Austerity Britain, 1945–51 (72 page)

8

Too High a Price

The term ‘supply-side economics’ was not coined until 1976, and it is often claimed that over the previous three decades the fatal flaw of economic policy – characterised as broadly Keynesian macro-economic demand management, in other words fine-tuning from the centre the levels of demand – had been its unwillingness to grapple with the microeconomic supply side. What follows is a brief look at how five key elements on that side of the economy were faring by the early 1950s: transport and telecommunications, training and education, incentives, competition, and restrictive practices.

In March 1951 the panel on radio’s main current-affairs discussion programme,
Any Questions?
, was asked if the finances of British Railways would be improved if fares were reduced. ‘Nobody’s going to pay anything to go on the railways as they’re getting now,’ replied the novelist and farmer Robert Henriques bluntly:

They’re getting worse and worse and worse, and in fact, this country in communications and transport – that’s to say, telephones and everything else as well as roads and railways – is rapidly becoming worse than almost any other in the whole of Europe. The roads are appalling; you get more accidents because the roads are so narrow. You get slower and slower times on the roads because they’re so congested . . . You get your trains that are going at a slower time than they were half a century ago and that is absolutely true . . .

‘We’re absolutely hopelessly inefficient,’ he concluded. ‘The whole thing is muddling through.’

It was a justifiably damning charge-sheet. Admittedly nationalisation in 1948 had given the railway industry (like the coal industry) a near-impossible brief of combining public service with commercial efficiency, but the fundamental problem was crippling underinvestment, in freight as well as passenger services, reflecting the failure of politicians and mandarins to face up to the need for an extensive modernisation programme. The contrast with France was especially painful. There the gifted engineer Louis Armand was instructed by his government in 1946 to make the French railway system the best in Europe; he received the resources and political backing to do so, and by the early 1950s was delivering. It was a similar story on Britain’s roads, where after the early abandonment of the ten-year national road plan announced in 1946 there was only nugatory investment in what was – long after the creation of Germany’s Autobahns – a pitifully inadequate, slow-moving and bottlenecked network. Moreover, blighting the prospects of both road and rail, there was in these years no systematic appraisal by the Treasury of the long-term demand that the British transport system was likely to have to meet.

As for telecommunications (still run by the Post Office), the picture was if anything even more dismal than that painted by Henriques. By 1948 less than 10 per cent of the population had a telephone, while by 1950 demand was so far exceeding supply that the waiting time for installation was reckoned to be anything up to 18 months. Moreover, for those lucky enough to have one, there were for private users the joys of a party line and for businessmen (and others) the trying, export-order-threatening experience of, in Correlli Barnett’s exasperated words, ‘waiting and waiting for their turn to have urgent long-distance calls put through inadequate cabling’ by telephone operators ‘shoving jacks into the switchboards of ageing manual exchanges’.
¹
It could hardly have been a more felicitous formula for telegrams and anger.

In the area of training and education, it had traditionally been the apprenticeship system that sought to ensure a well-trained workforce, but by the 1950s, even though that system was working reasonably if not brilliantly well on its own terms, the fact was that almost three-quarters of teenagers entering the world of work were doing so in jobs without any craft or career training available. Nor was the formal education system meeting the gap. At secondary level the technical schools, supposed to be one leg of a three-legged stool that also comprised grammars and secondary moderns, never began to get a proper head of steam behind them, not least because the requirements of industry were low down the priorities at the Ministry of Education. Meanwhile, wartime plans to develop a network of so-called county colleges, providing compulsory part-time vocational education for school leavers up to the age of 18, never got off the ground, with voluntary day-release – inevitably less focused and sustained – being substituted instead.

Higher education, in terms of providing the requisite scientists, engineers and others for a modern economy, was not much better. In 1945 the Percy Report advocated that local technical colleges (though only ‘a limited number’ of them) should be sufficiently upgraded, in status as well as educational content, that their courses would be comparable to university degree courses. They were in effect to be the forerunners of the latter-day polytechnics. It was a bold proposal that soon encountered significant opposition from the Advisory Council for Science Policy, comprising eminent scientists from university departments, the research councils and industry. ‘We do not believe that the type of man we need can receive the right kind of education in a technical college,’ that body insisted. ‘For that, we are convinced we must rely on the universities.’ Investment in these technical colleges proved spasmodic up to the mid-1950s, with the numbers increasing but still fewer than 40,000 attending them.

In the universities themselves, there was a certain amount of opening up, with numbers increasing from some 50,000 at the end of the war to some 80,000 by the early 1950s, along with greater financial provision for children from poor, working-class families. But as one historian has fairly put it, ‘their traditional curricula remained largely unchallenged and unchanged’, notwithstanding the establishment in 1950 of the more science-oriented Keele University (originally called North Staffordshire University College). Crucially, ‘they adapted only slowly to the technological needs of the post-war economy’.
^2.

In the area of incentives, Herbert Morrison’s candid private assessment in July 1949 of the current high-taxation regime was that ‘the incentive to effort for workers as well as professional and technical people and employers is seriously affected by this burden’. With the standard rate of income tax standing at 9s (45 per cent), and around 12 million people paying some form of income tax (compared with four million before the war), he was understandably concerned about the political as well as the economic implications.

Generally, among economists and economic-policy advisers, there existed a broad consensus that overly high taxation acted as a significant deterrent to efficiency and productivity. ‘In these days most wage earners know enough about their income tax to realise how much of their overtime pay goes in income tax, and there is no doubt that this discourages extra effort,’ noted Paul Chambers in 1948 – a view having particular authority because he was the architect of the recently introduced Pay As You Earn (PAYE) system. For Robert Hall, head of the Cabinet’s economic section, the crucial thing was to get some hard information about how taxation and incentives actually played out in practice. Not that Hall did not have his own views. ‘What I really want,’ he reflected in 1950, ‘is an authoritative and impartial statement, to which everyone in the country will have to pay attention, to the effect that there are features in the present system which in the long run are very likely to damage our industrial efficiency, and that the price of removing these features is fairly small, whereas the price of keeping them may in the long run be fairly heavy.’

The upshot was the Royal Commission on the Taxation of Incomes and Profits, which commissioned a report,
Incentives in Industry
, by Geoffrey Thomas of The Social Survey, involving 1,203 interviews in early 1952 with a range of male manual workers across the country. The findings confounded the conventional wisdom. Not only, in the summarising words of the Treasury, did ‘few productive workers’ have ‘any detailed knowledge of the way they were affected by income tax’, but there was ‘no evidence of productive effort being inhibited by the income tax structure within its present limits’. Startlingly, Thomas reckoned that of the eight million or so manual workers about whom it was reasonable to generalise on the basis of his sample, only a sixteenth or so of them, if offered fiscal incentives, ‘
might
increase their speed of work to
improve
their standard of living’ – and that ‘the amount of the increase is undetermined’. Furthermore, when his interviewees were asked to name the main ways in which output could be increased, ‘monetary incentives to production did not occur spontaneously to more than 6% of the men’.
^3.

There was thus only very weak evidence that – whatever the public-bar mutterings about tax – the availability or otherwise of fiscal incentives significantly affected real-life behaviour in most workplaces. Whether it was a different matter for the more vociferous grumblers in the saloon bar remained uncertain.

The Labour government, with its inherently divided instincts on the subject, did not prove an effective champion of competition. Although it did (under American pressure) push through anti-monopoly legislation in 1948, this lacked an adequately coercive dimension, while over the next three years the newly established Monopolies Commission managed to produce a grand total of two reports on specific industries: dental goods and, bizarrely enough, cast-iron rainwater goods used in building. Indeed, if anything the business environment was over the long run becoming
less
competitive: it is plausibly estimated that whereas in the mid-1930s cartel agreements (usually managed by trade associations) were affecting some 25–30 per cent of gross manufacturing output, by the mid-1950s the equivalent level of collusion was at around 50–60 per cent.

Predictably, it was the businessmen themselves (largely through the Federation of British Industries) who were mainly responsible for emaciating the legislation. Indeed, such was their attachment to cosy price agreements that they also managed to deter ministers from introducing measures that would threaten resale-price maintenance. Collusion was seemingly everywhere – for example in the ice-cream industry, increasingly a carve-up between Lyons and Wall’s, though the urban myth that kiosks on Brighton beach sold only Lyons ice cream because of a territorial ‘fix’ was untrue, at least in the sense that it was the local councillors and not the companies that did the fixing. Certainly it was a stitch-up in Steel City. ‘Selling was a gentleman’s existence, with Sheffield operating as a big cartel,’ Gordon Polson of Firth Vickers recalled in the early 1990s about the steel industry 40 years earlier. ‘Orders were reported first to the respective trade and association committee, and at the end of the day they would tell you what prices to quote. The price-fixing was incredible.’
^4.

The preference for an easy life was understandable – there were still plenty of government controls in place; imperial and Commonwealth markets provided an apparently welcoming, uncritical home for British goods, and the import threat was no more than a cloud on the distant horizon – but such an approach was no sort of preparation should the weather change.

Finally, on the question of restrictive practices, one turns again to Ferdynand Zweig, who when he began his study of five sectors of industry in the late 1940s was under the impression that such practices ‘were increasing, because of the strengthened bargaining power of the Unions’. (Typically, he conducted some 400 interviews in the course of his inquiry.) ‘But fortunately the reverse is true,’ Zweig went on. ‘War economy, with its admitted need for more production and the national interest awakened and strengthened in all sections of the population, delivered a blow to many restrictive practices . . . And many restrictive practices abolished or temporarily suspended during the war are still in abeyance.’

That seemed straightforward and optimistic enough. However, he explained, the reality was more complicated. Not only in this respect did the war deal ‘not as severe a blow as might have been expected’, but ‘there is a group of restrictive practices which has been spreading since the war’ – practices that included ‘the embargo on overtime, “working to rule”, withdrawal from Joint Committees deliberating on important and pressing issues, etc.’ Unions found such restrictive practices to be an effective substitute for a strike, ‘which is a costly affair, full of risks and too conspicuous, and up to now in most cases outlawed’. There was, Zweig emphasised, a similar lack of appetite for confrontation on the part of many employers, who were willing to acquiesce in piecework bans, overtime restrictions or closed-shop arrangements. ‘“Peace in industry is worthwhile paying for” they often say,’ he noted, while not denying that it was a rational attitude. After all: ‘Practically the whole field of industrial relations is covered by agreements, rules and practices accepted by both sides, and the industrial code is growing constantly. Many employers feel that these rules and regulations are restricting the field of free enterprise, but they cannot find any alternative to this, but industrial chaos.’ In short, ‘each industry has a system of industrial jurisprudence, and the boss’s word is no longer law’.

Zweig’s survey leaves the reasonably clear impression that although restrictive practices were not necessarily spreading or intensifying, nevertheless they remained, from the point of view of encouraging a productive economy, a serious problem. Indeed, at about the same time another inquiry (overseen by the distinguished economist Roy Harrod) discovered that more than 60 per cent of its business respondents reckoned that prevailing restrictive practices were responsible for reducing productivity.
^5.