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might feel obliged to limit their outlays in the miscellaneous category of investment, e.g. the repair and maintenance of houses and expenditure on durable consumer goods. It is impossible to predict what reductions of this sort might amount to, but it is important to remember that specific cuts in investment deliberately enforced by administrative action may well be supplemented by spontaneous cuts induced by a deflationary policy.
7.
Secondly, it is assumed that adjustments of investment programmes should not require either the stoppage of works already in progress or the cancellation of existing contracts. This would only cause confusion and waste disproportionate to the savings likely to be achieved.
8.
Thirdly, if cuts are to be made with certainty they must be made where they can be enforced. This turns on the measure of control exerciseable by central Goverment.
It should be easier to secure compliance with a change of investment policy in the public than in the private sector. About 55 per cent of the construction work lies in the public sector, but only 25 per cent of the plant and machinery. Moreover, building work, which is subject to licence and authorisation, is more susceptible of adjustment than investment in plant and machinery, which is not directly controlled. Some 60 per cent of total investment is in construction and 40 per cent in plant and machinery.
9.
Fourthly, those parts of the investment programme which are likely to make a significant contribution to our economic recovery and to the reduction of costs should be affected as little as possible.
10.
But a warning is necessary. Fixed investment is the product of two quite distinct groups of industries - the engineering industries on the one hand and the building and civil engineering industries on the other. The engineering industries have a very large stake in the export market which they must preserve if they are to remain prosperous. If the home investment demand for their products is curtailed, the labour and other resources released can in many cases be switched over in a very direct fashion to serve the industries' export market, given that the operation is carried out in an orderly way and an effective overseas demand for their products continues. But the building and civil engineering industries are almost wholly dependent on the home market and much of the building materials industries is in a similar position. Resources released by a restriction of building work would, therefore, have to move out of the industry in which they are now employed or the rate of their replacement would have to be scaled down. The release of resources would, therefore, be indirect, slow to mature and more doubtfully effective, though incomes in the building industry would be cut, thus reducing the pressure of consumers' demand generally. For the same reason the advantages would not be so obvious nor so readily demonstrable to those in the industries affected, and it would be necessary to face the fact that there would be something more than merely transitional unemployment. Clearly more harm than good would be done by bringing about such a situation unless the Goverment were firmly resolved to limit the scale of building activity and were able to keep it limited for some time aheade If in the event relaxations were introduced to minimise the resulting unemployment, the only effect would be to strike a blow at the confidence of the industry, and drive resources away from the more essential to the less essential kinds of building work.
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It must also be recognised that the use of building controls to reduce the volume of work below the level of the resources ag44719 6ilable to and in use get puffing industry would be a new departure. Hitherto the building controls have been employed solely to adjust the load to the resources of the industry and to alter the character of the work done within this total. It will be recollected that an attempt two years ago to reduce the size of the building industry proved completely abortive. One of the reasons for this failure was the unwillingness to restrict the amount of new work below the capacity of the building industry and to keep it restricted long enough to compel a transfer of resources elsewhere. In any event it would certainly be necessary to suspend the arrangement, which is at present in force, whereby loss
essential building works within the licenseable limit may be authorised wherever a surplus of building labour is likely to arise. Otherwise the Government would merely be reducing the more essential works with one hand and stimulating less essential works with the other. There is a further difficulty to-day because the licensing limits have been raised. One immediate result of restricting licensed or authorised building would probably be the expansion of less essential work within the free limit, combined with some increase in black market building.
12.
The positive line of attack would, therefore, be to limit the demands made on the building industry and the strain: put on the licensing system by reducing the demand for investment in those sectors where demand can be speedily and effectively influenced by the Government, i.e. in the public sector and the social services. It would be necessary by a simultaneous tightening up of the licensing system to ensure that the gains achieved in this way were not lost through an equivalent expansion of less essential building operations.
PART II:
13.
Detailed Analysis
The rest of this report deals with the prospects of restricting total investment in the years 1949/50 and 1950/51. It is now too late to alter in any effective way the level of investment for the current year 1949, since resources are already too far committed.
14.
Likewise for 1950 a large part of the work due to be carried out has already been started or committed. Thus in the case of the electricity generating programme contracts have already been entered into for the entire programme up to 1952 and for part of the 1953 programme, and work has already started on most of it. Even in regard to investment with a shorter Production cycle freedom of action is limited. All houses, for example, due for completion by next spring are already under construction and commitments have been entered into with local authorities for a large part of the 1950 housing programine, though work may not have actually started. At the other end of the scale much of the agricultural investment programme consists. of relatively small jobs begun and finished within the year. It would, nevertheless, still be possible to adjust the volume of investment for 1950 by limiting new commitments yet to be entered into and by slowing down the rate at which new work is put in hand. But it would be necessary to start doing so almost at once and the full effect would not begin to be felt until the second half of next year.
15.
Some savings in 1950 could be made by adopting a more restrictipbeyyppfør2in the licensing of pace 140f662 works, but no significant reduction of total investment can be achieved except by putting a brake on expansionist plans for 1951 and 1952.
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