1970s >> 1978 >> no-884-april-1978

Rising prices and the EEC

Before January 1973, when Britain joined the European Economic Community, and again in 1975 at the time of the Referendum, the interests in favour of joining and those opposed to it marshalled ail the arguments they could think of to influence the electorate one way or the other. Many were so flimsy that it is surprising anyone troubled to make them. Like the argument that entry into the EEC would mean more exports for British companies and more jobs for workers because it opened up a big new market: simultaneously people already in the EEC were being told that they should welcome British entry because it would open up the big British market to their exporters. It was obvious that while some British companies might hope to gain others were as certain to lose by the change.

 

There was, however, one consideration that appeared to have more substance. It was that entry into the EEC would push up prices in this country, especially food prices.
Opponents said that Britain would no longer be able to import food from non-member countries at the lower, world market price levels. The New Statesman’s “Case Against Entry” used an estimate that this would raise British food prices by between 18 per cent and 26 per cent, this being the gap between world food prices and EEC prices.

 

The supporters of joining the EEC met this with two arguments. One was that British wages would rise to the higher levels of some EEC countries, notably Germany, and that workers would then be able to pay the higher prices. Whatever force there may be in such a trend towards common European wage levels, the onset of the depression and the Labour Government’s policy of checking wage increases put paid to it for the time being.

 

The second argument was put by the Conservative Party in their Guide for the 1975 Referendum Campaign. It was that as this country has to import half its food as well as much fertilisers and fuel it was important to have the dependable source of food represented by the EEC.

 

  It may not always provide us with the very cheap food available at any given time, but recent experience has shown how dramatically world food prices can fluctuate above and below Community levels, and how reliance on world supplies can leave us with shortages in time of need. It is therefore far better for us to rely on secure food supplies from our Community partners than to gamble on insecure supplies from the volatile world market.

 

The reason entry into the EEC was said to raise food prices was the changeover from the former British policy for keeping farming profitable to the different system used in the EEC.

 

The British system had been to fix guaranteed prices for lots of farm produce, and if farmers were forced to sell at lower prices because of cheap imports, the difference between actual and guaranteed prices was paid to farmers as subsidies. This kept food prices in Britain in line with world levels.

 

The system introduced in the EEC in 1962 was to set relatively high food prices for the whole EEC, reflecting costs of production, and to impose levies on imports from non-member countries. If actual prices fell below fixed “intervention” levels the Community bought the produce at the “intervention” prices, and stored it until prices rose, or sold it outside the Community, normally at a loss: or, as sometimes happened, destroyed it.

 

But this system had its problems. One was that costs of producing food are higher in some EEC countries than in others and a price level high enough to satisfy the least efficient farmers came up against the objections of factory owners and other employers who saw their costs being pushed up by wage demands to keep up with the high cost of living.

 

Another was that each EEC country controls its own currency. (It will be years before the aim is reached of one centrally controlled currency for the whole EEC.) So whenever one country, say Germany, up-valued its currency or another devalued its currency the whole European food market was disrupted, exports from low-currency countries capturing the market from high currency countries such as Germany.

 

To offset this and protect those farmers who would have been badly bit by it the system was devised of requiring the countries with depreciated currency to make compensatory payments on food imports and to levy charges on food exports; with the reverse arrangement for countries with up-valued currencies. But this would have called for drastic adjustments following the fairly frequent alterations of currency exchange rates. It was therefore modified and made less drastic by using, for converting Community payments into the currency of each country, not the actual currency exchange rates but agreed artificial rates which, for example, over-valued the pound but under-valued the German mark to the advantage of German farmers. These artificial rates are called green pounds, green marks, green liras, etc.

 

It is a complicated system but its practical effect can be seen in the recent 7½ per cent devaluation of the green pound forced by Parliament on the Government in place of the 5 per cent that it had proposed to ask for from the Community authorities.

 

This reduced by about 3p a lb. the subsidy received by Danish and Dutch exporters of bacon to Britain. The purpose of seeking the reduction was to help British pig farmers who had long complained that they were being ruined by cheap imports. If the Danes and Dutch actually raised their prices by the full 3p a lb. all bacon prices in the British market would go up by some such amount with a corresponding increase of the incomes of pig farmers. (Beef was also affected by the devaluation of the green pound).

 

It now remains to look at the original argument about British food prices being forced up by membership of the EEC.

 

In the first place it is questionable whether the New Statesman’s forecast of an 18 per cent to 26 per cent rise actually took place. The Conservative Guide for the Referendum Campaign, quoted Shirley Williams the Labour prices minister as saying that “the overall level of food prices in the UK is not at present significantly affected one way or the other by our membership of the EEC”. She was not saying that food prices had not risen but that this reflected world price changes, not membership of the EEC.

 

But even if the New Statesman’s forecast had proved correct what does it amount to? They had not risked claiming that if Britain remained outside the EEC no price rise would take place. They could hardly do so because between 1966 and 1972 (when Britain was outside the EEC) British food prices had risen by 47 per cent.

 

But those who still maintain that British food prices have risen because of membership of the EEC can point to the fact that between 1972 and 1976 British food prices rose by 100 per cent (up to date the rise is nearly 140 per cent). Does this not prove that membership of the EEC was responsible for the rise?

 

It is only necessary to look at the experience of other countries in the EEC to see that it cannot be the explanation. While British food prices rose between 1972 and 1976 by 100 per cent, the rise in Germany was only 27 per cent and in Denmark 53 per cent, both of them in the EEC. (For USA and Switzerland both outside the EEC, the percentage rise was 46 and 21.)

 

The major cause of the unduly big rise of British food prices, and British prices generally, is not membership of the EEC but the inflation policy operated by the Government (much speeded up after the Labour Government came into office in February 1974), in the mistaken belief that it would provide “full employment”.

 

Marx showed that an inflationary rise of prices inevitably follows from an excess issue of inconvertible paper currency. Though the level of production now is actually lower than it was in 1974, the amount of currency in circulation with the public has increased from £4,620 million to £7,830 million, a rise of 69 per cent.

 

If Britain had not joined the EEC the Labour Government would still have followed the same inflationary policy, with the consequent big rise of prices. (Under the guise of “reflation” they are likely to continue it.) Germany and Switzerland have resorted less to expansion of the note issue, hence their smaller price rises. (In the past two years Swiss prices have been rising at only about 1 per cent a year.)

 

It only remains to add that the solution of the workers’ problems is not to be found in membership or non-membership of the EEC, or in having inflation or not having inflation, but in getting rid of capitalism.

Edgar Hardcastle