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British Economic Policy, 1960-74: A General Appraisal

Published online by Cambridge University Press:  26 March 2020

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Extract

It is generally accepted that the performance of the British economy in the last fifteen years has been relatively poor, as measured by the criteria normally used for assessing economic success or failure. This proposition has been widely documented, and it is not the purpose of this article to review the evidence at length. The attempts to accelerate the British growth rate failed. The objective in the early sixties was the modest one of getting the figure up from about 3 per cent a year to about 4 per cent a year. In the event, the rise in real national product from 1960 to 1973 stayed at 2.9 per cent a year. Britain's share in world trade in manufactured goods fell in every year from 1960 to 1973, with only one exception (1971). At the beginning of the period, Britain's share in this trade stood at 162 per cent; by 1973, the figure was down to 9 1/2 per cent. These failures in economic growth and in foreign trade do not appear to have had much compensation elsewhere. Consumer prices rose, if anything, rather faster than the average for other industrial countries; and Britain's record on unemployment was no better than average.

Type
Articles
Information
National Institute Economic Review , Volume 80 , May 1977 , pp. 38 - 57
Copyright
Copyright © 1977 National Institute of Economic and Social Research

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References

This article is a preliminary and shortened version of the General Appraisal chapter of British Economic Policy, 1960-74, to be published by the National Institute early in 1978. The project has been directed by F. Blackaby, and the book has been written by Professor M. Artis, F. Blackaby, Mrs R. Elliott, Mrs K. Jones, P. Meadows, Mrs A. D. Morgan, P. Mottershead, R. W. R. Price and Professor J. H. B. Tew. An earlier version of this chapter was presented by F. Blackaby at the City University on 21 October, as the Shell lecture for 1976.

(1) British Economic Policy, 1960-74 includes studies of fiscal policies; monetary policy; policies addressed to the balance of payments; incomes policy; planning; commercial policy; manpower and industrial relations policy; policy towards nationalised industries; and industrial policy. This article summarises only the conclusions reached in the first four of these studies.

(1) Models which are in actual use for forecasting or policy simulation tend to be in a constant process of change, as equations are revised and changed; consequently any refer ences to published sources rapidly become out-of-date. The Treasury publishes a technical manual describing its macroeconomic model, available from HM Treasury, Parlia ment Street, London S.W.1. The National Institute model which is in current use is available on request to the Secretary, NIESR, 2 Dean Trench Street, London SW1. The speci fication of the model in current use by the Econometric Forecasting Unit at the London Business School is available from it at Park Road, London NW1. The technical manual of the Cambridge Economic Policy Group model is available from the Department of Applied Economics, Cambridge.

(1) The reply was that monetary factors were treated like any other variables in the construction of the models; they were incorporated when they were found to be significant.

(2) G. D. N. Worswick and F. T. Blackaby (eds.), The Medium Term: Models of the British Economy, London, Heinemann Educational Books, 1974.

(1) M. J. Artis, ‘Fiscal policy for stabilization’, in W. Beckerman (ed.) The Labour Government's Economic Record, 1964-70, London, Duckworth, 1972, p. 294.

(1) Except, of course, for the residual error, the difference between the income and expenditure estimates of gross domestic product.

(1) G. D. N. Worswick, ‘The end of demand management?’. Lloyds Bank Review, No. 123, January 1977.

(1) University of Cambridge, Department of Applied Economics, Economic Policy Review, March 1976, no. 2, page 47. The proposition has a footnote added to it which reads ‘depending on the balance of payments target and the rate of inflation’.

(2) Ninth Report from the Expenditure Committee, Session 1974. Public Expenditure, Inflation, and the Balance of Payments, HC 328, London, HMSO, 1975, page 3.

(1) Perhaps the last serious advocacy of the desirability of a gently falling price level was in the First Report of the Council on Prices, Productivity and Incomes, London, HMSO, 1958, para. 109.

(2) When targets for the United Kingdom balance of pay ments were stated, they were usually for a current surplus, to improve the ratio of short-term assets to liabilities.

(1) Cyclical Fluctuations in the United Kingdom Economy', Discussion Paper 3, National Economic Development Office, January 1976: A. Whiting, ‘An international comparison of the instability of economic growth’, The Three Banks Review, no. 109, March 1976.

(1) There are a great many ways of measuring the relationship between public sector expenditure and the national product. Taking the national accounts ‘broad’ definition of public expenditure (National Income and Expenditure 1965-75, table 10.2), using demand-weighted estimates of public expenditure (as in The Government's Expenditure Plans, Vol. II. February 1977, Cmnd 6721-II, table 5.2), and also using a full employment definition of the gross domestic product, the public sector's total claim on resources rose from 34 3/4 per cent of GDP in 1959 to 41 1/4 per cent in 1973; direct spending increased from 24 3/4 to 27 3/4 per cent, and indirect spending from 10 to 13 1/2 per cent. In terms of growth rates, and still in cost terms, total public claims rose at an annual rate of 4.15 per cent, direct claims at 3.85 per cent, and indirect claims at 5.2 per cent a year, all compared with an underlying growth rate of 3 per cent. However, these cost-term calculations include the relative price effect—the tendency for prices in the public sector to rise faster than average. The annual average rate of growth of the volume of total public services (as measured in the national accounts) from 1959 to 1973 was 3.55 per cent, compared to the cost figure of 4.51 per cent.

(1) J. C. R. Dow, ‘Analysis of the Generation of Price Inflation’, Oxford Economic Papers, vol. 8 (new series), October 1956: ‘It seemed reasonable to believe that full com pensation for price increases is something which trade unions aim at and which both sides accept as a standard of reference.’

(2) L. A. Dicks-Mireaux and J. C. R. Dow ‘The Determinants of Wage Inflation: United Kingdom, 1946-56,’ Journal of the Royal Statistical Society (Series A), vol. 122, part 2, 1959.

(3) A. W. Phillips, ‘The Relation between Unemployment and the Rate of Change of Money Wages in the United Kingdom, 1861-1957’, Economica, vol. 25 (new series), November 1958.

(4) Council on Prices, Productivity and Incomes, First Report, London, HMSO, 1958, para 78.

(5) Council on Prices, Productivity and Incomes, Fourth Report, London, HMSO, July 1961, para 8.

(1) Department of Employment Gazette, October 1976: ‘Throughout virtually the whole period from November 1966 to November 1970 the number of men receiving ERS was less than 100,000. Even if it was supposed that receipt of ERS doubled the length of an individual's spell out of work … then the increase in the level of unemployment would be 50,000.’ See also National Institute Economic Review, No. 79, February 1977, page 15.

(2) See K. Coutts, R. Tarling and F. Wilkinson in ‘Wage Bargaining and the Inflation Process’, Economic Policy Review, March 1976, no. 2, and S. G. B. Henry, M. C. Sawyer and P. Smith in ‘Models of Inflation in the United Kingdom’, National Institute Economic Review No. 77, August 1976.

(1) P. D. Henderson (ed.), Economic Growth in Britain, London, Weidenfeld and Nicolson, 1966, p. 57.

(2) N. Kaldor, Causes of the slow rate of growth of the United Kingdom: an inaugural lecture, CUP 1966; W. Becker man, ‘Demand, exports and growth’, in W. Beckerman and Associates, The British Economy in 1975, CUP, 1965; R. W. Bacon and W. A. Eltis, Britain's Economic Problem: Too Few Producers, London, Macmillan, 1976.

(3) R. E. Rowthorn, ‘What remains of Kaldor's Law?’, Economic Journal, vol. 85, March 1975.

(1) Beckerman, ‘Demand, exports and growth’, in The British Economy in 1975.

(2) Department of Industry, Strategy Alternatives for the British Motorcycle Industry. Report prepared for the Secretary of State for Industry by the Boston Consulting Group Ltd, HC 532, London, HMSO, 1975.

(3) W. Beckerman and associates, The British Economy in 1975, CUP, 1965, page 59.

(4) The series used for these propositions is the movement of wage-costs per unit of output in manufacturing in Britain, compared with the weighted average for other industrial countries, both measured in dollars. This series is used, rather than export prices, since part of the mechanism of export-propelled growth was considered to be the improve ment of profit margins on export sales.

(1) Economic Trends, November 1976, page 109.

(1) Or to changes in the profit margin on exports, relative to the profit margin on home sales.