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THE THIRD ELEMENT

THE budgets and statements described in 1947 and reviewed in the following Surveys were presented as bills of ąuantities show-ing how the national resources could be used to best advantage and as detailed programmes guiding the economy in a rapidly changing situation. The Surveys indicated the "tasks set (for) certain key industries" and "targets were set for the labour force to show what changes in the distribution of manpower were considered desirable".1 Forecasts were made of the performance expected from such indus­tries as agriculture, gas, coal, oil, iron and steel, chemicals, engineer-ing, textiles and tourism; and of the "distribution of manpower needed to bring about these expansions and contractions". The British economy had to be accommodated to the loss of a foreign fortunę: to "a quiet but complete social revolution" 2 represented by the institutions of the Welfare State: to the need for repairing and replacing capital neglected and consumed during twenty years of depression followed by six of total war; and to the military reąuirements of Western defence. All this involved marked change in the composition of production. Goods for export, for capital investment, for social sendces and for defence had to replace goods and sendces formerly produced for the home trades and for private consumption. The scalę and composition of capital investment had to be adjusted to the shortages prevailing at the time, and home-produced foodstuffs and materials had to be substituted for imported articles. A totalitarian plan, it was explained, "subordinates all individual desires and preferences to the state", compelling the individual "by various methods . . . which deprive him of the freedom of choice". Democratic government, on the other hand, owing to the unwilling-ness of the people in the normal times to give up their freedom of choice, had to "conduct its economic planning in a manner which preserves the maximum possible freedom of choice to the indhddual citizen". The public servants of a democracy cannot insist by fiat and ukase that the national resources shall in fact be put to the uses which "they", the officials, deem best.3 The production of grey cotton cloth 1449 H.C. 45. 2 J. E. Meade: Planning and the Price Mechanism, p. 36. 8 Cmd. 7046, para. 8. and of knitwear for civilian use had, it is tnie, been planned success-fully in the war by the issue to mills of detailed specifications and quantities, laying down the output which was reąuired. But that was not until the scarcity of yarn, owing to an insoluble problem of labour supply, had become so desperate that the ration was threatened. When shortage of standard commodities becomes really acute there is reasonable assurance that everything which is produced can be sold and no danger conseąuently that manufacturers will be left with stocks of goods which they do not want to make and which they can­not sell. But with the return in peace to a comparative plenty and as departments, with the ending of the war, ceased to be finał purchasers of output, responsibility for the ordering of production is passed back to the merchants. The administrators of a plan, even if Govern-ment had the inclination, could not be expected to specify what out­put shall be produced by plants selling to private customers in civilian markets. That responsibility belongs to the buyer, who carries the loss if the finał consumer does not want the articles which have been produced. In the one case in which it was tried, in cotton, the planning of an output which at no stage came into the ownership of the Board of Trade (the planning authority) proved in fact to be "a cumbrous procedurę which was abandoned as soon as the post-war infiow of labour eased the yarn shortage".1 Government in war is the direct purchaser of a large part of the national output. Departments and other agencies of Government let the contracts; and subject to law can enforce the terms of the contract on the contractor. Government plans for production in these circumstances are carried out automatically, as the discharge of contracts let by Government departments and taken up by private business. Government consumption for warlike and other purposes, considered as the sum total of the current expenditure of public authorities, rose from a sixth of the national income before the war to well over half at the height of the war effort. Government pur-chases rapidly diminished, during 1947, 1948, 1949 and 1950, to the pre-war proportion; and there was later a slight rise, the conseąuence of military emergencies in Korea and South-East Asia (Tables 12 and 13). Government in peace, as the Survey for 1947 remarked, soon lose their control over the course of production as the value of Government contracts declines. Private business faUs out of reach of direct Government orders. Overt compulsion as the means of carrying out plans is renounced as foreign to the character of 1Hargreaves and Gowing: dvii Industry and Trade, pp. 448, 449 and 499. a democracy and democratic Government, if they seek to "in­fluence the use of resources" must do so "by other less drastic measures".1 Governments empowered to allocate materials by licence are able to withhold supplies from uses which conflict with policy. Govern-ment, by refusing licences, could discourage private business from making the things which Government did not wish to see made or, at least, prevent them being made on the scalę which private business might otherwise have chosen. But at no time sińce the war did it appear that instructions were attached as a condition to a licence specifying the uses to which controlled materials should be put, and no pressure reinforced by penalties was exerted on manufacturers to make goods of the Governments' choosing rather than their own.2 The Defence Regulations, continued under authority of the Supplies and Services (Transitional Powers) Acts, no doubt contained the table 12 Public Authorities' Current Expenditure on Goods and Services— £000,000 Net National Income at Market Prices (a) Public Authorities Current Ex-penditure (fl) % Total Domestic Expenditure at Market Prices (6) Public Authorities Current Ex-penditure (6) % 1938 . 5,291 789 15 1938 . 5,779 (c) 772 (c) 13 1939 . 5,714 1,286 24 1946 . 10,183 2,291 22 1940 . 6,824 3,213 47 1947 . 11,005 1,743 16 1941 . 8,047 4,349 55 1948 . 11,718 1,761 15 1942 . 8,894 4,722 53 1949 . 12,370 1,977 16 1943 . 9,490 5,254 58 1950 . 12,819 2,067 16 1944 . 9,661 5,249 54 1951 . 14,892 2,439 16 1945 . 9,580 4,450 47 1952 . 15,442 2,886 19 1946 . 9,227 2,329 25 1953 . 16,684 3,074 18 National Income and Expenditure, 1938-46, Cmd. 7099, Table 15. National Income and Expenditure, 1946-53, Table 1. Annual Abstract of Statistics, 1954, No. 91, Table 282. The figures before and sińce the war are not strictly comparable. The first group are computed as a percentage of net national income; the second as the percentage of the larger total of the gross national income, a sum which includes provision for depreciation and maintenance of capital in addition to the net expenditure on new capital. This difference, however, is not significant in the context of the argument. 2 Above, p. 74. Source: National Income and Expenditure, 1946-52, Table 13. power to compel; but those powers were kept in abeyance and were not exercised. Controllers could refuse licences if the purposes to which the scarce materials were to be put did not come within the current scheme of priorities, or if the applicant had flagrantly mis-used his allocations in the past; but within the limits of their alloca-tions, firms were free to use controlled materials as they pleased, unless otherwise persuaded by the sponsoring department or control. No firm, however "inessential" its output, was refused an alloca-tion entirely—to be so severe might put the firm out of business and would certainly have earned for the controller a reputation for arbitrary and high-handed conduct quite out of keeping with the character of a democratic official. Some firms, no doubt, making goods obviously of the highest priority—in 1946 for home supply, in 1947 for house building or to save coal, in 1948 to ease the load on electric generating plant, in 1949 for direct export to hard currency areas and in 1950 and 1951 for rearmament—were clearly entitled Total Finał Output Sold to Public Authorities as finał buyers Agriculture, forestry and fishing 472 8 Mining and quarrying 142 4 Metals, engineering and yehicles 2,386 205 Textiles, leather and clothing 1,283 23 Food, drink and tobacco 2,351 16 Other manufacturing . 723 180 Building and contracting 1,014 155 Gas, electricity and wate r 301 28 Other products and tradt 3,991 390 Other industries . . 1,543 1,071 (a) 854 80 Sales by finał buyers . - 67 - 103 Total (at market prices) 14,993 2,057 Government Purchases 1950—£000,000 (a) Comprises cost of Public Administration and defence . 726 Public Health and Education . . 345 Total 1,071 TABLE 13 to all the materials they needed for those purposes. But the majority of applicants lay between the extremes of the obviously inessential and the clearly essential, and there was ample opportunity for dispute about the exact position which the output of each occupied in the current scalę of priorities. Quite obviously, no very precise rules could be laid down. The Board of Trade, except in the special case of cotton textiles, did not throughout the war seek to "compel a firm to make one article rather than another, much less a certain type of article".1 If this was not done for civilian production in the emer-gency of war, still less could it be done in peace, when the ranking of priorities is much less sharply defined. The detailed sharing out of supplies sińce the war certainly has been left very much to the con-trollers' discretion, guided at the most by some quite generał instructions. Reąuirements submitted on an application for a licence can rarely have been accurate nor always carefully compiled. Not all firms know their futurę needs for materials; and if they had to guess they would set their estimates too high rather than too Iow. Some appli­cants, knowing that they would not get all they wanted, sought no doubt to insure against the inevitable cut by asking too much in the first instance. No outside authority, however well informed, could possibly have a knowledge of each firm so intimate that he could verify in detail the validity of each applicanfs statement of reąuire­ments. Controllers had to rely upon their knowledge of the industry as a whole and their estimate of the generał condition of their constituents. Most of them were drawn from the trade for that very reason. They were helped by their knowledge of what the client had in fact done in the past and by the movement of stocks during the period. A complaint of unfavourable treatment would not be well received from a firm whose stocks of scarce materials had steadily been rising nor from one whose performance in the past had regu-larly fallen below promise. But these were not universal guides and disposition of many a case, in such circumstances, must have de-pended upon the cunning and salesmanship with which the client made out his claim and upon the ability of the controller to see through the ornamental screen to the main fabric of argument sus-taining the application. Other things being eąual, an allocation in a disputed case would be the larger in relation to the stated reąuire­ments, the more closely the applicant succeeded in bringing his claim within the controller's scheme of priorities. Corroborative detail, in the hands of an imaginative and not necessarily unscrupu-1 Hargreaves and Gowing: Cml Industry and Trade, p. 499. lous writer, must often have been used, borrowing a phrase from the late Sir William Gilbert, to lend an air of artistic verisimilitude to an otherwise bald and unconvincing application. Many a business must have won, not always deservedly, a larger allocation by the exercise of hitherto unsuspected gifts for graphic and forcible expression!1 Controls over materials, however necessary they may appear in times of scarcity, aggravate and prolong the shortages which distri­bution by licence and allocation is designed to prevent. Rationing inevitably induces applicants to overstate their reąuirements, and deliveries at prices controlled and fixed below the market are an encouragement to hoard. Government, represented by the materials committee sitting in Whitehall, provided at seasons of inflated de­mand for allocations between departments so that the claims of first things on current ideas of priority ranked first. But central Govern-ment were never able, even during the war (or so it appears) to ensure that individual controllers would cleave closely in making their distributions to any centrally formulated plan; and there is no evidence that the body responsible (the Raw Materials Department) were any more successful, after the war, in controlling the controllers from their new ąuarters (first in the Board of Trade and later in the Ministry of Materials) than they had been from the Ministry of Sup­ply during the war. Much depended upon the personality of the con-troller himself and some of the more conscientious (or officious!) attempted no doubt a distribution according to the priorities sug-gested by departmental instructions or by their own appreciation of the generał situation. What principles governed the issue of the licences by which scarce supplies were distributed in detail to private business is a ąuestion which could only be answered after examina-tion of the practices of the several controls. There is not much evidence to show that controllers did in fact exercise any high degree of discrimination in distinguishing from among the applications before them, those which really were the more "essential" as that term may have been understood by the parties concerned; and there is at least as much to indicate that a share in what was available, proportional to the business done in 1939 or some other pre-war period, was generally found to be satisfactory to controller and trade alike. Even in war, it seems, controllers had been reluctant to give up the principle of fair shares.2 Their objec-tions to permitting in peace the appearance of discrimination in their 1 Cmd. 7904. 2 Hargreaves and Gowing: dvii Industry and Trade, p. 454. distribution of scarce supplies between firms must have been stronger and much less easy to overcome. No official, if he can help it, invites a reputation for unfairness, and controllers chosen from the trade can be expected, almost as a matter of course, to fali in with the generał ideas of their constituents in preference to any principles suggested by Whitehall. "Maldistribution" of resources, as that term is likely to be interpreted by the trade, is avoided and the "dislocation" caused by scarce supplies can be "mitigated";1 but such a scheme of control obviously cannot have gone far towards influencing the use of resources in the directions desired by Govern-ment—particularly if those should have been different from the directions which business might have chosen for themselves. Planning by prevention can be greatly assisted by consultation between planners and the planned. Consultation—planning by consent to its advocates, mere "voluntarism" to its detractors2—is most effective in highly organised industries marketing a homo-geneous product. Plans are more readily formulated and the pro-ducts more easily and aptly described. Well-organised industries, already accustomed to the discussion and friendly solution of common problems, rapidly established a satisfactory working arrangement with the planning authorities, often to the advantage of both parties. Unorganised industries, on the other hand, and those which market a wide and diverse rangę of products, found direct consultation with departments of Government much less effective and successful. For one thing, the number of individuals concerned was larger; for a second, there were no recognised leaders who could speak for the trade; and for a third, the variety of output defied that simple but effective classification essential to the drafting of regulations and the drawing up of anything more precise than the most generał, and therefore uninformative, statements of reąuire­ments and supplies. The amount of consultation varied from one industry to another. In some there was continuous, often intimate and daily contact between the officers of the trade association or firm and the respon-sible civil servants. Some industries adopted the formal machinery of a development council, supported by a levy accepted by all members; and at the other extreme there was nothing more elaborate than those occasional, and ad hoc, meetings of businessmen (selected by the officials concerned or by themselves) called when, in order to ensure success, Government wanted to secure in advance the ^md. 7572, para. 51. 2 Thomas Balogh: Dollar Crisis; Causes and Cure, Oxford, 1949, p. 31. adhesion of the trade to a particular scheme. Informal consultation can and did take place continuously and at all stages and leyels;1 and in the attempt to secure the link between the central administra-tion in London and industry in the provinces, the machinery for consultation was devolved into the regions. The Regional Boards for Industry, as this machinery for local consultation is called, comprise representatives of officials, employers and employed. The Chairmen of these Boards meet periodically with Ministers, with headąuarters staffs, and other branches of Central Government on the National Productivity Advisory Council for Industry and else-where. They formed a channel of communication between White-hall and the regions and between Ministers and officials on the one hand and business and organised labour on the other. They enabled Government, if they were so minded, to inform local industrial opinion of the objectives of policy and the progress of plans; and they helped all parties toward a better understanding of the other's point of view. But development councils, regional boards and national councils were intended only to advise. The institutions of joint consultation were not executive. The detailed administration of the programmes and the carrying out of the "plan", in so far as private business was affected, rested with the officers who received the applications for building licences, for import licences and for controlled materials, and with those on whom lay the responsibility for making the allocations. Beyond the statutory powers of prohibition and prevention dele-gated by Parliament under the Defence Regulations, there extends, in ascending order of importance, the considerable resources open to contemporary British Governments of publicity, exhortation, per-sonal persuasion, voluntary co-operation, unwritten undertakings, gentlemen's agreements and, ultimately, those friendly understand-ings reached privately between responsible civil servants and the effective managers of the businesses or leaders of the trade concerned. Government, often for security and inevitably for reasons of admin-istrative convenience, cannot easily negotiate on matters of industrial economic policy with individual firms. They look, instead, to the "leaders of industry" often represented by the trade associations. These bodies, progressively built up by Government as the generał headąuarters of the trade, had, even before the war, become "less and less debating societies of minor importance and acąuired a dignity and sense of responsibility which went a long way towards preparing 1 A comprehensive account of the arrangements touched upon in these para-graphs is given by P.E.P. in their Governmenl and Industry. for industrial self-discipline and self-goyernment".1 Large firms, particularly those with offices in London, well-organised trades and officials of national associations the growth of whose power has been actively fostered over the years by Government, are often responsive to Government reąuests; but private persons and private business— particularly private business in the provinces—can be far less man-ageable. Their directors according to one authority do not have the "standing" to "talk informally to, say, an Assistant Secretary" in charge of the branch "or even higher official";2 and they could not but become, as the urgencies of war receded, less easy to per-suade, both individually and collectively, into courses which did not coincide with their own assessments of public and private interest. The Long Term Programme, after remarking that recovery must not be bought at the price of arbitrary and excessive interference with the rights of the individual, promised "a resolute use . . . of the direct public control of certain basie industries".3 Coal, trans­port, gas and electricity have been nationalised and are now worked by publicly-owned undertakings. The Boards of these industries "are reąuired by statute, when framing programmes of re-organisa-tion or development involving substantial outlay on capital account, to act on lines settled from time to time by the responsible Minister".4 The nationalisation Acts have each reserved certain powers of direc-tion to the Minister. The authorities managing the industries have had imposed on them a statutory obligation to meet their costs out of revenue, taking one year with another. The administration of each —board, commission, authority or council as the case may be—is directly responsible to Parliament for their conduct of these proper-ties and not to the Minister or to his department. The preparation of detailed schemes for each nationalised industry and even more, the execution of the plans, is in the province of the undertakings themselves, encouraged by those powers of direction which the several acts have retained for the Minister and limited by the 1 Hurstfield: Control of Raw Materials, pp. 25 and 67. 2 Political and Economic Planning: Government and Industry, p. 106. ". . . the smali firm", as the authors of this pleasing conceit go on to say, "has to be content [sic] with a Regional Office or with writing letters which are dealt with by Execu-tive Officers; there is thus a risk that the department will acquire a big firm 'slant' "; and more of a risk, it might have been concluded, that the smali firm made thus aware of its unimportance, would be correspondingly less amenable to departmental pressure! 3 Cmd. 7046, para. 11. Cmd. 7572, para. 6. 4 Cmd. 7572, para. 160. resources available, both financial and otherwise. The boards can certainly be expected loyally to assist Government—but they clearly cannot be asked to do things which are contrary to the spirit in which the board have conceived the duties laid on them by the acts which constituted the undertaking. Economic plans in which the nationalised industries are involved, to be acceptable, must be con-sistent with the economic circumstances of the nationalised industry to which they are addressed and at the time they are made. A board, invited to share in a plan as part of a national economic policy which, in their opinion, could not assist them to earn a sufficient addition to revenue, might have no alternative under the law but to refuse, pleading instead their statutory duty.1 Conflicts of interest are not inevitable; but in this respect at least, the boards of nationalised industries could have been expected to submit their affairs to the needs of an economic plan no more readily than the directors of a private business; of neither the one nor the other could it be supposed that the responsible managers would readily have fallen in with national policies pressed in circumstances in which the costs incurred in following out the courses laid by the Governments' plans were unlikely to be covered out of the revenues to be earned. Nationalised industries, for all that they are "owned" by the public, cannot easily be fitted into economic plans as subordinates as long as the boards retain the rights—and duties—conferred by the nationalisation acts as these have been passed into law. Administrative controls over the use of resources, exercised by ration, licence and allocation, have been supplemented on occasion by tax and subsidy. Tax was raised, early in the war, on (private) purchases of a large rangę of civilian goods then considered to be "inessential". Other consumption goods of a particular kind—the utility fabrics are an example—were left free from tax and sold at controlled prices.2 Non-utility wear was thus raised in price in relation to the utility rangę and consumption thereby discouraged at a time when, for reasons of war and post-war economy, production of textiles for the home market was being concentrated on a limited rangę of styles which could be produced for a relatively Iow cost in labour. The removal of purchase tax in October 1945 from a rangę of domestic eąuipment as a means of encouraging the production of goods "of special importance to the housing programme" has 1 Report and Accounts of the British Transport Commission for 1948, pp. 29 and 30; Report and Accounts of the British Electricity Authority for 1950, para. 57. a Until the utility scheme was finaliy withdrawn in 1952. already been mentioned.1 The tax was later reimposed (at 66| per cent—twice the former rate) on gas and electrical apparatus for the home. Domestic consumers were then making "heavy demands on the public gas and electricity services" and a restriction in their use of these apphances appeared, after the coal crisis in February 1947, as "an unpleasant but necessary method of fuel economy".2 Pur-chase tax was levied after the war at 33^ per cent on cars selling at less than £1,000 and at 66f per cent on cars selling at prices over £1,000, in order to raise domestic prices, and reduce the competition which the home demand might otherwise have offered to the over-seas purchaser. Home sales of commercial motor chassis were later subjected to (purchase) tax at 33^ per cent "to assist the industry to achieve the desired diversion of its output to exports" after "all the efforts" to control "an excessive volume of home sales" by "administrative methods" had been unsuccessful.3 Tax was sub-seąuently raised at 66| per cent on all cars when the export drive had to be intensified in 1949 and British cars were selling well abroad. Later, in April 1953, sales abroad ceased to absorb so large a part of output; and tax was reduced to 25 per cent in order to stimulate home sales. Excise duty has similarly been used in the attempt to enforce eco­nomy, particularly in commodities costing dollars. Rationing, as the shortage of (motor) vehicles disappeared, could no longer effectively restrict consumption of petrol "in a large part of the field—that covered by commercial vehicles" and the addition of a "fiscal induce-ment" to economy had become necessary. Duty was raised in 1950 from 9d. to 18^., to 22%d. in 1951 and in 1952 to 2s. 6d. a galion.4 The duty on tobacco, too, was steadily raised and for the same reason, to enforce economy of dollars. But such is the demand for that commodity that the increase in duty was unavailing. Consump­tion was not substantially reduced. The revenue gained, but the balance of payments did not, and the import of American tobacco had finaliy to be controlled by the direct limitation of the quantity for which licence to import was allowed. The subsidies to agriculture, to housing, and on the staple im­ported foodstuffs were continued after the war. The first had been begun before the war, intended to help British farming, and later to raise the proportion of home-produced foodstuffs. The second had been used sińce shortly after the first world war, to stimulate the building of houses for those whose means were considered 1 Above, p. 61. 2 414 H.C. 1901. 436 H.C. 86. 3 474 H.C. 73. 4 474 H.C. 75. 497 H.C. 1293^ł. inadeąuate to pay for new housing of the ąuality which the stan-dards of the times were thought to demand. The subsidy on food­stuffs, whether imported or home produced, was paid after, as during the war, as part of social policy and as an aid to the stabilisa-tion of wages and prices. Subsidies had been and were still (in October 1945) "a most timely grant in aid to every household budget in the land" and had "helped to restrain any disproportionate in­crease in wage rates which, if it had occurred, might have disturbed the whole balance of our economic Life and might have sucked us into the fatal whirlpool of inflation".1 Stabilisation in peace proved expensive. The cost of the subsidies rose from £272,000,000 in 1945 to £515,000,000 in 1948. Prices by then had "got out of all relation-ship with realities" and to have continued the attempt to keep down the cost of living might result in the "ridiculous position of our having to refuse to import much needed food because we (could) not afford to pay the subsidy out of our Budget".2 An "effective and firm fimit" of £500,000,000 was placed on the liability of the Exchequer and from that date any further increases in costs, from whatever cause, were allowed to have their effect on prices. The subsidies to agriculture and housing still remain; but those which were paid toward the cost of imported foodstuffs have been reduced and withdrawn entirely as supplies have increased and the remaining articles of food freed from the ration. Armed with the Supplies and Sendces (Transitional Powers) Acts, with Defence Regulations, with the Import (Control) Orders, with such instruments as the Distribution of Industry Act, 1945, and the Town and Country Planning Act, 1947, and with power to tax, Government clearly had wide powers to prohibit, prevent and deter. But plans for change cannot be fulfilled merely by prohibiting, pre- venting and discouraging the production of output which does not conform to the design. Planners, if they are effectively "to influence the use of resources in the desired direction", should be able to bring about the expansions in output called for by their plans. Economic goals are likely to be won and production targets hit, the more nearly the choices of the planned can be brought to conform with the intentions of the planners. Restricting a programme is compara- tively simple for authorities able to levy tax and to withhold licences. But the inducements which Government from 1945 to 1951 held out to the planned to carry through the intentions of the planners were absurdly weak. A larger ąuantity of raw materials might be allotted for the manufacture of goods high on the scalę of priority. 1 414 H.C. 1878. 2 463 H.C. 2085. Licences to build were more freely issued in areas marked for development. Purchase tax could be lifted from commodities, the (home) sale of which no longer had to be discouraged. But no generał attempt was made, except in house-building and agriculture, to stimulate by subsidy, output from those "undermanned" trades upon which the fulfilment of plans was said to depend; nor, perhaps fortunately, was the policy of subsidy applied at any time to the execution in detail of the programmes and budgets which had been set up as targets. The inducement for labour to migrate, which might have been provided by wages higher in the undermanned than in the overmanned trades, was subordinated to free wage bargains between unions and employers. The incentive to enterprise afforded by the promise of high profits in essential industry was inconsistent with the prevailing conviction that the taking of a profit is unseemly and in bad taste—an offence, almost, against morals. High profits could not be distributed owing to the insistence on the limitation of dividends; and the earning of a high income in any part of the economy, even as a direct result of the worthiest attempt to provide the most essential of goods and services, invited taxation at rates which considerably diminished the attraction of gainful activity. Allocations, licences and permits alike are creatures of shortage and scarcity. When reąuirements can be met in fuli, no allocation need be made. Producers and sellers, once consumers can have all they are prepared to buy at the current price, canvass ways and means of disposing of the excess. Controllers in such circumstances cannot reasonably withhold licences; and the right to prohibit and prevent is valueless when no one able to pay need want for materials which may freely be bought. Prevention and prohibition by regula-tion and control, allocation and licence can be used as instruments to carry out plans for economic change only when there is main-tained throughout the economy a margin of unsatisfied demand (at the current levels of prices, wages and other costs) pervasive and strong enough to act as a continuous incentive stimulating private business (and nationalised industry) to produce the outputs conform-ing with the plan and on the terms and on the scalę prescribed in the plan. When all things are scarce and demand at the current price is everywhere in excess of supply, there is a market for anything and everything which can be produced. Within so large a rangę there is scope for planners to select for licences and allocation the particular output and the ąuantities which most nearly conform with their plans; and they can refuse supplies for purposes which do not. A generał excess of demand over supply at current prices is a sure sign of infiation. Purchasing power, unused because prices are held down by control and ąuantities of goods limited by ration and alloca­tion, continually seeks release in directions not yet blocked by the tax gatherer and controller. The energies of planners are wasted in the continuation of shortages. Time and thought are absorbed in an endless succession of recurrent crises and the infiation, if allowed to continue, inevitably undermines the main prop supporting the system of democratic economic planning—public appreciation of the objec-tives set by the plan and public confidence in the planners and their instruments. Rationing, the allocation of raw materials, the distribution of the right to build by licence and so on, rest heavily on the good faith of the applicants and the confidence which they repose in the con­trollers. Controllers have to rely upon the reasonableness of appli­cants in stating their claims and their honesty, both in compiling their returns and in the use they make of their allocations. Applicants in turn must be satisfied that they are getting very much the supplies they really need to do a fair share of the business within their reach and all parties—business, regional and headąuarters staffs of depart­ments and the inter-departmental planning committees—have to be assured that scarce supplies really are being used to the best possible public advantage. Had allocations at any time after the war fallen well below the ąuantities which consumers wished to use, each would have been tempted to resort to all manner of subterfuges to increase his supplies. No army of inspectors (of the size, at least, that Great Britain could afford) could conceivably have examined the validity of every applicanfs reąuirements, ascertained the use to which he put his allocation and verified his stocks. Once confidence and good faith had gone, the machinery of allocation would have had to be replaced by allotments for specified purposes. The controller would have become the director of industry rather than a means of access to supplies. Inflated reąuirements carry also the danger of conflicts in priorities. Passed up through the hierarchy of regional and departmental headąuarters, these differences, if they could not have been reconciled within the departments and the inter-departmental committees, would finaliy have reached the Cabinet. Ministers have many things to do. They cannot spare the time to deal with conflicts about priorities which outgrow the possibility of easy resolution in the normal course of departmental business. Too freąuent a reference to the Cabinet could only have been met by the imposition of an official and rigid Ust or some other form of finał and absolute authority. A direction of this sort might have resolyed the confhct; but it would have exacerbated differences between official and business opinion. It would certainly have marked the end of that fruitful co-operation between Government, industry and the people which was relied upon for the successful execution of the plan and it would have been wholly inconsistent with the supposed character of democratic economic planning. Under democracy the execution of the economic plan must be much more a matter of co-operation between Government, industry and the people than of rigid application by the State of controls and compulsions. The Government must lay down the economic tasks for the nation; it must say which things are the most important and what the objectives of policy should be and should give as much information as possible to guide the nation's economic activity; it must use its powers of economic control to influence the course of development in the desired direction. When the working pattern has thus been set, it is only by the combined effort of the whole people that the nation can move towards its objective of carrying out the first things first and so make the best use of its economic resources.1 A free people, as that term has come to be understood in the West, not subject to orders from authority which must be obeyed, can be combined into an effort capable of moving the nation when each is caught up in a wave which leads the whole freely to place their persons, their services and their property at the disposal of those responsible for the direction of affairs—as the British did in June 1940. That resolution sustained the efforts of the British people throughout the war and made them willing to fali in with plans, however unwelcome personally these might have been. War was followed in 1946 and 1947 by a time in which controls were still close and Government guidance in the tasks of reconstruction and rebuilding was followed, more or less wilHngly, either from habit or from tacit acceptance of the broad aims of policy. Much can be accomplished in war just because the reąuirements of the State for military purposes are paramount and recognised as such. Priorities as long as governments retain the confidence of governed, are obviously commanding. What is right in war, however, is not neces-sarily right in peace, nor can public advantage in peace be put with certainty before private vested interest.2 The first things of peace rarely command a universal consent. 1 Cmd. 7046, para. 29. 2 As, for example, Earl Attlee has suggested in his autobiography As It Happened, p. 163. There can then be as many replies to the ąuestion—what is the best use of resources?—as there are strands of interest in the community. The answers given by each depend upon current economic circum­stances and the direction of economic policy. Neither can be stated simply and forthrightly nor are either so obvious as to carry real and immediate assent. There can be honest differences of opinion about the naturę of both, and downright mistakes of analysis. Economic policies which appear right to one are wrong to another; and the perception of a third is clouded by self-interest. Democratic governments, determined to remain within the letter and the spirit of the Western tradition but bent nevertheless on assuming a deliber-ate and positive control over the direction and magnitude of econ­omic change, have to find the means, other than compulsion, of ensuring that citizens, obeying whatever impulses may move them, freely choose the courses which correspond to the employment of resources marked out by the planners. There was nothing in the marginal adjustments envisaged in the budgets and programmes, nothing to catch the imagination in a little bit more from that undermanned industry here, in a little bit less from that overmanned industry there. Not, unhappily, the Beveridge Plan for Social Security, not the attack on bad housing nor the challenge of making good the benefits promised in all the schemes of social improvement for which we had voted; not the appearance of chronić deficit in the balance of payments nor (in 1947) the prospect of international bankruptcy and interruption to the flow of vital imports, were enough to enlist the active support of the British people to the tasks set up as targets in those early Economic Surveys. As infiation after 1948 was contained with in-creasing vigour and success, the methods upon which the planners had been relying "to influence the use of resources in the desired direction" became increasingly ineflective. The working pattern had been set up and amply explained. The system of democratic econ­omic planning was well eąuipped with brakes. But there was no engine to drive the efforts of the people and move them toward the chosen objective. The limitations to, and possibilities of, planning by prevention, consultation and consent can be illustrated by the example of the motor trade. The manufacturers are big users of steel; they are in the van of the export drive; and they are well organised in the Society of Motor Manufacturers and Traders. The industry is spon-sored by the Ministry of Supply. Private car and commercial vehicle makers met departments on the National Advisory Council for the Motor Manufacturing Industry, a consultative body organ-ised by the Ministry of Supply. Its members include manufacturers, the Board of Trade (for exports), the Ministry of Transport (con­cerned with civil road transport at home) and branches of the spon­soring departments responsible for military reąuirements for vehicles and for the supply of steel. Certain generał targets for cxports were set up by the Government. Manufacturers of mass-produced cars, at the time, were expected to sell abroad at least 75 per cent (by number) of their gross output. Other makers turning out cars designed for the more highly specialised sections of the home market were supposed to export up to half of their annual output, again measured by number; and manufacturers of heavy commercial vehicles were invited to aim at an export of at least 50 per cent (by value) of their annual output. Within this generał scheme, the export ąuotas for each firm were arranged by departments in direct consultation with the makers con­cerned. Suggestions were invited, adjusted in discussion and finaliy accepted voluntarily as the volume of exports which the firm would endeavour to ship abroad and sell in the course of the year. The ąuota finaliy agreed upon depended, of course, upon the suitability of the particular vehicle for the overseas user. Domestic models are never ąuite right for a foreign buyer and modifications are expensive. The makers of cars unlikely, for reasons of design, to sell in any great numbers outside Great Britain, had thus to be set a com-paratively Iow ąuota—less, for example, than the 50 per cent other-wise prescribed as the generał minimum for the more specialised models. The targets erected and the outputs arranged, the allocation of sheet steel and other scarce resources followed. The vehicles were produced and sold. Makers who were successful in selling to hard currency markets were awarded the inducement of a bonus of steel sheet. But Government exercised no legał powers to compel any volume of export sales nor to prescribe the destinations of exports even generally between hard and soft currency markets. The Iron and Steel Control, in a subseąuent period, could withhold in part or in whole, allocations of sheet steel from firms which had failed to fili their ąuotas. Government attempted to diminish the attractions of the home market by imposing purchase tax on cars and com­mercial chassis. Government might also, though in fact they did not, prosecute for misuse of resources granted under licence for specific purposes, firms which did not sell their agreed propor-tions of exports; and there was always the fear that Government, if sufficiently provoked, might have taken the power as they certainly could under the Supplies and Senices (Transitional Power) Act, 1945, to license deliveries of motor vehicles to domestic customers. But without these unused and unthreatened powers of coercion there was, it appears, no authority whatsoever, even in the days when exports were being most vigorously pressed, to prevent motor manufacturers from selling on the home market vehicles which could not be, or at least were not, sold overseas. No firm in any business wants to carry unsold export stock which finds a ready market at home; and it would have been most unreasonable to expect motor manu­facturers, in the absence of specific agreement to the contrary, to refrain from disposing of their "frustrated" exports to eager domestic buyers willing (until 1952) to pay up to twice the manufacturers' list price for used cars one and two years old. A firm accepting an export ąuota fixed in relation to reąuirements for foreign currency rather than the commercial possibilities, inter-preting that term in the widest sense, cannot be expected to reach its ąuota unless its organisation for foreign sales and service is adeąuate. Cwerseas markets demand great resources. Salesmen and service engineers have to be maintained at salaries and other expenses which are certainly higher (in domestic currency) than at home. A more elaborate organisation is often necessary and much more capital is locked up in the stocks which have to be maintained in foreign depots in order that spares can be supplied when they are needed. No worthwhile export business can be built up on a smali volume of (foreign) sales; and only those firms can successfully undertake an export business which have, or can furnish, the capital, trained men, and fund of experience which are essential to success. The number of vehicles sold abroad of a particular make must be at least sufhcient to give the overseas buyer a reasonable assurance that stocks of spare parts will be maintained and, even more im-portant, that local engineers will be induced to learn the techniąue of maintenance, replacement and repair. The bulk of the export trade in motors is thus concentrated, inevitably, on those few firms who are already well established in export markets, who have ex-perience of foreign selling and who have trained the foreign buyer to accept standards based on British practice. Exports, when supplies are scarce in domestic markets, are sold abroad on terms less favourable to the manufacturer than in the home trade. There is more competition abroad; there are tariffs to be overcome; and foreign prices do not respond, as home prices often do, to the steady upward tendency of (domestic) costs resulting i from an expansion of income at home. The unavoidable concentra-tion of the export business on a few firms acted conseąuently as a discrimination against those motor firms who happened to be leaders in the export field. It is upon them that the successful execution of export plans depends; their export ąuotas are raised as other firms, never before interested in exports, give up the struggle and retire; they have to forgo the relatively easy conditions of the home market and are condemned to do an increasing volume of business in the relatively unprofitable and unprotected markets of the world over-seas. Men and firms who voluntarily enter into engagements bind them-selves for the most part in honour to discharge those undertakings. To the best of their ability each motor firm tried to build its export sales up to the figures agreed upon with Government departments. The fact, however, that export business was worth so much less than an eąual volume of home sales could not have assisted the determina-tion of managements to carry through their share of the export drive and it must be reckoned a serious defect that plans for export so often confronted those upon whom the execution of the plan de-pended with a conflict of loyalties, opposing their duty to their firms with the obligations they had freely undertaken to help in the fulfilmcnt of the national plan.