Economic Planning and Policies in Britain, France and Germany

Geoffrey Denton, Murray Forsyth, Malcolm MacLennan

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351854979
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Examining the innovations of economic policy in the UK, France and Germany in the 1960s, this book originally published in 1968, assesses the degree of success of these policies and draws conclusion for the oreintation of future policy. The book contrasts the long history of national planning in France with the equally long history of anti-p[lanning ideology in Germany and by close examination of the actual policies, brings out the relaities that lie behind the public attitudes. It discusses the problems which lead to planning interventions, followed by a chapter on the UK, France and Germany. It examines in details particular adaptations of policy: namely quantitative programming, monetary policy, fiscal policy, public expenditures, regional policy, prices and incomes policy and the balance of payments, comparing developments in all 3 countries. It also looks at the beginning of economic planning at the level of the EEC, with particular implications for British entry.

CHAPTER 1

INTRODUCTION: PLANNING AND THE MARKET

For the major economies of Western Europe the past two decades have been a period of unprecedented prosperity. Certain scientific, technological and economic trends have contributed to this material progress and to the great alleviation of the major social ills of the first half of the century: mass poverty, unemployment, and inequality of opportunity. But these trends have also raised new problems, both for maintaining and increasing the advance in living standards, and for other social values. This book sets out to describe the new problems as they have appeared in Britain, France and the Federal Republic of Germany, and to examine the various solutions that have been attempted or proposed; and this introductory chapter begins by defining the economic trends, outlining the problems and classifying the solutions.

The main trends in Western economies have been characterized by a number of writers¹ as a decisive change in the nature of capitalist societies. A description which would be widely accepted as valid runs as follows. The prime stimulus to economic progress in advanced Western economies has been the pace of technological progress. Technological progress requires in most industries large concentrations of finance and of scientific manpower, so that it must be predominantly financed either by very large firms or by the State. The products of modern science-based industry are subject to keen international competition, which has been increased deliberately by trade-liberalization policies, and the consequences of falling behind in the technological race are severe, both for any national industry and for the economy in which it plays an important part. Governments have therefore been increasingly impelled to adopt a set of policies for the promotion of scientific research and training, and of invention and innovation in industry, and for the embodiment of the results in new industrial investment. But success in thus generating an adequately competitive rate of technological advance raises further difficulties. Structural change in industry is accelerated as new methods, products and industries oust the old. In many industries, if not in all, the size of firms and the degree of concentration are increased, partly on account of the technological economies of scale, partly because it is necessary to pool financial resources in order to cope with major investments. The proportion of fixed to variable cost increases, thus further encouraging the development of monopoly or oligopoly, and the formation of cartels. Over large sections of Western economies prices are no longer determined competitively in the market but are administered: output rather than price is changed in response to changes in demand, and competition is carried on primarily in terms of sales promotion or product development.

More important even than the changing structure of private industry is the alteration in the balance of economic power between private industry as a whole and the State. The role of the State is increased, not only because of the part it plays in promoting technological progress, but also because it intervenes to correct the consequences of that progress, especially to ease the adaptation of industrial structures in response to the rapidly changing patterns of production and trade, and to offset the regional imbalance which the changing location of economic activity produces. The importance of the State in economic life has been further enhanced by two activities which, though they arise from different motives, have vital influence on the trends so far described: defence spending has been decisive in the development of a number of the most advanced technologies, such as nuclear power, aircraft, electronics and computers; education, the most rapidly expanding area of public expenditure in recent years, provides the literate and numerate manpower on which scientific and technological progress is based. The numerous responsibilities that governments have accepted for social insurance, pensions, health services and other aspects of welfare, though they are not so directly associated with the industrial changes, form part of the social apparatus which is both an essential basis for, and a response to, the new economic structure. It is, moreover, not only in the sphere of public expenditure and the finance of technological development that State intervention increases. The priority given in economic policy to full employment, together with the growth of monopoly power on both sides of industry, has caused endemic pressure on the levels of prices and incomes, a depreciation in the value of currencies, and balance-of-payments problems. These difficulties have in turn given rise to further interventions, most notably in the determination of prices and incomes.

The question of how far these trends in the organization and control of Western economies may be said to constitute problems is controversial, since this depends on whether they are regarded as leading to a more desirable economic and social structure than that which they are destroying. But before we attempt to classify the different attitudes towards these changes and the solutions that are based on them, it may be helpful to outline, however briefly, the problems that most economists and politicians would be able to agree exist, even though their proposed solutions may differ radically. There appear to be three broad issues. First, the change in the relative power of the State and private organizations and individuals would be widely admitted to give rise to a need for the redefinition of the respective roles of government, private firms, workers and consumers. At present there is a degree of confusion: as the State takes over new tasks, owners and managers of private firms are required to accept much broader responsibilities than the profit maximization of traditional economic theory; workers and their official and unofficial representatives are urged to look beyond the immediate realization of maximum return for the minimum effort; and consumers are mobilized to play an active part in moderating the behaviour of other parts of the economy, rather than their usual passive reaction to the production and pricing decisions of manufacturers. Second, it is essential to achieve in the new conditions an economic mechanism that can maintain and renew the incentives and sanctions that any society needs for initiative and enterprise. The change in the economic structure, and the broadening of responsibilities and blurring of objectives to which it has contributed, imply the decay of many of the incentives of the earlier form of capitalist society, which must therefore be replaced or renewed. Third, the new forms of economic management have to solve the problem of the reconciliation of micro-economic decisions, whether by private or public agencies, with the macro-economic requirements. Here again, the mechanisms that supposedly once achieved an automatic reconciliation have been rendered more and more ineffective by the concentration of economic decisions into fewer and fewer units. To state the issues in such broad terms may be to indulge in unhelpful generalization; it is intended only as a reminder that the various schools of thought are concerned with the same problems and are, indeed, often pursuing similar objectives, even if their proposed solutions may range from full reliance on a competitive system to a highly centralized form of dirigisme.

Can the problems be solved by a thorough application of the principles of the competitive market system, or do they inevitably lead to the progressive replacement of the market mechanism by central direction? Or can new planning methods be grafted on to a system which remains largely a market economy? In this book, French, German and British innovations in economic policy which attempt to deal with these problems are examined. All three countries have rejected both what we may term the paleo-liberal approach of complete laissez faire, and the paleo-collectivist command economy. But this by no means implies that there are no choices left. There are two broad schools of thought in these, as in other Western countries, which hold what may be termed neo-collectivist and neo-liberal views. The neo-collectivist view is commonly associated with France, and the neo-liberal with Germany, though, as we shall see, the division of opinion by no means coincides with national boundaries, and there have been important changes of official thinking in both countries in recent years, which have softened the distinction between the two approaches. Britain, for its part, seems to have been seeking a compromise between the two forms of economic policy; and so, at the international level, has the European Community, in its formulation of a Medium-term Economic Policy Programme, in which both the French and the Germans have, together with the other four member States, defined a fairly wide area of agreement about the use of longer-term economic policies.

The neo-collectivist belief, which has been held especially strongly in France, is that technological progress has rendered most market mechanisms out of date, and necessitated their replacement by State administration. The financing of research by firms in competition with each other is impossible: the task must be handed over to monopolistic or at least oligopolistic units, or to the State. The pressure of economies of scale towards the monopolization of many industries is so great that an anti-trust policy cannot hope to succeed. The solution therefore is some form of central supervision of such industries, in order to ensure that their policies correspond to the public interest. One has either to accept an economy dominated by monopolistic private interests or move towards extensive State direction. As regards the volume of public expenditure, it is held that the more important private needs of the consumers have been satisfied, and that market mechanisms now tend to provoke new and artificial individual wants at the expense of urgent and real collective needs. So far as problems of regional balance are concerned, it is thought that market forces cannot be relied upon to prevent the continuing concentration of industry in certain areas and the corresponding depopulation and poverty of others. Finally, the neo-collectivists hold that the pressure on the general level of prices and incomes cannot be resisted by the use of general fiscal, monetary and competition policies, without an unacceptable level of unemployment. Limits have to be imposed on the growth of prices and incomes.

The neo-liberals on the other hand hold that, despite all the new problems, the plans of individual producers and consumers are still best co-ordinated by market mechanisms, though these must be consistently developed and adjusted to meet the new problems as they arise. The main and overriding goal of the State’s economic policy, as well as the central point around which its social policy should be framed, must therefore be the preservation and positive stimulation of market mechanisms. Great emphasis is placed on securing price stability, primarily through the operation of monetary policy; excessive concentrations of economic power can be prevented by anti-trust action and by the encouragement of small and medium-sized firms; State subsidies, if they are necessary, must be temporary and degressive; the interests of the community as a whole can still be secured by the stimulation of individual initiative through individual self-interest. These are the main priorities of neo-liberal economic policy.

These differences in economic philosophy are certainly fundamental. But it is essential to know whether they really tend towards the establishment of a different kind of economic order, or whether the similar problems facing the three countries in fact evoke similar solutions. Thus it is necessary to examine not only the differences between the views that have been held on economic policy in France and in Germany, but also the actual policies, and their practical effects, if one is to understand the nature of the distinction between the neo-liberal and neo-collectivist economic methods. In this book we examine not only what these two schools have said, but also what they have done.

British practice has in recent years combined features of both these systems. If the distinction between neo-liberalism and neo-collectivism is mainly a matter of economic mythology, this pragmatic approach may be correct; and one of the objects of the study is to find out whether or not this is so.

PLANNING AND GROWTH: THE THEORY

This book is about planning and policies for growth rather than about growth itself.¹ However, it is necessary to understand the reasons for particular governmental interventions, and these must rest on some more or less explicit theory of how growth can be influenced. This section therefore reviews those theories of growth that have been influential with economic planners and are used to justify their interventions in the economic process. The purpose is only to outline the main variants as a guide to later chapters, where the relevant theories are discussed in relation to particular countries or particular problems, for example in relation to Germany in Chapter 2, to the significance of national programmes in Chapter 5, and to the balance of payments in Chapter 11.

The theory of growth starts from the simple notion that output is determined by the quantity of inputs. The chief inputs are normally classified as the traditional factors, capital and labour, and a simple macro-production function states that the gross national product is a function of capital and labour. Since labour supply is determined largely by the size and growth of population, and by social pressures which decide what proportion of the total population is active in the labour force, the length of the working week, etc., the attention of economists has tended to concentrate on the input of capital. A further reason for this preference is, of course, that labour is a consumer as well as a producer of output and that the final object of a growth policy is to maximize the rate of growth of output per head rather than of total product. National plans in Eastern Europe and in France have been very largely plans for increasing the total of net investment, and for raising the proportion of the gross national product devoted to it. In Britain in the late 1950s, the relatively poor growth performance was associated with a relatively low proportion of net investment to GNP in the famous ‘league tables’.¹ Yet the application of a crude capital-output ratio was clearly unsatisfactory: the quality as well as the quantity of capital was extremely relevant to growth. Attention was therefore devoted to the allocation of investment to different industries and to different purposes. In particular, a distinction was drawn between investment aimed at ‘widening’ the capital stock and that for ‘deepening’ it; for in a period when the labour force was growing only very slowly, the widening investment would add to the pressure on labour supply, while the deepening investment was more relevant to the real problem, the raising of labour productivity. A distinction was also drawn, for similar reasons, between ‘productive’ and ‘non-productive’ investment, with particular emphasis on the amount of net investment in manufacturing industry. The limitations of reliance on the sheer quantity of capital diverted attention not only to the question of increasing its effectiveness, but also to that of increasing both the quantity and the efficiency of labour. The attraction of more women into industry and the use of the reserves of unemployed or underemployed labour in the less prosperous regions could enhance the growth of output per head for the whole community. The quality of the labour force could also be raised by more attention to education and training, including management education, while its efficiency could be improved by removing restrictive practices, generally reforming working methods, and speeding the process of redeployment into more productive jobs.

So far as planning and policies for growth are concerned the implications of this focusing upon factors on the supply side are by no means clear. The theory leads to no easy decision as between the neo-liberal and the neo-collectivist methods. It is possible to argue that the quantity and quality of labour and capital inputs are improved by a positive policy for enhancing competition, or alternatively, that this will be achieved by the initiative of the State as buyer of one-third of the national output, or by its operation of selective policies designed to affect the particular decisions of individual industries and firms, within or without a quantitative national programme for growth. Only a detailed assessment of particular supply problems can determine, in each case, whether the competitive model or the collectivist is the more appropriate.

There is, however, an alternative theory of growth which has been more relevant to the choice between the neo-liberal and the neo-collectivist models. This is based on the proposition that it is the expected level of demand and not shortage of factors that is the effective constraint on growth in many advanced countries. Neither the availability of finance for capital investments nor the factors affecting the supply of labour are regarded as the significant limits on growth, but rather the state of business expectations as to the future level of demand. The reduction of uncertainty, and increasing business confidence that growth will be faster in the future, become the key to a faster growth rate. Quantitative programming, it is held, can contribute to the solution of this problem by co-ordinating the market forecasts of individual firms and industries and injecting a degree of optimism into them. This view need not necessarily lead to the conviction that the government should force firms to adopt investment policies that will cause the targets to be met. It is quite conceivable that the government should try to alter expectations by means of an ambitious forecast without interfering in any way with market mechanisms, and this does not seem to be different in principle from the policies of exhortation in which neo-liberal statesmen have sometimes indulged. Nor, indeed, was the role of the targets themselves in the British National Plan much more than that of a general encouragement to industry: interventionist policies were hardly at all directed so as to force firms to make specified investments with a view to helping their industries to hit the targets. But support for quantitative programmes has in the past been generally associated with support for an extensive policy of specific government interventions, as was undertaken b...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• CHAPTER 1. INTRODUCTION: PLANNING AND THE MARKET
• CHAPTER 2. GERMANY: THE COMPETITIVE ORDER
• CHAPTER 3. FRANCE: A NATIONAL PROGRAMME
• CHAPTER 4. THE UNITED KINGDOM
• CHAPTER 5. THE CONTRIBUTION OF INDICATIVE PROGRAMMES
• CHAPTER 6. MONETARY AND CREDIT POLICY
• CHAPTER 7. FISCAL POLICY
• CHAPTER 8. PUBLIC EXPENDITURE
• CHAPTER 9. PRICES, INCOMES AND THE LABOUR MARKET
• CHAPTER 10. REGIONAL POLICIES AND PLANNING
• CHAPTER 11. THE BALANCE OF PAYMENTS
• CHAPTER 12. PLANNING IN THE EUROPEAN ECONOMIC COMMUNITY
• CHAPTER 13. CONCLUSIONS
• INDEX