler change in the U.S. They believe that the U.S. may be giving up its hope of finding some positive way of rolling back Communism, and is reconciling itself to uneasy, competitive, but peaceful coexistence with the Soviet bloc. Economically this means, Britons suspect, that the U.S.'s missionary zeal for transforming the world into its own free-enterprising image might have beaten itself out on the rocks of Europe's economic nationalism, leaving a feeling that other people's subsidies, economic preferences and restrictions are facts of economic life which the U.S. will have to accept.

Topic A. The real concern at Sydney was not convertibility. It was worry over a possible U.S. recession--an exaggerated fear, in the eyes of U.S. officialdom. The British Treasury estimates that a drop of only 5% in U.S. national income would mean a 25% drop in sterling sales to the dollar market. This would put the whole Commonwealth in the red. Convinced that he is faced with that threat, Rab Butler made it his immediate concern to brace the Commonwealth for trouble. Explained a British Treasury man: "The dollar market is the father, and when father turns, we turn, but with a bigger bump on the edges of the bed, where we are, than in the middle, where he is." One method of cushioning the bump is to strengthen the Commonwealth economy by new development. Butler announced an "audacious" British policy of investment in Commonwealth projects.

Britain is no "fairy godmother," he said, and he wanted projects which will earn money, not just make life pleasanter. This time, unlike two years ago, Butler could show that the money was available. Last month a loan of -L-10 million to finance a large paper plant in New Zealand designed to save -L-6 million a year in dollar imports was subscribed in ten minutes in the City of London. Said Butler: "We will throw good money after goods."

Trawlers & Antibiotics. For the Commonwealth as a whole, the biggest decision was to shift from intense concentration on the dollar market, to a wider emphasis on exports to all currency markets in both Europe and Asia.

Though the conference communique did not specifically say so, this means efforts to increase trade with the Soviet bloc. Britons can see no reason why they should not sell rubber, trawlers or antibiotics to the East, when the Communist countries are already buying them from other nations (rubber from Indonesia, trawlers from Denmark and antibiotics from France). Commented one export manager bitterly: "Last year we played ball with the United Nations and lost $180 million in business with China and Russia. So what happened? Our European friends got the business, and we got the blame." Said a Foreign Office economist: "Marginal, rational readjustments [in East-West restriction] is all we ask."

There are other worries for the sterling bloc. German competition is strong, and growing. The latest shock to Britain was the loss to Germany of a -L-12 million contract for locomotives for India. One reason Britain wants the West Germans to rearm is that rearmament would tie up some of the Ruhr's steel production.

But the world noted a new note of British self-reliance and restored pride. Rab Butler told an Australian audience: "If we develop these resources in every continent, in countries great and small, no one can stand against us. We shall be the greatest power not only for peace but for the prosperity of the world." Above all. "we have got to stand on our own feet and sign our own declaration of independence."

* A select order limited to 65 living members (including Churchill and Attlee) who have rendered "conspicuous national service."

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