How Britain Does It: Ii. Recovery
I
WHAT is more remarkable than the readjustment in Britain’s external accounts is the readjustment at home. In the first stages a protective tariff always acts as a stimulus to home industry. As is apparent from the figures for industrial production cited in my first article,1 this has been the case in Britain. Old enterprise, particularly iron and steel, is putting on new life. Entirely new enterprise is springing up in the ancient towns of Southern England which the industrial revolution in the north left to while away a delightful old-world existence. An increasing amount of the goods produced have been consumed at home. It is estimated that nowadays the export, trade represents only one sixth of Britain’s net output of all commodities instead of a normal one quarter. I take the figure from a recent dispatch by Harold Callender to the New York Times. He does not use too strong a word, I think, when he calls the difference ‘startling.’ Even relatively self-sufficient America exported almost that ratio of its total production in the palmy days of Coolidge prosperity.
In agriculture a rise in domestic production required a stimulus in addition to that afforded by protective measures. Here is where economic planning has been most extensively employed. It has attained the same degree of interference that distinguishes the New Deal policy toward agriculture. Notice, however, that in general Britain has not practised restriction. Its needs were different from America’s by the difference in their respective crises. Britain had a laggard agriculture, America an exuberant agriculture. In Britain there are now subsidies, quotas, marketing boards — but they are intended to encourage, not to discourage, domestic farming. These boards have been set up for hops, bacon, pigs, milk, and potatoes. ‘In three years,’ complains Professor Lionel Robbins, leading orthodox economist in England, ‘the government has brought a complete reversal of the general policy as regards food supply which has prevailed for the last three quarters of a century. Over a wide field it has substituted regulation for free enterprise.’
Government regulation is making such strides that the whole field of agriculture may shortly be regimented. New boards are under discussion for meat, poultry, and eggs. No more astonishing sight will meet the economic historian of the period than the record of Britain in the season after the Wheat Act was passed. Of all nations, industrial Britain showed the greatest increase in wheat production!
A case illustrating both the procedure and the extent of the regulation is the milk scheme. Milk is by far the most important product of British agriculture. This year for the first time the price has been fixed. The Milk Board allowed for an increase in wholesale prices for the producers, but, recognizing that retail prices cannot be raised further, took the increase out of the distributor’s margin. The distributors have charged government with ’gangsterism.’ Their grumbles, however, have been of no avail. There is no ‘ due process,’ no States’ rights, to put the law behind their grumbling. This is one great difference between Britain and the United States. In the former country there is no constitutional problem involved, as there is in the United States, in these new government essays in economic control. And the people of England have acquiesced in this use of political power. The British public, in the words of the conservative London Times, ‘will not quarrel with the Board’s intention to redistribute the profits of the dairy industry.’
This newspaper comment affords a key to the British approach to the problems of redistribution of income and regimentation. Imagine the same comment in the newspapers along the Atlantic Coast — it is hardly conceivable.
One sees here a difference between the two countries. Government interference is just as rife in both, but it is more acceptable to the nation as a whole in Great Britain. Of course there are John Hampdens in Great Britain as in the United States. In America they are now girding themselves to grow ‘illegal potatoes’; in England one reads such reports as the recent decision of the Milk Board fining a farmer $250 for selling milk to the poor below scheduled prices! That farmer, however, was a rare bird. And the Lord Hewarts who inveigh against the tyranny of administrative law appear to be limited to a higher reach of judicial eminence which in Britain has no power to censor either the will of popular government or the whim of its officialdom.
In agricultural policy the British were faced with the same nice problem of reconciling several diverse interests which was created by their currency policy. In the latter they had the ‘sterling world’ to consider. The pound must be the servant of British development; but it could not be so managed as to sever the link between Britain and the sterling world. Similarly in agriculture. Britain had to protect home agriculture to the extent of giving British farmers not only a greater area of the home market but also better prices. Mid yet its first principle has been to keep food cheap. (This is at least one historic principle that has not been jettisoned — not yet, at any rate.) A dilemma indeed! Nevertheless the two mutually contradictory ends have been achieved in two ways, one fortuitous and the other purposeful.
Britain must still import the bulk of her food from abroad. It so happened that, for some time after the world depression began, prices in the food-supplying countries fell in terms of the British pound. The result was cheaper imports, which have not as yet been offset by price-boosting regulation — as has been done in other countries. So much for the fortuitous help. The purposeful aid is apparent from the milk example. British regulation has been based as much upon the simplification of distribution as upon domestic development. That is to say, both the producer and the consumer have gained at the expense of the distributor. Thus has the dilemma been solved, though for how long depends a good deal upon the planners, who have created vested interests in price raising that constantly threaten the impartiality of planning. The difficulty will be increased in Britain by the fact that the fortuitous benefits of cheaper food are now past.
This gain brings us to Britain’s recovery from depression. The readjustments arising out of the fundamental crisis have not interfered with government-assisted recovery from depression.
Food costs take up half of wage earners’ budgets. Housewives know this, and, with the embattled womenfolk banging at Secretary Wallace’s door, the New Dealers now recognize it. He who thinks only of the producer does so at his peril! Compared with 1932, the American consumption of bread was less in 1935 by 500,000,000 loaves as the result of a boost in prices from a national average of 6.7 cents to 8.3 cents a loaf. Just the reverse from the British situation. According to the official cost-of-living figures, the retail prices of food have fallen on the average by about 20 per cent since 1929, whereas the average reduction in money wages in the same period has been only 5 per cent. The British wage earner has thus had that much more to spend. And, with confidence at a higher level than in any other country, he has spent it. Not much of it, apparently, has gone into more food. Travel and entertainment have increased. Motor-car registrations show a big jump. But principally the extra savings on food have gone into more and better shelter. Housing was a good ‘buy.’ Building costs in Britain had been tending downward even in the years preceding the depression. After the depression the tendency was more or less sympathetically downward with other costs.
Many analysts maintain that the very core of cyclical changes in business may be found in the extreme variation of constructional activity. Housing is a vital sector of construction. How sensitive is activity or regression in this department is illustrated by Professor Paul H. Douglas in his book, Controlling Business Depressions.
If, he says, a family’s income increases so that it can and does want to pay for an additional $25 a month (or $300 a year) of housing, this may lead to the construction of $3000 worth of housing (or ten times the annual rental) to satisfy the need. Comparatively slight increases in the income spent on rent will lead, therefore, to very much greater increases in the volume of construction. Conversely, when the income of families declines, and they seek to economize by paying lower rents, the curtailment in building is much greater than the reduction in their incomes. The great contraction in construction not only hits a body blow at employment in the building trade, but also seriously injures the industries producing building materials such as steel, lumber, cement, paint, plumbing and electrical fixtures. What applies to housing applies to all other constructional activities.
Against this background one may appreciate the statement of the London Economist that housing activity is the backbone of British recovery. To the Committee for Economic Recovery, a business man’s organization in New York, the home building by the British appears as ‘probably responsible for at least one half of their economic recovery and the major part of their social protection against undemocratic principles.’ It has surprised even the government forecasters. The RegistrarGeneral’s estimate of housing needs in the decade 1931-1941 was 1,700,000, based upon a generous restoration of living standards. The figures, however, show that by the end of the fourth year, 1934, almost 1,000,000 houses had been constructed, leaving only 700,000 for the next six years. The RegistrarGeneral had not made enough allowance for advancing living standards arising from savings on food purchases.
The government, besides being partly responsible for the conditions which made the boom possible, has aided the actual building, the method adopted being the subsidy, payable to the local authorities. Over half the new construction has been done with state assistance. But the ratio of government-aided building has rapidly declined. Out of the 328,000 houses completed in the year ending March 31, 1935, only 30,000, or just over 10 per cent, were state-assisted. It is the overwhelming ratio of unassisted dwellinghouse construction that has put the boom firmly on its own feet as an outlet for advanced consumer purchasing power and as a generator of collateral enterprise.
While the British have been building 328,000 houses, the Americans, with three times the population, have been building less than 60,000, or a rate of progress of only 6 per cent of Britain’s. Yet there is the same potential demand as in Britain.
II
Effective demand in the United States has been inhibited by several factors. I trace the causa causans of British activity back to cheap food prices. In this respect a comparison between Britain and the United States is hardly valid. The British consumer profited out of the distress of the world’s farmer. Part of that distress existed in the United States. Thus the problem that Mr. Roosevelt had to face was entirely different from the British problem. Mr. Roosevelt had to end agrarian distress; and to the New Dealers there seemed only two ways of doing that — by giving the farmer either better prices or larger markets. The hard-pressed New Dealers plumped for the objective which could be more immediately attained — better prices. This has been accomplished at the expense of the wage earner. The drought lent a helping hand in a way that has left food prices all awry.
Other impediments to building in the United States have been the cost of building and the ‘stickiness’ of mortgage money; building costs have fallen very much less than money incomes. New Deal experiments have worsened the disharmony. Costs in general were only 20 per cent below their 1928 level at the beginning of 1933, while incomes were nearly 40 per cent lower. Under NRA the costs were put higher, not lower, and since the NRA expired the combined influence of PWA and WPA has propped them up. In that respect the New Deal has not only loaded a burden on future taxpayers, but also hampered ‘pump priming.’
The lesson of the British experience is that the subsidy is a far better method of priming. It does not interfere with market prices. Nor does it impinge upon the market for private enterprise. The government in Britain has limited its subsidies to housing for the lowest income groups, who, living in slums and overcrowded areas, do not furnish any demand upon the private builder. For these people subsidized housing has become more or less a charitable undertaking. In consequence, there is not much likelihood that less indigent citizens will try to participate in the subsidy, and thus contract the private builder’s market.
In interest rates the same disparity between Britain and the United States is to be noticed. Cheap money has a limited area of activity; particularly in the United States it does not seem to get around to mortgages. In Britain money is available at the great building societies for 4½ per cent. Till six months ago my American bank charged me 6 per cent, and then came down to 5½ per cent. I don’t know whether to give my thanks to ‘cheap money’ or to Governor Curley’s club — a club, incidentally, that Mr. Roosevelt seems to be using on a national scale. But even 5½ per cent is 22 per cent higher than the parallel British rate. Then additional financial costs — down payments and incidental charges — are much more attractive in Britain. In all these circumstances the potential housing demand in the United States, of which one sees evidence everywhere, has not yet been potentized.
Building other than residential also shows a steadiness in Britain that is absent in the United States. League of Nations data put the two situations in perspective (1928=100): —
| United States | United Kingdom | |||
|---|---|---|---|---|
| Residences | Other | Residences | Other | |
| 1926 | 91.7 | 90.5 | ||
| 1927 | 87.0 | 88.5 | 99.4 | 89.3 |
| 1928 | 100.0 | 100.0 | 100.0 | 100.0 |
| 1929 | 68.2 | 100.9 | 110.3 | 105.6 |
| 1930 | 40.5 | 68.5 | 116.6 | 102.0 |
| 1931 | 33.5 | 43.3 | 100.9 | 82.5 |
| 1932 | 13.0 | 20.5 | 116.9 | 70.9 |
| 1933 | 12.8 | 18.2 | 155.3 | 78.3 |
| 1934 | 11.7 | 22.1 | 173.4 | 95.1 |
| 1935 | 22.2 | 23.0 | 188.0 | 125.0 |
These figures, if we bear in mind the ramified influence of construction activity and of the lack of it, explain much about American unemployment; two thirds of the unemployed are said to be in the construction industries. Americans, however, will gain one comfort from the table. Lenin used to invite foreign investment in Soviet Russia on the grounds that ‘we have had our revolution.’ British experts are continually upset by the fear of a recession in construction, with its decelerating consequences throughout the system. America still has to have its construction boom.
III
The recovery movement in Great Britain, then, has been due to three factors. The first two, an off-gold currency and a protective tariff, were adjustments arising out of Britain’s fundamental crisis; the third, cheap prices and constructional activity, was recovery from the depression. We have already shown that the habitually sober British are by no means overestimating the lasting influence of building. What of the readjustment situation? This, we find, has still left Great Britain at the old crossroads. Back to the world system ? Or forward to even more widespread regimentation of domestic development? The two questions appear in most British conversation.
A national currency and a protective tariff, with the subsidized improvement of British production and marketing, are, it seems to me, akin to the action of the Dutch boy in sticking his finger into the dike. For the time being they have kept out the rushing waters of world deflation. They have given the British a period of tranquillity and noninterference for internal repair work. But it is doubtful whether they afford a long-run policy for Great Britain. To some Britons, however, they have seemed so highly successful as to show that both currency and commercial nationalism could be made permanent bulwarks of British prosperity. These publicists are called total prohibitionists. In German the word for their philosophy is the now popular autarchie. The autarchists have a highly vocal following among the producing groups who would benefit from such autarchy. The hope is held out, for instance, that in ten years all Britain’s consumption of bacon could be raised on home farms. Persons holding such views would settle the jobless — reduced by 1,000,000 from the peak, but still leaving over 1,500,000 — on the land to do the work now done for Britain by foreign farmers. They cite examples from the ‘have-nots.’ Mussolini has made Italy practically self-sufficient in foodstuffs; even Japan feeds itself; Germany is trying to reach the same goal.
The examples, however, are not inviting. And Britain is sui generis.
An investigation sponsored by Viscount Astor and B. Seebohm Rowntree examines and disposes of the autarchy argument. The investigators find that to some extent there might be an increase in resettlement from the city to the country. They take from the ancient world the simple but praiseworthy suggestion that a year’s supply of wheat should be put. in British storage — to safeguard the country, not, alas, from ‘acts of God,’ as in the ancient world, but from ‘acts of man.’ Beyond that they conclude that self-sufficiency would be disastrous to British prosperity, and to Britain’s eminence in the world. It is true that, as Kropotkin proved, Britain could be relatively self-supporting. But such self-support would be a ‘poore thing,’ if ‘mine own.’ It would not support. British living standards, because these standards have been built up on buying and selling in a world market to which hundreds of millions instead of millions bring the fruits of their diversified labors. Just as two thirds of America’s unemployment are in the constructional industries, so two thirds of Britain’s unemployment are in the export industries.
Any contraction of food imports would mean that the foreign suppliers would be unable to buy British goods and services. This would present the resellers with more and more industrial victims. At the same time it would promote the extinction of the economically great Britain which past investments have built up beyond the seas. For the debtors could no longer pay their billion-dollar-a-year interest if they were denied access to the British market. The political effects of British autarchy would be equally damaging. Lord Astor warns that it would prejudice British relations with the Dominions and international relations in Europe. ‘We could conceivably produce in Britain,’ he says, with a mildness hardly in keeping with the prospect, ‘most of the food imported from Denmark and the Baltic States, but if we drove those countries into the arms of Germany, should we have acted in a statesmanlike manner? We could grow in these islands much of the food now imported from our Dominions, but if as a result we seriously injured their agriculture, and thereby prevented them from buying our manufactured goods, should we be better off? We should certainly not have solved, we should merely have changed the nature of our national anxieties.’
Large-scale resettlement would not settle the jobless problem even at such a cost! The products of the soil are distinguished from the products of the factory by the relative inelasticity of the demand for them. And for the first time since Biblical days food is now being produced by labor-saving devices. Mechanization in agriculture cannot set up its own corrective as mechanization in industry can. The syllogism is: cheaper prices, more consumption, enlarged employment. This simply could not work on the farm. As the industrial victims trooped on the land, therefore, displaced workers would be continually trooping off. The notion of curing a crisis by setting up another vicious circle is perhaps as fantastic as the notion that Great Britain would elect to become little Britain.
The Astor-Rowntree study is a sign that public thought is turning outward again. More evidence is the recurrence of statements from British experts pleading for a return to financial and economic internationalism. During the long readjustment period they have been very quiet. Now, in rapid succession, three members of the government’s economic advisory committee have backed a return to some form of international gold standard. They are Sir Josiah Stamp, Sir Arthur Salter, and J. M. Keynes. The attitude of Mr. Keynes — more qualifying than that of his colleagues — is the most interesting; hitherto he has contemptuously referred to gold as a ‘tyrant.’ These economists see that the benefits afforded by a national currency and a protective tariff are slowing down.
IV
Repair of the world system is, of course, a problem for the entire world of nations. I personally have not given up hope. There is evidence, I think, that even the economic nationalists are finding that the rewards of their god are Dead Sea fruit. Britain, however, cannot mark time. The present movement of policy, as opposed to that of opinion, is toward more domestic development through more rigid controls. From this the Conservatives in power do not seem to shrink. Call it Socialism, and there will be no protest. In 1894, Sir William Harcourt, during the introduction of the estate duties, said,
‘ We are all Socialists now.’ The phrase has been repeated by several presentday Conservative leaders. The fact is that capitalism as a system of liberty to make profits has been left a long way behind. Last March there was an enviably calm debate in the House of Lords on capitalism and Socialism. In the course of it Lord Allen estimated that practically two thirds of the largescale economic organizations in Great Britain had already passed out of the sphere of unregulated profit making. A multitude of different types of controls are involved. Such industries as the telegraph service are frankly government departments. A Central Electricity Board is undertaking the public construction of a national system of high-tension distribution lines. Power is sold at cost to the existing public and private retailers. Agriculture, as we have seen, is fast becoming a ward of the state. A new type of control in the non-agrarian sphere of economic life is in evidence which is not exactly government and is certainly not private control. The best description would probably be public trust. A speaker in the course of the Lords’ debate described it in the following words: —
‘ What we have discovered by process of time is this, that there are various methods by which you can introduce the principles of Socialism whereby the interests of the state and the interest of the body politic shall be put above the interest of any of the private individuals who compose that body. Through a public utility corporation you can get all the advantage of collective organization and promote efficiency without the disadvantage which comes from political manipulation which may easily arise if you proceed to nationalize all industries and run them from Whitehall.’
An example is the British Broadcasting Corporation. There is here no case at all of any private stockholder having any share in the profits or control. The concern was set up by the government. As soon as the directorate was appointed, however, the body felt itself as independent of government pressure as a private firm. An English publicist once said to me, ‘The wrong way to go about getting something out of the B.B.C. is to invoke the aid of a government official.’
To what end is this semi-socialism in Britain directed? In the language of Cromwell, to well-being as well as being. The new National government will doubtless throw fresh emphasis on the being; they pinned Adam Smith’s dictum to their recent election posters: ‘Defense is better than opulence.’ But they do not show any inclination to sacrifice a forward march to well-being in the sense of more social reform. For British thinking as a whole is obsessed with slum clearance and rehousing; with the mediæval concern for the ‘just price’; with what the Australian Mr. Stanley Bruce at Geneva called the ‘marriage of health and agriculture.’
In this last connection the record so far has certainly not been stationary. In 1908, just before the inauguration of the social insurance programme, from 15 to 20 per cent of the British school children suffered from malnutrition. From that time on there has been a steady and definite improvement. The British Ministry of Health reports that for the past few years there has been less than one per cent of malnutrition. The New York Times compares these figures with the American experience. The Children’s Bureau of the Department of Labor reports that, in spite of extensive public health services, malnutrition is as high as 20 to 30 per cent in many American districts.
This improvement in Britain is not viewed complacently. What still remains to be done is called a national task. At the last British Association meeting Sir John Orr outlined a plan which was staggering in its utilitarianism. He began by showing that, in order to bring the people to a proper level of health and energy, consumption of milk must be increased 42 per cent, of fruit and vegetables 53 per cent, of butter and eggs 25 per cent. He recognized that Britain must not sacrifice foreign imports. In supplying the deficiency between present and ideal requirements, he would eke out the present level of food imports and the production at home by subsidizing the jobless to produce this increment.
It is to the fact that such a proposal on such a platform has been made, not to its merits or demerits, that I would draw attention. Consider the plan of control. The marketing boards would supersede the distributors as chief intermediary between grower and consumer. A Tugwell in British clothing! And yet Sir John Orr, so far as I have seen, has elicited nothing but respectful comment. ‘Every gallon of milk which goes into the manufacture of butter and cheese,’ says the London Times editorially, reading like a social-service organ, ‘must be regarded as waste so long as large numbers of the public go short of the fresh milk they should have to maintain themselves in full health.’ This far from flighty newspaper asks whether the time is not ripe to realize Sir John Orr’s plan by ‘turning the marketing boards into vast public utility agencies.’ Soon after, the same paper expressed horror that boys transferred from derelict areas in Cumberland had made their first acquaintance with eggs as food and did not know how to eat them.
To many conservative advocates the provision of shelter on a public-service basis is joined with this subsidized provision of food. This was one of Mr. Frank A. Vanderlip’s chief impressions of British thought on a recent visit. In a magazine article he says, ‘People holding this view believe that housing eventually must be carried on by an industrial or utility corporation, to be held responsible for the provision of adequate shelter — just as a railroad company is held responsible for the provision of modern transport.’
There are many publicists in the United States who base their thinking on the theory that American history repeats European history after a lag of a generation. Planning has sustained a reverse in popular estimation in the United States. ‘Back to normalcy’ is once again heard over the land. ‘Normalcy,’ however, is gone in Britain, along with all such meaningless shibboleths of the post-war decade. Britain, for good or ill, appears to be so committed to planning and management by the state that even a repair of the world system does not seem likely to mark any retreat to ‘letting nature take its course.’
- See the January issue, p. 20. — EDITOR↩