ON MINIMISING THE RISKS OF GROWTH

By DUDLEY Sasas

'The crucial question,' Mr. Henderson says 'is to devise economicpolicies which will promote a high rate of growth of productivity and output.'

At first sight it seems almost axiomatic that an economist should favourgrowthno more to be questioned than, say, that a theologian should be aprotagonist of virtue. Whatever their views on how the national productshould be distributed, and on the extent to which it can and should bestabilised, members of our profession are unanimous in wanting it to growand grow. Let me hasten to add that any apparent scepticism is not to betaken as confession of a sort of Higher Doubt in economics; the recantationcomes in due course.

One could, however, make a case, if one were so minded, against lettingthe national product of the United Kingdom rise rapidly, or at least againstactively encouraging it to do so. A sceptic about the virtues of growth wouldstart, I imagine, by pointing out that it would be dangerous for the citizensof the United Kingdom to grow accustomed to higher living standards,since this would involve a still higher dependence on imported food andmaterials. The increased dependence resulting from growth may wellinvolve a growth of risks, both economic and strategic, in the second half ofthis century, if one makes any reasonable extrapolation from the trends ofthe first half.

A less extreme position may however, as so often, be more popular.One need not be so revolutionary (or is it reactionary?) as actually to opposegrowth in order to feel some surprise at the way in which Mr. Hendersonfirst summons up, to exorcize the insolvency he himself fears, th&hope ofa consequent 'immense competitive advantage' and then asserts that any-way solvency must have a lower priority than expansion.

Yet if solvency is not the object of expansion, what is? In the long run,capital investment is by definition a means, not an end. Moreover Mr.Henderson could hardly have in mind a large rise in Government expenditure(and it would have to be relatively enormous). Thus higher consumptionis left as the residuary legatee of the death of our active balance.

Mr. Henderson's argument can therefore be summarised, without greatunfairness, as follows: In order to raise consumption let us drive up pro-duction by using various measures, monetary and fiscal, to stimulate large-scale industrial investment, trusting that the consequent increase incompetitive power enables us to pay for the imports involved.

Supposing one starts instead by asking: what requires us to take the risksof further expansion? Then questions of how much, and by what means,we should stimulate investment seem to fit more naturally into place.

There would not be much quarrel with the view, pace Mr. Henderson,that our first priority is to rebuild the gold reserves, and our second to

36 THE BULLETIN

develop the Commonwealth.1 So far as economic programming is concerned,the latter is certainly an attainable object, in th sense that we can decide tofinance certain development schemes. To achieve a dollar surplus without aidis a different proposition: it has been the object, so far unattained, of manyeminent economic strategists, and it is unlikely that anything very usefulcan be added to the discussion. Since however, the structural reasons forworld dollar scarcity are generally subsiding, the dollar problem in the longrun becomes merged in the general problem of achieving a (requited) exportsurplus. In whatever way this is done, by deliberately turning the terms oftrade further against us (devaluation, export subsidies, etc.), or by restrainingimports, the solution increases the load on the economy.

An expansion of personal income is implied by any increase in the nationalproduct,2 and the problem is to prevent it hurting the balance of payments.There are three clues to its solution. The first is that we should encouragesavings, about which Mr. Henderson seems rather under-consumptionist.Now even if savings are a 'bad thing' in the short run, they surelyought to be considered a 'good thing' in a long-term discussion, becauseone starts drawing up a long-term programme simply with pen and inkand a clean sheet of paper: one need not assume that one is going to beon the brink of large-scale unemployment. On the contrary, in a long-termprogramme, one must surely expect to be short of resources. Then thehigher the savings the faster will progress be towards national objectives forany given 'fullness' of employment one considers desirable (or tolerable).Secondly, to expand on a point of Mr. Henderson's, there are some linesof consumer goods in which standardisation would bring great economies(for example where dies or presses tend to be used at less than capacity),notably household appliances. By shifting private expenditure towardsthem, provided we invest fairly heavily in these fields, an expansion ofconsumption can complement a rise in exports.3 Thirdly, to paraphraseMill, demand for commodities need not be demand for imports, providedone steers the public's purchases by taxation, controls, or what-you-will, toitems which are shown (by input-output analysis if one wants to be sophis-ticated) not to embody a high proportion of imports.4

The increase in investment would thus be what is needed to enable theeconomy to meet these tasks. No doubt it would be eventually induced bysuch a programme. Mr. Henderson seems to rely primarily on an ' acceler-

'There seems to be a curious idea that we have at least temporarily solved the dollarproblem. Eliminate special receipts as one surely must if one wants to know whetherone has achieved complete economic independenceand our gold reserves would havecontinued to fall even over 1953 and 1954, despite the arrival of much short-term capital

2 In fact the political problem seems to be how to prevent the consumer taking all thepotential increase in the national product, particularly when television advertising hasstarted to depress thriftiness.

This suggests the need for a cheap line, possibly subsidised, in each of the majorappliancesa 'people's refrigerator', a 'people's radio', etc.requiring doubtless someGovernment initiative. Such lines can simultaneously draw off the rising personal incomeand be used as 'spearheads' in export markets.

'Services and housing qualify on this criterion without any analysis at all. Fortunatelyhousehold appliances also have low import content.

ON MINIMISING THE RISKS OF GROWTH 37

rator' for his rise in investment, with some help from fiscal and monetarypolicies. But in recent years, even though industrial capacity has beenbursting at the seams, because of the wartime neglect of capital, and eventhough considerable inducements have already been given by successiveGovernments, industrial investment has not been on a spectacular scale.One cannot help wondering whether even the present rate will be maintained.Since a large increase in production will be needed, particularly in 'heavy'industries, there would seem to be a strong case for the Government anticip-ating requirements of capital, and taking steps to s'e that it will be available.Industrialists could hardly take into account the amount of steel, say, or thenumber of bulldozers, needed in five or ten years as a result of certain Govern-ment decisions (which may not look to them very final), they would im-properly neglect their shareholder's interests if they ran risks of over-capacitymerely because to take these risks would be in the national interest. It is amatter for political taste just how various industries should be induced tosatisfy any long-term capital requirementsby subsidy, by fiat, by nationalis-ation (or by threat of nationalisation). But some sort of rough picture of along-term solution (a programme, if one likes), with its implications for themajor industries, needs to be sketched.

It is a bore to insist on solvency, but perhaps the underlying weaknessesof our position require us to exercise slightly more foresight and guidance,both in consumption and investment, than Mr. Henderson feels necessary.

Oxford.