Britain in the World Economy

Dennis H Robertson

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136515132
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Considering Britain's physical capital, this book examines the distribution of investment between industries and between industry on the one hand and social and administrative purposes on the other. The Sterling Area is also examined, from the point of view of the UK and the rest of the world. The gold value of the dollar and the relationship of the US to the world economy are also discussed. All of these economic questions are placed in their appropriate historical perspective.

I

The Mother Country

IN preparing to take advantage of the profound honour which you have done me in asking me to deliver the Page-Barbour Lectures at this ancient and beautiful University, I have had to face two great dilemmas. In the first place, you have invited an economist to follow a long line of distinguished scientists, historians, art-critics, poets. You have presumably done that with your eyes open, knowing economics to be a drab and crabbed specialism compared with most of those which occupy the attention of learned persons and fire the imagination of the intelligent public. But how am I to respond? How am I to steer a middle course between saying what will seem trite and trivial to those among my audience who are economists and saying what will seem dreary and incomprehensible to those who are not? I cannot tell whether or not I shall succeed in finding this middle way. But I would like to utter one word of encouragement and one of warning. I think there will be only one really difficult patch in what I have to say, and that will not be reached till the fourth lecture, when any survivors there may then be will have been well broken in. On the other hand, economics is, for good or evil, concerned with matters of greater and less, and though I am myself no mathematician or statistician, I cannot altogether let you off figures, which are nasty things to look at and still nastier to listen to. I think the worst concentration of them will occur in this first lecture, and if you can survive that, the rest will in this respect be easier on the ear and on the mind.

My other dilemma is this. I am to deal, if not, I hope, in a difficult manner, yet with difficult problems, which are the subject of controversy in my country and in yours, and sometimes between citizens of my country and citizens of yours. How freely am I to speak? It is bad manners, if one is asked out to dinner, to abuse one’s host; and it is bad manners, of a rather subtler and more embarrassing kind, to abuse one’s absent family in the presence of strangers. But good manners are not everything—there is also professional loyalty. I should feel professionally uneasy if I were to say in Charlottesville things which I would not say in Cambridge, and also if I were to refrain from saying in Charlottesville things which I would say if I were in Cambridge. I must ask you to accept the consequences in good part, without setting me down in thought either as an enemy of your country or as a traitor to my own.

In this first lecture I have to try to paint a picture of the post-war economic situation of Britain herself. There are many ways in which one might approach this task, some more picturesque than others. I have chosen a very sober and unpicturesque way. I propose to make what I have to say hang round one very prosaic thread—the state of the country in respect of its equipment of physical capital.

I must start therefore with some rather dull and also highly uncertain figures, which will all be expressed in pounds sterling. It has been estimated that at the end of 1945 the internal capital equipment of the United Kingdom was worth about 25 billion, and that a shrewd observer at that date would have seen that we needed to make, over the next few years at the then current price-level, expenditures of some 4½ billion in order to bring it back to its pre-war state, one-third of this being required to make good actual war destruction, and two-thirds to make up for arrears of maintenance and replacement. To this he might have felt disposed to add another 2½ billion, making 7 in all, in order to keep pace with the growth of population and of industrial employment.

How nearly had we achieved this result by the end of 1951, where the official figures stop? It is impossible to say with any precision. In those six years, apart from making some current repairs to works and buildings, we had spent nearly 9 billion on fixed capital objects of one kind and another, or about one-seventh of our gross product during the period. But how much of this was necessary to keep us from falling still further behind and how much represented a contribution towards getting back to the pre-war position it is impossible to say; and our official statisticians have now apparently given up the attempt. If we could assume that the sums actually exempted from income taxation as being needed to prevent us from slipping backwards were in fact sufficient for that purpose, we could conclude that 6 out of the 9 billion represented a net increase of capital wealth. But we certainly cannot make that assumption, for in a time of rapidly rising prices these depreciation allowances, being reckoned on the original cost of capital plant, become gravely insufficient to finance its replacement at current costs. Guessing at the effect of that complication as best one can, I suspect that the true figure for net addition to our fixed capital in 1946-51 is not above 5 billion. To this we can add about 1 billion spent over the period in replenishing our stocks of working capital, that is to say, useful goods in store and in process, this figure being the net result of some heavy swings in both directions. But since most of this expenditure, both on fixed and working capital, was made at prices higher than those prevailing in 1946, we must write our total of 6 billion down again say to 5 before comparing it with the 7 which our shrewd observer in 1946 would have discerned as necessary to equip our industrial population per head as well as it had been equipped before the war. And in 1952 we had to allow such running down of certain stocks, and impose such checks on expenditure on equipment, that I doubt if we shall be found to have made, on the same scale of reckoning, as much as another 1 billion of progress. It is not easy to regard this as a very satisfactory conclusion; though it is not, I think, a disgraceful one.

So much for the amount of our post-war capital outlay; now what about its character? Three questions arise, which are partly interconnected, but which I must try to separate out and to treat in order. First, has the distribution between what may broadly be called industrial purposes on the one hand and social and administrative purposes on the other been appropriate, having regard to our impoverishment by the war and to the extent to which we have relied on foreign loans and gifts for the means to execute the programme? Secondly, has the composition of the industrial part of the programme been appropriate to the particular economic problems with which we have been faced? Thirdly, have the methods by which the programme has been financed been consistent with economic health, or is there reason to fear that they have impaired in any way the springs of further progress?

About the first question the official statisticians are able to tell us quite a lot for the last four years of the period, 1948 to 1951. Of the gross expenditure of about 6½ billion pounds on fixed capital objects in these years, roughly one-quarter can be classed as social and administrative, three-quarters as industrial in the broad sense; of the former, three-quarters was on new houses, mostly built by local governments and heavily subsidised, the rest on schools, hospitals, drains, Government offices and so forth. It is difficult to form a judgment as to whether these proportions are reasonable without knowing, in respect of each of the two broad sectors, how much is to be regarded as replacement and how much as a true net addition to the wealth existing at the beginning of the period; and that, as I said just now, is just what is so difficult to tell. Suppose, for instance, we were able to regard the whole of the social quarter, which is nearly all building, as being additional wealth, and the industrial three-quarters, which consisted largely of the relatively short-lived items of plant, machinery and vehicles, as having been required to the extent of a half for replacement purposes. We should then conclude that the net additions to social wealth and industrial wealth had been in about the proportion of two to three. That might well seem a somewhat extravagant distribution of effort for a country in our position, even when we recall that nearly half a million houses, or about one in every twenty-eight of the pre-war number, were destroyed or rendered uninhabitable by enemy action, and also that since the war there has been a remarkable, and on the whole welcome, increase in the number of children requiring shelter and instruction.

Such a calculation, however, would be somewhat misleading, for this reason. Buildings, even when given a certain amount of current repair, are subject to obsolescence and decay, though taxing authorities are sometimes slow to recognise the fact. In particular, it seems clear that the whole of the new housing units, now approaching 1½ million, turned out in Britain since the war cannot be regarded as a net addition to this form of social wealth; for the condition of many old houses has been getting steadily worse, and it is even being alleged, though this is certainly an exaggeration, that old houses are now falling out of use as fast as new ones are being built, that is, at the rate of more than 200,000 a year. This regrettable state of affairs is due primarily to a preposterous tangle of rent restriction laws, which render it unprofitable, and indeed impossible, for many private owners of house property to keep it in proper repair, and which incidentally inflate the total demand for house-room by destroying the incentive to tenants to move out of quarters which are bigger than they need. The Churchill Government, while it has modified somewhat the perfectionist standards of public house-building previously in vogue, has, in glaring contrast to its general policy of temporarily damping down capital outlay, stuck to its determination to outdo its predecessor in respect of the number of new houses annually built. But it has so far made no more effort than its predecessor did to arrest the decay of existing houses by recasting the rent restriction laws, though we have been told recently that the whole matter is now under consideration. Whether or not our total national expenditure on housing has been excessive, its distribution between new building and repair is, I think, certainly open to criticism.

Now for my second question. Given the size of our total capital outlay, and given its distribution between industrial and social purposes, has the 75 per cent devoted to industry been wisely distributed between different uses? That question has to be examined in relation to the main problem which Britain has had to face since the war, which is of course connected with the change in her overseas position. It is, in a way, the exact opposite of the problem with which she was faced in the inter-war period. In those days she was able to pay for a fifth of her imports out of the income derived from her foreign investments; and she was getting the remainder at a price, in terms of her exports, much lower—in 1938, 30 per cent lower—than she had had to pay in 1913. Her governmental expenditure overseas was very moderate, and she had ceased to strive to add to her foreign investments. Her problem was so to modify the direction of her economic effort as to reap the improvement in her standard of life which this relatively easy overseas position theoretically put within her grasp. It was a problem partly solved by a great wave of house-building and a great expansion of miscellaneous consumption and service trades, but partly left unsolved; for the transfer of effort proved too difficult to effect quickly on the requisite scale, and much of the potential improvement went to waste in the form of derelict industrial areas and chronically unemployed labour.

The war left us in a completely changed situation. In the first place, we found ourselves faced with a bill for military and other official expenditure overseas which, while it has since been somewhat reduced, bears an enormously greater proportion to our national income than before the war. Secondly, we found ourselves paying for our imports at a price, in terms of our exports, which in 1947 was already 15 per cent higher (by 1951 it had risen to be over 40 per cent higher) than in the pre-war decade. Thirdly, this same rise in import prices meant that even if our net income from overseas investment had remained unchanged in money terms, it would have been paying in 1947 for no more than two-fifths of the old volume of imports. But fourthly, we had had to sell £1 billion of overseas investments and incur £3 billion of overseas debt, so that the money value of our net income from overseas investment had itself been halved. Finally, this change in our overseas capital position made it desirable to do something, as soon as we could, towards repaying our overseas debt and rebuilding our stock of overseas income-yielding investments.

All the...

Table of contents

• Cover
• Title Page
• Copyright Page
• Original Copyright Page
• CONTENTS
• PREFACE
• I The Mother Country
• II The Sterling Area
• III Dollar Shortage
• IV Discrimination
• INDEX