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28 Notes by Coombs


Present : Mr. E. A. Hitchman, Chief Planning Staff
Mr. R. L. Hall, Economic Section of Cabinet Office
Mr. E. Roll, Economic Section of Cabinet Office
Mr. J. S. Garner, C.M.G., Acting Assistant Under-Secretary of
Planning Staff

1952 pattern of world trade and payments
The general aim underlying the programme is that the United
Kingdom will be able to 'achieve and maintain a satisfactory level
of economic activity without extraordinary outside assistance',
but this does not mean that a generally viable pattern of world
trade and payments will have been established.

The programme assumes that after 1952 restrictions on imports from
dollar areas of a relatively severe character will continue. It is
assumed, however, that it will be possible for the United
Kingdom's trade and payments relationship with the rest of the
world to be on a multilateral basis by that time. In other words,
it is assumed that the surplus built up with the rest of the
sterling area and with Western Europe will be available to meet
deficiencies in Eastern Europe and other non-participating

The practicability of this assumption depends to a considerable
extent upon success of other participating countries in themselves
achieving viability both in relation to sterling as well as in
relation to dollars. This is probably the weakest part of the
plan. The possibility of Western Europe, and in particular France,
being able to earn sufficient by sales to non-participating
countries to cover her remaining deficiencies with sterling
without resort to severe restrictions is perhaps remote.

The aim is, therefore, to establish a multilateral trade and
payments system for the world as a whole excluding the United
States. Whether making such an assumption precise is likely to
assist in impressing on United States Congress the importance of
continuing Marshall Aid may perhaps be doubted.

Assumptions underlying estimates of export income
The estimates of export income to various markets have been based
on probable sales judged in the light of current circumstances and
probable developments in those markets. Generally, the high levels
of employment and incomes have been assumed and a slow but steady
improvement in productivity. It is considered that four years is
too short a time to expect major developments, for instance, in
the way of recovery in Central Europe or economic development in
Eastern Europe and other non-European under-developed countries.

No remarkable recovery in Germany or Japan is assumed although
some slight improvement on the present position is allowed for.

It is recognised that given continuance of satisfactory employment
conditions in the United States and the world generally, this
approach is probably conservative. It produces a result which is
significantly less than would be given by an estimate of export
capacity in 1952, and is, therefore, less than the United Kingdom
hopes to achieve and probably somewhat less than they expect to
achieve. They feel it important, however, to keep their estimates
conservative both as emphasising the importance of substantial
continued aid and so as not to raise hopes unduly in Ministers and
in the public. It is clear, however, that there is a fairly
substantial margin.

By direction from Paris all estimates have been prepared on the
assumption of a continuance of 1948/1949 prices. From some points
of view this might be regarded as unsatisfactory to the United
Kingdom since they have hopes of some improvement in the general
terms of trade. Whether these hopes are likely to be realised is
doubtful if their assumptions about employment and incomes
throughout the world generally are achieved, but some fall, for
instance, in grain prices might be anticipated and have
significant effects on the estimates. However, on the other side,
it should be noted that two major commodities which weigh very
heavily in the improvement expected in the United Kingdom position
are at present priced at exceptionally high levels. For instance,
a very large increase in coal exports is anticipated and these
have been valued at the present high prices which may not be
maintained when European production is fully restored. If this
happens, the United Kingdom may find difficulty in expanding her
sales to the extent estimated because United Kingdom coal is now
high priced.

Even more important is the fact that oil is the predominant
influence in the remarkable improvement anticipated in invisible
exports. United Kingdom owned and controlled oil companies are
engaged in a tremendous expansion of output, and this, combined
with the belief that there is a steady upward trend of consumption
and the United States has permanently become a net importer, have
combined to produce this spectacular improvement. Oil prices,
however, at the present time are almost at famine levels and some
reduction may be anticipated, although it is possible that if the
assumptions regarding the supply and demand relationship on which
the estimates themselves are based prove valid, the prices
themselves may also be sustained.

United Kingdom officials believe that to some extent changes in
the terms of trade either generally or in particular commodities
will tend to have a balancing effect. The higher the prices of
primary products the better their income from exports and
consequently the more they will have to spend on imports. On the
other hand, if the price expectations for exports are not
realised, they win probably get their imports more cheaply.

Consumption levels
The programme provides for some increase in consumption levels,
but the improvement in food standards is small and to be provided
primarily by increased domestic production. This feature of the
programme is likely to prove politically unpopular, but if export
results exceed those planned for, it will probably be in food
supplies that the improvement is reflected, assuming that adequate
non-dollar supplies exist at the time.

Invisible exports
The most outstanding feature of the prospective balance of
payments for 1952/ 1953 is the very great increase in receipts
from invisible exports. The two biggest items are shipping and
sales and other income from oil. This is expected to be achieved
by bringing into operation ships at present in construction to add
to foreign-owned shipping at present chartered to provide shipping
services for other countries. The major problem is the production
of tankers, but the estimates seem reasonably well based.

The whole of the oil position, however, is obscure. The British-
owned and controlled companies are at present engaged in very
large investment, particularly in the Middle East and Venezuela.

The increased receipts are presumably profits and payment for
charges other than the production costs of the oil itself in the
country of origin. It is not clear yet to whom these sales are to
be made, and, so far as I have been able to discover, Australian
expenditure on oil is presumed to continue at present restricted

Coal, Iron and Steel and Engineering products
The assumption underlying the British developmental programme is
that their future lies in the production of engineering products.

They look to markets in expanding and under-developed economies
and believe that there is a market for this type of product as far
ahead as they can see, and, furthermore, that the emphasis on
Government responsibility for the maintenance of development and
for the maintenance of domestic investment in these countries will
mean that engineering products will no longer be the most subject
to fluctuations with economic conditions generally.

The report seems to indicate a deficiency in available pig iron or
basic steel for the carrying out of the projected programme.

Reliance is placed on the availability of steel from Europe or
from other sources, but some doubt apparently is felt as to
whether this expectation will be realised.

At first glance it seems that iron and steel would be one field in
which joint planning between Australia and the United Kingdom
might lead to developments in Australia which would contribute
substantially to the achievement of the United Kingdom plans.

Given greater supplies of coal it is likely that Australia could
within a reasonable time expand its output of basic iron and steel
products, and it might be worth while discussing here the
importance of United Kingdom assistance in carrying out the Coal
Board's plans for the development of the coal industry in New
South Wales and for the development of Queensland and other major
deposits. This might be followed up by more detailed consultations
on Australian and United Kingdom iron and steel developments.

Arrangements for the continuance of the discussions
It is proposed that today I should meet a Committee of
departmental officials representing all the Departments who have
been concerned in the preparation of the programme. At this
meeting they would put to us a number of questions arising out of
the long-term programme on which we may be able to advise them.

They hope to be able to present us with a provisional balance of
payments between United Kingdom and Australia in 1952/1953 and a
statement showing the assumptions they have worked on in relation
to Australian trade with dollar and other areas. These will be
available to us for study and subsequent discussion.

It is then proposed that detailed discussion should be arranged
either at our request or at theirs on particular problems such as-
(1) The North Australia meat project;

(2) Developments in New Guinea;

(3) Aluminium;

(4) Coal equipment for Australia;

(5) Iron and steel development;

(6) Long-term timber development; and
(7) Possible trade diversions from dollar areas.

[AA: M448, 127]

[LONDON], 22 September 1948
Last Updated: 11 September 2013
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