Great Britain

on the World Today

PROSPERITY in Britain has become a puzzle and a paradox. This is particularly true of the other man’s prosperity, but it is true also of the nation’s. Never had Great Britain been so prosperous as in 1955; yet after this most successful year in its history, Britain’s gold and dollar reserves had fallen by 25 per cent and prices had risen to levels higher than the British had ever before experienced — more than 50 per cent above 1947 levels.

In Britain there is complete social security for the individual at home and utter financial insecurity for the nation overseas. In this industrial boomland the central aim of economic policy is no longer to ensure that people buy all that is produced but positively to dissuade them from doing so. This is a country rich enough to turn out a million new automobiles a year but too poor to build new roads (not one has been built in twenty-one years).

There is no unemployment; yet for the great majority successful gambling seems to present the only hope of really making a killing. Incomes are leveled in Britain as nowhere else, but different people on similar incomes have widely different standards of living: one executive will go motoring on the Continent in August and return to tell about the wonderful though expensive meals, while another visits an aunt in Bognor Regis and makes do with kippers for supper.

Britain’s strange prosperity

Of the reality of prosperity there can be no doubt. There are figures to prove it . And people to prove it. And the money to prove it, too. Steel output has reached record heights, running at the end of the year at an annual rate of more than 21 million tons. More automobiles than ever were produced in 1955. More washing machines were bought, more clothing, more bricks, more television sets, more aircraft, more yachts, more everything. People were earning bigger pay — 10 per cent bigger on an average than the year before and 60 per cent bigger than in 1948.

Industrial profits were higher (about 5 per cent) and dividend distribution was nearly 20 per cent higher. New suburbs were arising around almost every town. A great nuclear power program was begun, scheduling eighteen atomic power stations to boost electricity supplies in the next dozen years. Trade was freed, and the pound was brought close to convertibility. And everywhere there was work. In no other free country has unemployment been so low for so long as in Britain. The figures suggest that one per cent of the working population is unemployed. Actually there are some 200,000 people registered as out of work at any particular time, while the number of advertised vacancies in industry runs around 500,000.

Something approaching this state of full employment has been maintained continually since the end of World War II. It has been as much a part of the social security system as the National Health Service and family allowances and subsidized food, and it has done more than anything else toward the abolition of want. If a certain instability of the exchanges were the only price that had to be paid for this magnificent stability of work and opportunity, most Britons would think it well worth paying.

The constant swinging of the balance of trade is not, however, the only phenomenon peculiar to this new welfare society that Britain is inclined to see itself pioneering for the world. In the detail of individual lives there are now so many arbitrary inequalities that while it is easy to see that the nation is prosperous it is very difficult to say who in the nation is prosperous, or why.

The new well-to-do

It is a common assumption among the middle classes that the well-to-do are now the industrial wage-earners. The latest studies indicate that about 15 per cent of the nation’s total income has been effectively redistributed and that between 85 and 90 per cent of the population have gained from this redistribution. The gains have been in subsidized housing, subsidized food, noncontributory pensions, insurance, family allowances, maternity allowances, free milk for children, scholarships, and so forth.

But the average wage for men in Britain is only $30. Even in a subsidized house rented from the local authority for maybe $5 a week, a married wage-earner with a young familyfinds it hard to feel wealthy on $30 (or even $50) a week, A household, however, where there are three, four, or five wage-earners may be rich even by upper middle-class standards. It is not unusual for a household’s total income to be as high as $150 a week, after taxes. To bring home $150 a week, a professional or business man would have to earn a yearly salary of $12,000. In the whole country there are only 96,000 individuals earning as much as that.

Not all wage-earners live in subsidized houses. There are about 3 million council (local authority) houses in Britain with approximately 10 million tenants. The population of the country is 50 million. Those who do not live in council houses must make do in rent-controlled apartments, if they can find them.

Undeniably poor are those on fixed income — retired folk, pensioners, the elderly, the infirm. A continuous inflation of between 7 and 10 per cent a year, the present price of full employment, has robbed many retired people of half their effective income.

How to get rich

A correspondent in the Manchester Guardian has remarked that the three simple rules for being rich in Britain are: “1. Do not marry. 2. Have no children. 3. Have, marry, inherit, or acquire capital.” One might add others — for instance: Do not save and do not retire. But number three on the list is undoubtedly the important one. Part of the paradox of the social revolution is that, relatively speaking, the capitalist has never had it so good.

The same forces that induce employment and rising wages ensure high capital earnings, and the same inflation that pushes up prices pushes up capital values. Owing to the high rates of income tax, every pound out of capital is worth two or more out of income to anyone earning $7000 or more a year. Since there is no capital gains tax in Britain, the possibility of realizing a small percentage of capital gains each year without seriously diminishing one’s wealth is a source of constant comfort to the man of substance.

There are many ways of making capital gains so that they are more comforting than income. Some of the more acute brains in business invented a system known as “ dividend stripping ” (which Mr. Butler declared illegal in 1955), by which a man with a private company of low capital value but high cash assets could get hold of cash tax-free. He did it by selling his concern to a finance company for the value of the cash and setting up again from scratch, the finance company obligingly offsetting its loss on the deal against its taxes.

On a lower scale, an individual can buy and sell two or three houses a year, in which manner he doubles his effective income without qualifying for tax as a real-estate broker. Although the average capitalist is not as wealthy as he might be in some other countries, and sometimes feels frustrated as more and more big country mansions are sold to nationalized industries, great fortunes are still occasionally to be made in Britain, and a surprisingly large number of people manage to live comfortably beyond their means.

Tax-free income

Some members of the middle classes without capital can also live beyond their apparent means. If one is to believe the wives, who are less reticent on this score than their husbands, most of the middle classes who attain comfort in the welfare society do so by cheating the state.

“ When we go to London we always go on Bill’s expenses.”

“ On the income tax form I’m George’s secretary and he pays me seven pounds a week. Of course I never see it. But when we go abroad on a holiday we always go ‘ to work ‘ and so expenses for both of us come off the tax. It is really jolly convenient. Why doesn’t John do it? ”

Even if one discounts most of the scores of remarks like these that one hears and overhears, there is still the feeling that the very high standard of business and financial ethics that has always been the pride of Britain has recently slipped a little.

Expenses allowed by the income tax authorities vary even within the same organization. There are probably few tax systems as equitable and few tax authorities as scrupulously fair as the British, but the task of ensuring equal treatment to many millions of individual cases is probably beyond the capabilities of any tax office of economic size. The alert taxpayer works away at his allowable exemptions and expenses year after year with the doggedness of a beaver.

Many firms give all their employees free “luncheon vouchers” worth from 50 cents to $1, which are accepted as payment by neighborhood restaurants. The firms deduct the cost, from tax. To the employees the vouchers may be as good as a $10 raise. Income tax authorities sought to count these vouchers as income, but their first attack on this privilege was beaten off. The voucher plan remains a privilege which only a small portion of the population enjoys.

Of the many consequences of this inequality two seem to be of special significance. One is that the middleclass bridge between the wage-earner and the capitalist is being washed away. The other is that smaller importance is attached to efficiency than was the case in less prosperous times, for efficiency does not always pay as well as chance, or situations, or the shelter of subsidized welfare.

This thought is no doubt one of the factors behind the astonishing spread of gambling on football pools. The Post Office sells and carries from all ends of the country to the various centers of pooldom 350 million postal orders a year. Almost every week somebody wins as much as $200,000 for a single line of forecasts. Millions, of course, win nothing but they continue hoping. Any winnings that do come are classed as capital gains and thus are not subject to tax. Heavy as the odds are against winning a fortune, they are less heavy than those against accumulating a fresh one out of the results of honest toil, thrift, or increased efficiency.

Wage-earner versus capitalist

The effects perhaps show most clearly in the continued clash between worker and capitalist in the welfare society. The wage-earner tends to be both mystified and exasperated by the vast profits earned in industry, although they are inevitably produced by the same policies and actions that give him full employment and high wages — and in the nagging inability to increase the nation’s productivity fast enough to attain solvency.

However fast the nation exports, it never overtakes its imports. In 1955 British exports rose by (i per cent. Imports, encouraged In trade liberalization as well as by a 10 per cent increase in wages and a 5 per cent increase in gross profits, rose by 16 per cent. As we have noted, there was a 25 percent fall in the gold and dollar reserves, already dangerously low as a support for the combined economies of Britain and all other Commonwealth countries (except Canada), plus Burma, Iceland, Iraq, Ireland, Jordan, and Libya. During this time the terms of trade were favorably steady. Any sharp movement in an adverse direction, making the price of imports rise relative to the prices Britain can get for its exports, would have precipitated an exceedingly serious crisis. As it was, the Chancellor of the Exchequer was able to declare that there was no crisis, during his speech to the House of Commons introducing his extra, emergency, budget last fall.

To introduce an emergency budget when there is no emergency is not a difficult trick for a skilled magician. A British Chancellor of the Exchequer is always in practice. Being dedicated to full employment, he must at all costs maintain demand at a high and expanding level; while in order to balance the nation’s trading accounts he must forever curtail demand. A level of demand sufficient to ensure 99 per cent employment is likely to result in an excess of imports over exports; and conversely a “credit squeeze” which restricts demand sufficiently to balance the trade accounts is likely to produce unemployment.

The only thing that could rescue a chancellor from the horrid necessity of alternately facing and backing away from this dilemma would be a considerable increase in productivity. Taxes can be arranged, but they cannot be much reduced since government expenses are set high by the existence of a welfare society and by the necessity for adequate military defenses. Furthermore a reduction of taxes, unaccompanied by a reduction in government spending, adds to consumer spending power and would further tip the scales of trade against Britain. Employment is also fixed, which means that productive power for an expansion of exports simply does not exist, unless individual output increases.

But there is another reason why the question of productivity is paramount. It is this: Treasuries may fix the rates of exchange, but these days organized labor largely determines the value of currency, for it largely determines the level of money wages. Its power in a fully employed society is immense.

Recently the Economic Commission for Europe has noted a tendency for British wages to increase faster than industrial output, in direct contrast to the trend in other European countries, notably Western Germany. Should the two trends continue, the result would be bound to show itself in further pressure against the British balance of payments and perhaps against the current rate of exchange.

Value for money

If free enterprise and prosperity are to be successfully combined with the welfare society, the present Conservative Government of Sir Anthony Eden has to succeed in finding and spreading the idea that efficiency pays. For unless this idea does spread and seems convincing, the liberal economy in Britain is doomed to recurrent crises with all the frustration and social difficulties they engender.

The Socialists would balance external accounts by force — that is, by physical controls. If the state decided that it had to control the value of the nutional money as well as the amount of imports, it would have to control wages. The alternative, if trade continued to be unbalanced or was balanced at too low a level to sustain full employment, would be further devaluations of the currency. In 1947 the British Labor Government was forced by crisis, against its will and against its political philosophy, to lake powers to conscript and direct labor. In 1949 — against its will again, but this time to avoid the state regulation of wages — it was forced to devalue the pound. Either time it could have been saved by a sufficient increase in output per man-hour.

Even under socialism, to ensure both freedom and security a people in an economic situation like that of the British would have to depend on an increase of individual productivity. With the economy free, or with it controlled, the answer is the same. Prosperity, it seems, still essentially consists of giving value for money.