All Commentary
Sunday, August 1, 1965

Planning Experiments in Britain

Mr. Winder, formerly a Solicitor of the Su­preme Court in New Zealand, is now farming in England. He has written widely on law, agriculture, and economics.

When, in the autumn of 1964, the Labor Party came to power in Great Britain, it naturally wanted to nationalize the factors of pro­duction, transport, and exchange. Its slim majority, however, seemed to afford a mandate to nationalize only the steel industry. But the party leaders sought more exten­sive powers for themselves and for the state. They knew that plan­ning is not such a noxious word as nationalization, as it can often be confused with the individual plan­ning which must necessarily take place in a free society. If they could not nationalize industry, they could at least plan it to their hearts’ content. They established, therefore, a Department of Eco­nomic Affairs under Mr. George Brown, and made it responsible for planning the whole economy.

To obtain facts upon which to base their plans, the Department of Economic Affairs sent to all in­dustries a questionnaire asking for estimates of their production during the next six years. In answering these questions, busi­nessmen were advised by the gov­ernment to assume that the Gross National Product would increase during the period by 25 per cent. When the answers to this ques­tionnaire are recorded, a “mutual adjustment” will take place to fit all production into a National Plan which the Labor government will introduce to the nation.

The full enormity of this plan probably has not yet been realized by many industrialists, and we may take it that they have been busy guessing what their produc­tion is going to be six years hence.

However, it has occurred to Mr. John Brunner who was once em­ployed by the Treasury to investi­gate this questionnaire. His find­ings appear in a booklet, The Na­tional Plan, published by the In­stitute of Economic Affairs (not to be confused with the Depart­ment of that name).

Mr. Brunner believes that, even if the industrialists fill in this questionnaire to the best of their ability, it can never form the basis of economic planning, simply be­cause the future is so uncertain in all societies that have a modicum of freedom left. It is just this uncertainty that makes the entre­preneur such a valuable member of the community.

Mr. Brunner thinks that the simplest way to see whether the businessman is capable of fore­casting six years ahead is to take his position over two periods of six years, 1951-57 and 1957-63, and see what a hopeless task any forecast for these periods would have been. Who, in 1951, for ex­ample, would have foreseen that the motor car industry would have increased its production during the first of these periods by 260 per cent and in the second by 144per cent? Or that the sale of mag­azines, after remaining stationary over the first of these periods, would have dropped in the second by 22 per cent? Or that book sales, also unchanged in the first period, would have increased by 18 per cent during the second? Or that the sale of cinema seats would, in the first of these periods, have dropped by 37 per cent and in the second by 52 per cent? And what wine merchant would have ven­tured to forecast that his sale of wine and spirits would have grown by 25 per cent and by 37 per cent respectively in the two periods?

Mr. Brunner’s figures strongly suggest that any forecast made for a period of six years ahead must be sheer speculation. And yet, speculations such as this are to be made the basis for a planned economy!

The questionnaire also asks for an estimate of the manpower the industries will employ over the next six years. This seems even more impossible to answer. In 1959, various industries were asked to estimate the increased number of scientists and technolo­gists they would require by 1962. This was only three years ahead. The mineral oil refining industry estimated their increased require­ments at 18.1 per cent, the scien­tificate instrument manufacturing industry at 24.4 per cent, and the motor vehicles industry at 34.3 per cent. As it developed, mineral oil refining showed an actual drop of 2.1 per cent, while the others showed small increases of 2.6 per cent and 2.2 per cent respectively. The paper, printing, and publish­ing industry, on the other hand, forecast a 32.2 per cent increase, whereas its employment of scien­tists and technologists showed an actual increase of 114.1 per cent over the 3-year period.

Even the government’s own na­tionalized industries, supposedly stable because they have no com­petition, are apt to fail the plan­ners. Who, for example, would have foreseen that Britain, whose fortunes were founded on coal, would forsake it in favor of oil? Yet, between 1958 and 1963 the sale of coal fell by 7,783,000 tons (23 per cent) while the sale of fuel oil more than doubled. Or that between 1957 and 1963, 19 per cent of their customers would have forsaken the railways?

The government’s assumption of a 25 per cent gain in national prod­uct over the next six years does not make the business forecasting any easier. The only time such a rapid growth rate has been ap­proached in Britain in this cen­tury was from 1900 to 1913—and then there was no government planning for industry!

When the results of this ques­tionnaire are returned and neatly arranged by the planners, the task begins of telling industries they must cut down on production of some goods and increase that of others. Or, as it is expressed in the questionnaire, to give the govern­ment “some guide to the amount of revision of firms’ existing plans which will be required to bring them into line with the National Plan.”

The Labor government actually intends to use this hodgepodge of forecasts, guesses, and specula­tions upon which to build their plans for industrial production during the next six years—if they are not defeated at the polls. If plans founded on these assump­tions lead to anything, it is much more likely to be legalized market sharing and monopoly than im­provement in the conditions of the British people.

Nor is the National Plan the only attempt of the British Labor government to plan the economy. Its “incomes” policy is still being pushed. This would control all wages and prices. This was con­ceived by the Conservative gov­ernment and is the logical result of their weakness in allowing the inflation of the currency to take place over the whole of their pe­riod in office.

British trade unions have long insisted that they shall have increased wages every year; and politicians have responded by in­flating the currency to accommo­date such demands. The result, of course, was a rise in prices of all goods and services. The Conserva­tive government, before its fall from power, had set up the Na­tional Economic Development Council aimed at some reasonable settlement of wages with the trade unions. Such a settlement is es­sential if the pound, under our present managed currency, is not to be continually depreciated.

When the Labor Party came to power, they recognized this fact. Mr. George Brown, through his new Department of Economic Af­fairs, persuaded the trade union leaders and the leaders of indus­try to sign what he hopefully called a “Declaration of Intent.” This provided for annual wage in­creases limited to productivity and made provision for the control of prices. Then he appointed a “Prices and Incomes Board” to carry out this policy.

But it is one thing to make a declaration of intent and quite another to limit the demands of the trade unions. Most unions, when the time comes for their annual round of wage increases, demand more than their increased productivity justifies and state that theirs is a special case. It seems that Mr. George Brown’s attempt to plan wages and prices is no more successful than was the attempt by the Conservative Party. The Conservatives had allowed in­flation to the point that the plan­ning of wages and prices seemed a logical answer to the dilemma.

A high rate of investment is al­leged to be one of the advantages of government planning; but that requires a high rate of personal saving if it is not to become infla­tionary. There is little doubt that the government-spending type of investment has caused much of the monetary disturbance which has affected the British economy. That, and an ever-increasing inflation­ary wage rate. But the wage rate would not have been inflationary if it had not been for the govern­ment’s excessive spending which inevitably resulted in an unbal­anced budget.

As Adam Smith wrote nearly two hundred years ago, “A states­man who should attempt to direct private people in what manner they ought to employ their capital would not only load himself with a very unnecessary attention, but would assume an authority which could safely be trusted, not only to no single person, but to no coun­cil or senate whatsoever, and which would nowhere be so dan­gerous as in the hands of a man who had folly enough to fancy himself fit to exercise it.”