ECONOMIC PLANNING FINE DIVISION BETWEEN TORIES AND SOCIALISTS

Press, Volume CIII, Issue 30560, 1 October 1964, Page 16

ECONOMIC PLANNING FINE DIVISION BETWEEN TORIES AND SOCIALISTS

(By

"LYNCEUS"

of the ."Economist”)

(From the "Economist” Intelligence Unit)

Kipling’s “East is East and West is West and never the twain shall meet” looks like being proved wrong again. This time it is over planning. Just when some Russian academics are asserting their support for certain aspects of a free market economy, the General Election in Britain is showing how close together the two main parties are in moving towards more purposive planning in capitalism’s mother country.

Planning is no longer a major issue between Conservatives and Labour as their election manifestos make clear. But there are differences of approach.

Response To “Stop-go”

Planning has, for the Conservatives, been largely a practical response to the irritating stop-go problems of the late 1950's and early 1960’5. These lowered the long-term rate of growth and seriously frustrated individual businessmen’s long term plans. The Government’s response was to set up the National Economic Development Council which prescribed 4 per cent as a feasible long term rate of growth. The aim was to leave businessmen to fit their plans to this rate on the assurance that the Government would .commit itself to it in general terms. This is the basic Tory philosophy on planning—orientation without obligation, leaving unchanged the points at which decisions affecting the economy are made. And apart from setting up economic development committees for a number of individual industries, the Conservatives have as yet gone no further. Their election manifesto does however commit them to a programme of regional development; and they march with the Socialists on the over-riding need for an incomes policy. As the Socialists point out, this will have to cover profits, dividends, and rents as well as wages and salaries. The Conservatives have already made one abortive attempt to furbisn an incomes policy through the medium of the National Incomes Commission. With an eye to possible Socialist victory at the election the unions refused to co-operate and further initiatives have been kept in cold storage. It is believed that after the election the unions would be prepared to join in an income policy whichever party is returned. The National Incomes Commission will almost certainly be surrendered as a hostage to fortune. A Stage Further Predictably enough the Socialists would like to take planning a stage further. They propose setting up a Ministry of Economic Affairs—to be headed by no less than the deputy leader of the party—to formulate a national economic plan leaving the National Economic Development Council with only a minor consultative role. Within this plan each industry would have targets set for it

in terms of exports, production, investment and employment and would know what special incentives it could expect. Steel Would be renationalised, development contracts and investment incentives would be awarded selectively to stimulate specific firms, and new industries would, if necessary be set up. Labour also has a transport plan and a scheme to create Regional Planning Boards under the general guidance of the new Ministry of Economic Affairs. To some Tories this has all the appearance of a return to the controls of 1940's which made planning such a dirty word in the 1950’5. Yet for-ward-thinking Conservatives among whom the radical Secretary for Trade and Industry, Mr Heath, is numbered, are beginning to realise that merely making long term growth projections is bound to have far reaching consequences: consequences which will almost inevitably involve the Government in proposals such as the Socialists have put forward. Freedom Lost

The reason for this is straight-forward. For a rate of growth forecast to appear realistic—and this is essential for its success—the Government must declare its hand about the kind of policy it intends following to’ achieve its goal. By submitting its plans for discussion it will to some extent lose its' freedom of action; and any change in its intended policies will change the data on which private enterprise has based its investment decisions. More important still, any realistic projection will show up some future bottleneck or lopsided development in the various sectors of the economy. It is then almost impossible for a government to avoid assuming responsibility for correcting these developments by measures which deliberately encourage investment in some sectors and discourage it in others. What this boils down to is the division between Tory “indicative” planning and the more compulsive planning proposed by the Socialists is much finer than they imagine. The greater the unanimity on planning, the greater is the danger that it will be re-

garded as the simple key to all economic problems, in fact it is full of pitfalls. Previous long run forecasts of steel, coal and electricity demand in Britain, for instance, have been awry, largely because of the failure to predict the rate of advance of the economy as a whole. But if this rate were set would everything else follow? The sophisticated French planning example can only give a doubtful “yes.” Planning certainly publicises the need for growth and its attendant requirements, engenders confidence in businessmen and develops research and statistical techniques. But the results of the third French plan show that for many industries an accurate knowledge of the rate of growth of total production is not very important in determining the growth of output of particular industries, still less of individual firms or product groupings within an industry- Discussions between firms about growth of markets and investment plans are of assistance to management, but if they are detailed enough for the planners they are hardly compatible with competition in the industry. Unpredictable Factor The basic trouble with forecasting is that it is not detailed enough for businessmen; it also tends to exaggerate the influence of forces which have limited growth in the past. Even the most sophisticated techniques cannot take into account political and sociological changes and technical innovations. In the case of overall economic planning the greatest gamble is foreign trade: under present trade agreements neither imports nor exports, crucial for Britain, can be subjected to detailed national planning. It is for this reason that there is a tendency in the French system—which aims at a planned and balanced development of the different sectors of the economy—towards economic isolationism and regulation of international trade. Not surprisingly this is anathema to the Germans and the Dutch as it would also be to the British, but the French are at least logical.