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AN ECONOMIC PARADOX

URING the past few months public attention has rightly been directed to various ugly signs of industrial decay in the United Kingdom. Numerous cases have been reported of the loss of contracts by British firms owing to the lower costs of production abroad. The most outstanding example is the shipbuilding industry. In July last, Mr. Sidney Webb, in answer to a question in the House of Commons, stated that contracts for the building of seven ships for British owners had been placed in Holland. (The Times, July 9, 1924.) In September the Shell Transport and Trading Company placed orders for six oil tankers of 10,000 tons each with two Dutch shipbuilding yards. The total price came out to £1,300,000, and to have placed the orders with British firms would have meant an additional expenditure of about £150,000. (The Times, September 17, 1924.) In March of the current year Messrs. Furness, Withy & Co. found themselves compelled to give a large order for motorships to a Hamburg firm, because the German price was far below any quotation that could be obtained in Great Britain. Needless to say, the loss of these contracts affects not only the shipbuilding industry itself but also those branches of the engineering industry which are engaged in supplying many of the requisites of shipbuilding. Indeed some of these engineering firms are themselves directly suffering for their inability to compete with foreign engineers. For example, a well-known Belfast firm of shipbuilders recently secured an order from Liverpool for two large motor liners, but the engines for these liners are to be made in Copenhagen. (Daily Mail, March 18, 1925.) How serious is this foreign competition with British engineering firms is shown by a statement in the same paper, on the same day, that the Southend Corporation had decided to buy two British-made engines for their electricity works at a price of £24,816 instead of German ones which would have cost £14,000 less.

Alongside this evidence of increased foreign competition in the shipbuilding and engineering industries there are accumulating facts to show that the Lancashire cotton industry is now faced

VOL. 241. NO. 492.

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with very grave difficulties. Italy is rapidly expanding her output of cotton goods and has become a very serious competitor in the Egyptian and Near Eastern markets; in India and in the Far East, Japanese competition is becoming increasingly serious. Equally, or perhaps even more, serious is the position of the coal industry. Our exports of coal show a marked decline, and in many parts of the country coalpits are being closed down.

Yet simultaneously with this decline in several of our most important industries we find in other directions evidence of rapidly growing prosperity. This economic paradox is not easy to explain. London in particular appears to be growing in wealth at an astounding rate, and the prosperity of London is reflected throughout the Home Counties, where so many London workers spend their nights and their week-end leisure. The region concerned is not of insignificant importance. Its population is more than double that of the whole of Scotland, and more than equal to the combined populations of Lancashire and Yorkshire. If then there is continued prosperity in this important area it is hard to believe that the nation as a whole is going downhill. The signs of prosperity in the London area are manifest. The streets of London are crowded-overcrowded-with an ever-increasing traffic; new shops are constantly being built, many of them obviously involving enormous expenditure and some of them happily providing beautiful examples of modern architecture. A similar expansion is in progress with London's great banking industry. The different groups of banks are clearly engaged in keen competition with one another, and new branches are constantly being opened. The most important of all the banks in London and in the world, the Bank of England, now finds its historic home inadequate for its daily work and a great new building is to be erected on the old site.

Another striking example of far-reaching prosperity is the growth of the motor car industry. This has a double significance; it shows both the capacity of our manufacturers to produce goods in competition with the world, and also the capacity of our people to pay for what in the main is a pure luxury. As regards the former point, it is somewhat amusing to compare the present figures, showing the export of British-made motors, with the outcry that was raised less than a year ago by the motor industry when the McKenna duties were removed. We were then told

that the British motor industry would be ruined. As a matter of fact it is expanding rapidly. In the three years ending December, 1922, 1923 and 1924 the exports of motor cars and parts thereof were £2,766,000, £3,899,000 and £6,514,000 respectively. A similar expansion of exports is shown in the figures for January and February of the current year as compared with the two previous years. These figures conclusively show the capacity of British motor manufacturers to produce cars of a quality and a price that will secure their sale abroad. Simultaneously the capacity of our people to buy cars for themselves is proved by the still growing import of foreign cars. After allowing for re-exports our net importation of cars and parts thereof last year was valued at just over £7,000,000, as compared with £6,000,000 in 1923, and £5,700,000 in 1922. It will be observed that the figures for imported cars have not increased so rapidly as those for exported cars, which suggests that British firms are increasingly supplying the home demand as well as expanding their export business. A similar inference is to be drawn from the figures for the first two months of the present year. There is plenty of other evidence of the increasing activity of the British motor industry in meeting a rapidly increasing home demand. A firm of tyre manufacturers goes so far as to state in one of its advertisements (Daily Mail, March 21, 1925) that the output of British motor factories in 1925 will be at the rate of 70 cars per hour as compared with seven in 1913.

Further evidence of the presence in our population of a very large number of fairly prosperous people is furnished by the memorandum issued by the Board of Trade in explanation of the figures of imports and exports. These figures taken by themselves suggest that we are annually buying more than we sell, and the crude critic is apt to infer that we are on the high road to bankruptcy. If so, we are a long time in reaching our destination. A heavy excess of imports over exports has been a feature of the trade returns for considerably more than fifty years. The explanation is that those returns are necessarily incomplete. They depend on the figures supplied to the customs officials by firms engaged in the import and export trade. Even if every cargo of goods imported were paid for by an equivalent cargo of *Published in the Board of Trade Journal for the week ending Jan. 31, 1925.

goods exported, the trade figures would still show a balance on what is called the wrong side. For the exporter of goods records the value of the exports as they leave our shores; the importer records the value of the imports as they reach our shores. The cost of transport across the sea for both sets of goods and the costs of marketing abroad remain unrecorded.

Nor do the official figures record the various services that Great Britain performs for oversea countries-services which must be paid for by imported goods. British ships are engaged in carrying goods of other nations, as well as British goods; London mercantile houses are engaged in organizing the sale of goods between all the different countries of the world; London bankers are engaged in financing these sales, and in financing the transport of cargoes, say from Australia to Japan, or from China to Peru. All these services have to be paid for, and as the services are highly skilled they command a high payment. That payment is one of the factors that explains the apparent excess of our imports over our exports.

An even more important factor is the interest payable upon our capital investments abroad. There is scarcely a country in the world that has not raised loans in England, and though many of our foreign loans had to be realised during the Great War the aggregate income we continue to draw from oversea investments is a very large sum. When all these factors are taken into account the Board of Trade memorandum indicates that there is still a balance on the right side, and that we are still sending money abroad to be invested in different parts of the empire or in foreign countries. It is true that the balance is not a very large one as compared with pre-war figures. The Board of Trade works out our net balance available for investment abroad at £29,000,000 in 1924 as compared with £181,000,000 in 1913. These figures must not of course be accepted as absolutely accurate. There is no possible means of securing complete accuracy in such a calculation. But they probably give a fair indication of the broad facts. They show that though as a nation we may be investing considerably less abroad than we used to do, we are still investing a good many millions. There is also reason to believe that capital is more widely distributed than it was, largely no doubt as the result of the stimulus given to the investment habit by the patriotic propaganda of the War Savings

Committee. Mr. Walter Runciman recently made an estimate that there were now at least 15,000,000 small investors in the United Kingdom, holding, among other investments, over £777,000,000 of Government securities. (The Times, March 19, 1925.)

Thus on the one hand we have a condition of remarkable prosperity indicated by the growth of the shop-keeping and banking industries and of luxury trades such as the motor industry, and also by the increase in the number of small investors; on the other hand there are unmistakable threatenings of decay in several of our leading industries. However gratifying the signs of prosperity may be, the signs of decay cannot be ignored. Those industries which are now losing ground are of far greater importance than those which came under the protection of the Safeguarding of Industries Act. Broadly speaking that Act only dealt with minor industries-some of them of quite insignificant value in comparison with the industrial output of the nation. Even if we had lost these minor industries altogether, the nation as a whole would hardly have been conscious of the loss. But the cotton, coal and shipbuilding industries are vital to the nation. For many years our exports of cotton manufactures have accounted for roughly 25 per cent. of our total exports; our coal exports for 10 per cent. Thus coal and cotton together account for more than a third of the total exports of the produce and manufactures of the United Kingdom.

Our shipbuilding industry is equally important. It represents one of the most remarkable triumphs of British engineering. Up to and even beyond the middle of the nineteenth century the British shipbuilding industry was less important than the corresponding industry in the United States. Most ships were then built of wood, and the United States, with its then apparently limitless supplies of timber, had a very considerable advantage in the relative cheapness of the necessary material. The advent of the iron ship completely altered the situation. With cheap coal from our own pits, with cheap iron ore, whether raised in Great Britain or imported from other European countries, we were able to take a leading part in the building of iron or steel ships.

The subsequent progress made by British shipbuilders is clearly brought out in figures contained in a report on the Progress of Merchant Shipping," issued by the Board of Trade in 1913 (Cd. 7033). In the year 1864 the tonnage of the ships

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