Growing Faster
By RICHARD BAILEY EARLIER this month the Chancellor set the National Economic Development Council three tasks 'that can be summarised as finding out what the economy has been doing; what has been holding it back; deciding and thinking up ways of getting it to do better. By any standards this is a pretty tall assignment, but it is especially tough for a new organisation starting off from scratch, with its way still to make in Whitehall. Some clues as to how the NEDC can set about its work and what the results may look like when it is finished are to be found in a study of the US economy* written by Edward F. Denison for the Committee for Economic Development, the independent research body. Among other things Mr. Denison looks at growth rates in American industry during the present century, discusses the factors that made them what they were, makes some projections on the possible levels over the next twenty years, and finally comes up with a `menu of choices' of ways of increasing growth.
The parallel between conditions in the United States and Britain is not always close enough for meaningful comparisons to be made. However, some of the same attitudes affecting change can be found on both sides of the Atlantic. The belief that the United States is the richest country on earth and is growing faster than any other has taken some hard knocks since the opening of the spaceman era. It nevertheless persists, as does the idea here that British living standards are higher than those of the Common Market Countries and will remain so. In the economic growth league tables both the United States and Britain show up poorly. But talking up targets is fashionable now with policy-makers, e THE SOURCES OF ECONOMIC GROWTH IN THE UNITED STATES. (Available from PEP, 16 Queen Anne's Gate, SW1, price 40s.) and their critics, on both sides of the Atlantic. Mr. Kennedy in his economic message to Congress in January set a long-term growth rate of 4.5 per cent. Some critics held this to be too low. Mr. Denison, however, after an exhaustive analysis conies up with the conclusion that it will be extremely difficult to get the US growth rate above 3.3 per cent. over the next twenty years. Mr. Denison produces a number of ideas that may be worth exploring in the context of the British economy. The first group of pro- posals concern the size of the working popula- tion. If half the deaths that would otherwise occur before 1980 among the under-65s could be prevented and the survivors kept in average health, 0.1 per cent. would be added to the growth rate. The same result could be achieved by halving the time lost from work because of sickness and accidents. Two other proposals that will be less popular are to increase the work- ing week by about one hour giving an extra fifty-four hours a year, and to bring into the labour force at least one-tenth of all those who would not otherwise be working in 1980. The reduction of total unemployment by 2 per cent. is proposed, but Mr. Denison does not say how this would be done.
Another group of suggestions concern invest- ment rates. The raising of annual private net investment rates would not, according to Mr. Denison, have its full impact in a period as short as twenty years. How big a change in the growth rate was achieved by such an increase would depend on the proportion of new capital allocated to housing. A lower level of total investment may produce a higher rise in growth rates if none of it goes on housing. An item which will arouse particular criticism is the pro- posal that an additional 1,4 per cent. of the national income should be used for 'net addi- tions to government-owned productive assets.' Mr. Denison spells this out by saying that he would prefer increased spending on government projects to tax reductions on occasions when 'economic stabilisation requires support from the federal budget.' And he goes on to point out that the cost of additional government invest- ment is the sacrifice of current private or public consumption.
A proposal that is backed by arguments from the past behaviour of the economic growth rate in the United States is for a doubling of the rate of net immigration. This is seen as one of the few measures that, if carried on long enough, could lead to a permanent boost in the growth rate. Major modifications of the American taxation system are contained in the suggestion that it should be neutral with regard to the allo- cation of resources.
Mr. Denison rounds off his 'menu of choices' with a miscellaneous collection of proposals none of which is expected to make a major con- tribution to higher growth rates. Two which are of especial interest here are the elimination of resale price maintenance and of restrictive practices by, trade unions.
The broad conclusion from this study is that there are no simple painless short cuts to a solution of the problem of low economic growth rates. Any serious effort to stimulate growth must be broadly based and will involve large increases in both the capital and the labour used. What emerges from Mr. Denison's analysis is that this does not necessarily mean a greatly increased input of new resources but the better use of those we have. For this to be done, accurate information is needed; in particular, data on the relationship between hours of labour and output which would help firms in making up their minds on investment programmes and research spending. The value of a reform of the tax structure according to this study is that it can touch off other changes that would not otherwise be possible. It is interesting in view of the present unemployment rate in the US that a high level of employment is regarded as a precondition of the adaption of policies for accelerated economic growth. It is in the NEDC's favour in facing its task that a high level of employment is in the forefront of British economic policy. It' is the ways in which the labour force is employed that are the main cause of Britain's continuing difficulties.
'If you weren't here I think I'd go crazy:
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