MOVING INTO DECLINE
BY NICHOLAS DAVENPORT How many people realise that this country is now, economically, in decline? It would be difficult to discover it in the official statistics. Last week the Central Statistical Office published a wonderful book* reveal- ing how their back-room boys cook up the national income and expenditure figures, which are published in blue book form once a year. It would be churlish not to admit that there has been a tremendous advance in the presentation of these figures Oince they were started (on Keynes's initia- tive) in 1941 (and in the Economic Survey also, which was launched in 1947), but it would be foolish to pretend that these annual reviews and the monthly digest of statistics, which goes to build them up, would enable any intelligent layman to find out whether the country was going down-hill or up in an economic sense. The Chancellor has admitted that the official statistics are inadequate—'we are always, as it were, looking up a train in last year's Bradshaw' —and I hope he will insist that the monthly digest quickly becomes more up to date and comprehensive. We badly need monthly figures of merchants' as well as manufac- turers' stocks, and capital expenditures in the planning as well as the completion stage, which the Board of Trade are partly com- piling in very leisurely fashion. But the main weakness of the national income figures is that they confine capital forma- tion to the gross amounts, that is, without allowing for depreciation. Mr. Philip Red- fern in his study of net investment, which was published by the Royal StatiStical Society last year, has pointed out that about two-thirds of all capi,tal formation in this country is needed for maintenance and depreciation alone. On this basis the net investment in roads and railways in the seven years to December, 1954, has been nil. After allowing for proper depreciation Mr. Redfern found that in this period pro- ductive industry only received 2.6 per cent. of the net national income to finance new capital expenditures. The extension of the capital equipment of productive industry has not even kept pace with the increase in the working population. A country which spends so little on the modernisation and development of its industrial plant is obviously moving into decline. * * It is remarkable that although our economic survival depends upon selling our manufactures abroad at competitive prices, one-third of all 'gross fixed capital forma- tion' since the war has gone on housing and social services. When the Conservatives took office in 1951 the Government speeded up not investment in productive industry, but investment in housing. Mr. Butler made a belated attempt to encourage industrial re-equipment in April, 1954, when he intro- duced the investment allowances, but this caused the inflation to get out of hand be- cause investment in housing had not first been cut down to make room for the in- dustrial boom in the investment-savings equation. So Mr. Macmillan had to with- draw the investment allowances in the * NATIONAL INCOME STATISTICS—SOURCES AND METHODS. Central Statistical Office.
(H.M.S.O., 25s.) Budget of April, 1956. He has said that the amount of capital expenditures already put in hand by private industry will cause the total national investment to be higher in 1956 than in 1955, but I assure him that the inevitable effect of slowing down the capital re-equipment of the nation (by withdrawing the investment subsidy, by penal rates of interest and by the credit squeeze) will be that productivity will not increase here so rapidly as with our rivals in international trade. Our share of the world trade in manufactures, which is already declining, will decline more rapidly. If we want to increase our standard of living, as Mr. Butler hoped, the new monetary policy does not, therefore, make sense. It means balancing our international account with lower imports, lower exports and a lower national output.
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In point of fact our industrial production is already declining. For the first time in over three years the index of industrial production in the first quarter of this year was lower than in the previous quarter (140 against 143). It was hardly changed from the first quarter of 1955 (139). The index for April (136-7) shows that this slowing- down or levelling-off process is still at work. It will become worse if the credit squeeze and the hire-purchase restrictions, which have already caused unemployment to fall on the motor industry, are continued for the rest of the year. Consumers' expenditure, measured at constant 1948 prices, fell sharply in the first quarter of this year. Mr. Macmillan may be delighted to see this proof of the success of his disinfla- tion policy : he may even be more hopeful that restraint in wage claims will be forth- coming as a result. But let him not forget that to slow down productive investment and set the industrial wheels going in reverse can be a more dangerous way out of an inflation than controlling a few imports and planning the national, invest- ment.
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