Mr. GARY. It appears from the tables that the estimated ERP aid to the United Kingdom for the fiscal year 1951 is 687.1 million dollars; is that correct?

Mr. BISSELL. That is correct, sir.

Mr. GARY. And that compares with 919.8 million dollars for the fiscal year 1950?

Mr. BISSELL. That is correct, sir.

POPULATION OF GREAT BRITAIN

Mr. GARY. What is the present population of Great Britain?
Mr. BISSELL. The figure I have for the end of 1949 is 50,400,000.
Mr. GARY. How does that compare with prewar?

Mr. BISSELL. The 1938 figure I have is 47,494,000, so it is an increase of about 3,000,000, or around 6 percent since then in that period.

Mr. GARY. Mr. Foster, do you want to give us a general statement with reference to the United Kingdom?

GENERAL STATEMENT

Mr. FOSTER. Mr. Chairman, we have Mr. Kenney here with us, and I think in the interest of expedition perhaps Mr. Kenney can start right in on the United Kingdom. I think Mr. Kenney is the first mission chief you have heard before this committee.

Mr. GARY. That is right.

Mr. FOSTER. And I believe your purpose is to hear a total of five mission chiefs. Mr. Kenney has been with us as chief of mission in London since last July and is thoroughly familiar with the facts and current problems, and I think it probably would be most useful for the committee to hear directly from him.

Mr. GARY. Mr. Kenney is chief of the ECA mission in the United Kingdom?

Mr. FOSTER. Yes. I would say Mr. Kenney has a very distinguished Government career. Prior to our obtaining his services for ECA, he was with the Navy all during the war. He left the Government and just before we were successful in obtaining his service, he was Under Secretary of the Navy.

Mr. GARY. Mr. Kenney, we will be very glad to hear from you at this time.

Mr. KENNEY. Mr. Chairman, I have been Chief of ECA to the United Kingdom since the middle of July last year. I do not profess to be a great authority on all of Britain's internal and external economic problems, because I sometimes think they are too complicated for any one individual to grasp. However, with your permission, I would like briefly to detail what has transpired there during the past year, since your last hearing.

DEVALUATION OF THE POUND STERLING

Of course, the most dramatic event that took place in the United Kingdom was the devaluation of the pound sterling, which was announced on the 18th of September last year, when the pound sterling was reduced from $4.03 to $2.80. This was a particularly

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distressing factor, because it occurred at a time when there appeared to be economic recovery in Great Britain. Her production in the various industries was rising, and the productivity of her workers was going up, and she was operating with full employment.

The factors that produced that were what might be said to be not all internal British factors, but really the factors which brought about the change which has occurred in world trade since the end of the war, namely, the dependency of the whole world upon dollars as a source of earnings. Currencies are not freely convertible, as they were before the war, so that there has come to be this dependency on dollars. Last year when we had the mild recession in our own factory production and a reduction in wholesale prices, this was followed by a great reduction of exports from both the United Kingdom and the rest of the sterling areas, with the result that during a period of about 6 months Britain lost in excess of $500,000,000 of reserves.

That was an extremely serious thing for her, because, unless something was done to stop this drain, it would soon mean she would be without the dollars to buy her necessary food to feed her people and necessary raw materials to keep her plants going. Therefore, she had to take drastic action, and that is why the pound was devalued at that particular date. That was an indication, in my opinion, of the attempt by Britain to get her internal and external economy in order.

As a corollary of that action, she also directed a reduction in expenditures of £280,000,000, because, of course, one of the great dangers surrounding devaluation is the possibility of the inflation that may come, and that inflation is particularly apt to come when you have an economy which is operating at its maximum capacity.

INTERNAL CONDITIONS IN THE UNITED KINGDOM

In addition to that action, I think we also have to look at the other things that have been done in the United Kingdom in order to get, as I would say, her house in order. She has, for 2 years now, operated with a balanced budget. The budget of 1948-49 had a surplus of £352,000,000, and it was anticipated this year's budget will likewise have a surplus. She has maintained relatively level retail prices; she has kept wages from mounting; she has made great efforts in production, as I said earlier. In fact, her production has proceeded from something in the neighborhood of 104 percent of prewar levels in 1946 to 133 percent in 1949. She is also making great efforts to increase the productivity of her workers.

While I am talking about internal conditions, I should not forget the fact that the trade-union leaders, the Trade Union Congress, agreed to withhold their request for increased wages, to which they were entitled under their agreements, which I think is a great indication of their desire to put their shoulders to the wheel in this effort.

She has husbanded her resources and used the money she has gotten, I think, to the greatest possible benefit. She has limited personal consumption, which has necessitated the retention of certain of her wartime controls; she has put a large portion of her available existing resources into rehabilitation of her plant that was severely damaged during the war. Her plant damage during the war was something in the neighborhood of between $8,000,000,000 and $10,000,000,000.

So far as her external economic conditions are concerned, which is one of the most important factors that brought about the crisis of last year, we must realize there has been an extremely striking deterioration in her capital position. She had gone from a point in 1938 of reserves of about $18,000,000,000 to a point where she now had a net liability of something in the neighborhood of $5,000,000,000. Her general balance of payments is in a relatively satisfactory condition. She has a favorable balance of payments with the nondollar area. In other words, she has a surplus of exports over imports in the area outside of the dollar area. She has revenue from invisibles.

Her principal difficulty in the past year has been the dollar deficit. She has an unfavorable trade balance with the dollar area. She also has a loss on net invisibles, although over-all she has a surplus of net invisibles. Devaluation is a step she has taken in an attempt to correct the dollar deficit and, plus that, she is making her drive to increase her dollar exports.

I would be wrong if I said that the United Kingdom had solved her problems, but I do feel that during the past year and particularly since devaluation, great progress has been made.

EFFECT OF RECENT ELECTION ON BRITISH ECONOMY

Mr. GARY. I wonder if you can state in a general way what effect the elections might have on the British economy.

Mr. KENNEY. In my opinion, Mr. Chairman, I do not feel the results of the British election will have an adverse effect upon their production efforts. I do feel that the election, because of the fact that a majority of the voters voted against the Labor Party, will have a tendency to bring about a slowing down of the desire of that party for the nationalization of industrial projects. Because of the closeness of the vote, it may mean there may be another election within the near future, but I would assume that the British Government as such would continue to be able to function, even though there is a small majority. Certainly it will be able to continue its day-today business. I am not one who feels it means that there is an actual crisis on our hands at the present moment.

BRITISH STERLING BALANCES

Mr. GARY. What is the situation with reference to frozen sterling in Great Britain, against which India and Pakistan are permitted to draw at 100 cents on the dollar? It has been said that in an indirect way this represents a considerable drain on the British dollar resources, necessitating greater aid by the United States.

Mr. KENNEY. As of December 1945, the sterling balances owing by Great Britain were in the neighborhood of 3.7 billion pounds, of which 2.5 billion were owing members of the sterling area. From that date up to this summer, the United Kingdom has permitted a net release of these sterling balances up to an amount of approximately £600,000,000. These releases have been used for the purchase of goods for which Great Britain received no current return. However, it has been extremely useful in asissting India in going through its period of transition. It has been extremely helpful, for example, in Norway by permitting it to rehabilitate its fleet.