CAB129-78 — Page 102

Page 102

THE IMPLICATIONS OF

FULL EMPLOYMENT

Presented by the

by Command of Her Majesty December 1955

to Parliament

Page 102

Page 102

}

107

Pager PCATIONS OF FULLPS 183 M₤371

3

I. Introduction

32 MENT

1. The White Paper on Employment Policy (Cmd. 6527), issued by the Coalition Government in May 1944, set out the policies to be pursued after the war to maintain a high and stable level of employment and to combine this with a rising standard of living. These policies have been applied with considerable success. Full employment has, in fact, been maintained in most parts of the country over practically the whole of the past ten years, and we are to-day consuming more as a nation than we have ever done before. But full emploment has brought with it one problem to which we have not yet found a satisfactory solution: yet, unless we do find the solution, it will be more difficult to achieve a further advance in living standards, and full employment itself may be threatened. The problem is that of continually rising prices. It affects everyone, and everyone must contribute if it is to be solved. The purpose of this White Paper is first to focus attention on it, analysing its causes and explaining its dangers, and then to suggest what will have to be done by the Government and people of this country if reasonable price stability is in future to be maintained.

II.-Full Employment since 1945

2. In the years immediately before the war the average rate of unemployment in the United Kingdom was 8-9 per cent. Since the war it has never (except for a few weeks in 1947) exceeded 3 per cent. For most of the period 1945-55 it has been under 2 per cent.; and it is now little more than 1 per cent. These figures are for the country as a whole. Unemployment in Northern Ireland and some other areas has remained appreciably above the national average, but has still been much lower than before the war.

3. The maintenance of full employment has been accompanied by a rapid increase in production. Since 1946 the national output of goods and services has risen by 25 per cent.; industrial production alone has risen by 50 per cent. But only part of this increase has been available for improving living standards, because there were other, more urgent, claims on our resources to be met in the immediate post-war years. We had to devote our efforts to making good the physical damage and destruction of the war, to overtaking the arrears of capital investment, and to restoring our overseas earnings, which had been seriously run down during the war. Moreover, we needed much larger exports than before the war, partly because import prices had risen more than export prices, and partly because we had lost a large proportion of our pre-war income from overseas investments. These difficulties had been only partially overcome when, in 1950, the out- break of war in Korea and the growing international tension compelled us to undertake a substantial programme of rearmament. In the past two years or so, however, the individual consumer has become the main direct beneficiary of the increase in production.

4. If we take full advantage of the opportunities open to us, there is every prospect that we shall be able to secure a further big improvement in our living standards in the years ahead. We are on the eve of great technical advances in the application of nuclear energy and electronics to industrial processes. Under the stimulus of full employment new attitudes to production are developing on both sides of industry and increasing attention is being paid to raising standards of technical training and education. The possibilities of economic progress and the importance of plagtivity3command a greater understanding and 03 wifle 2degree of

..

2

acceptance than they did ten years ago. As new techniques of production

are developed more efficient methods of work a dead with and the

benefits of fing investment are felt, we can look forward with confidence to a continuing expansion of our capacity to produce; and this rising productive capacity will provide the means for a further progressive improve- ment of our standard of living. It is right that we should look forward to this possibility: the ultimate objective of economic expansion is to satisfy the natural desire of mankind to enjoy a fuller life, in terms of security and happiness, leisure, and the fulfilment of personal hopes and ambitions. But a sustained growth of the economy is no less essential to enable us to discharge our duties as a major political and industrial Power, to sustain our commitments in many parts of the world, and to contribute to economic development overseas.

5. The future growth of production in this country must, of course, be affected by what happens in other parts of the world. A nation which is as dependent as the United Kingdom on overseas trade could not hope to maintain the full momentum of economic expansion in the face of a severe or prolonged recession in the rest of the world. But all member countries of the United Nations are committed, under the United Nations Charter, to mantain full employment; and in the past decade the majority of the industrial countries have succeeded in doing so. A growing recognition of the truth that prosperity is indivisible has found practical expression in the readiness of countries to co-operate in policies designed to ensure a high and expanding volume of world trade, and these policies have proved remarkably effective, as is shown by the fact that, apart from a minor set-back in 1952, the volume of world trade has been rising steadily, year by year, ever since the end of the war.

6. But whatever other countries do, the rate of progress which we shall achieve, and the increase in living standards which we shall attain, will depend mainly on our own enterprises and our own efforts. It is not sufficient that we should have the capacity simply to produce more. We must be able to produce and sell abroad enough exports to pay for essential imports of food and industrial materials and at the same time to meet the cost of our overseas capital commitments and to build up the reserves. This means producing the kind of goods our overseas customers want, at prices they are willing to pay. In the increasingly competitive conditions which have developed in world markets in the last few years, continally rising costs and prices in this country must inevitably weaken the whole basis of our export trade; and if we do not export enough, we shall be unable either to support a steady expansion of production at home or to maintain full employment. Quite apart therefore from the serious economic and social strains they create, rising prices endanger the full realisation of the possibilities of economic progress, and it must be one of our major objectives to maintain in future a much greater degree of price stability than has been achieved in the past ten years.

III. Prices Since 1945

7. The White Paper of 1944 did not foresee the extent to which full employment was to be associated with rapidly rising prices. Between 1946 and 1954 the prices of the final output of goods and services of all kinds increased by nearly 50 per cent.* Apart from the relatively minor effects of changes in subsidies and indirect taxation, which are dealt with in paragraph 10, these prices are determined partly by the prices of our imports and partly by our own costs of production. These costs of production are A definition of this price index, and index numbers showing changes in costs and prices between 1946 and 1954 is given in the Appendix.

4907Bage 104 of 321