Causes of the slow rate of economic growth of the United Kingdom: an inaugural lecture

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Causes of the Slow Rate of Economic Growth of the United Kingdom

AN

IN A U G U R A L

LECTURE

BY

N ICH O LAS KALDOR Professor o f Economics in the University o f Cambridge

C A M BRID G E

U N IV E R SIT Y

5 s. net in U .K .

PRESS

CAUSES

OF TH E

OF E C O N O M IC OF T H E

U N ITED

SLOW

RATE

GROWTH KIN G D O M

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o f the basic economic facts which has inI creasingly entered into national consciousness is the relatively slow rate o f economic growth o f Britain. Thanks to the w ork o f various international organisations, there is now ample material on the com­ parative grow th records o f different countries, and in such comparisons Britain appears almost invariably near the bottom o f the league-tables. Thus i f we take the decade 19 53-4 to 1963-4, the rate o f growth o f our gross domestic product is estimated to have been 2*7 per cent a year, as against 4-9 per cent in France, 5-6 in Italy, 6 per cent in Germany, and no less than 9*6 per cent in Japan. I f w e take a more recent period, say the five years 1960-5, our rate o f economic growth at 3*3 per cent a year looks distinctly better, but our in­ feriority, in relation to the other advanced countries, appears even more pronounced, since some countries, such as the United States, Canada or Belgium, which previously grew at around 3-3^ per cent a year have all shown much higher growth rates in the more recent period. Indeed every other member o f the ‘ Paris C lu b ’ o f advanced countries has chalked up a growth rate o f

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at least 4i per cent in the last five years; Japan remained outstanding with a rate o f growth o f almost io per cent a year. As these facts became more generally known, the minds o f our economists and men o f affairs, and the publicgcncrally, have become increasingly preoccupied with finding the basic cause, or causes, o f this pheno­ menon. There has been no shortage o f explanations. Som e put the blame on the inefficiency o f our business management; some on the nature o f our education giving too little emphasis to science and technology, and too much to the humanities; some on the general social milieu which deprecates aggressive competitiveness and looks dow n on mere m oney-m aking as a career; some on over-m anning and other restrictive practices o f trade unions; some on the alleged national dislike o f hard w o rk ; some on the insufficiency o f investment, or o f the right kind o f investm ent; som e on the economic policies o f successive governm ents, being either too in­ flationary, or too deflationary, or bo th ; and no doubt one could cite m any other such ‘ explanations'.

There may be truth in some, i f not all, o f these contentions. The difficulty about them is that with one or two possible exceptions, they are not capable o f being tested, and there is no w ay in which their individual role could in any w ay be quantified. Another basic difficulty with explanations o f this kind, is that while they may seem plausible in relation to some countries, they look im plausible ill relation to others, whose relatively poor performance equally calls for explanation. (Thus in the decade 19 5 3 - 6 3 , though not in the five years 1960-5, the

rate o f economic growth o f the United States was almost as low as Britain’s. Yet no one suggested that the same kind o f factors—inefficiency o f business manage­ ment, slowness in introducing innovations, restrictive labour practices, etc.—were likely to have been the causes o f her slow rate o f progress.) However, the purpose o f m y lecture today is not to dispute the possible validity o f such explanations, nor to argue in favour o f one or another, but to suggest an alternative approach which seeks to explain the recorded differences in growth rates in terms o f the stage o f economic development attained by different countries rather than in the realm o f personal (or rather individual) abilities or incentives. Put briefly, the contention that I intend to examine is that fast rates o f economic growth are associated with the fast rate o f growth o f the ‘ secondary’ sector o f the economy— mainly the manufacturing sector— and that this is an attribute o f an intermediate stage o f economic develop­ ment: it is the characteristic o f the transition from ‘ immaturity’ to ‘ maturity’ ; and that the trouble with the British economy is that it has reached a high stage o f ‘ m aturity’ earlier than others, with the result that it has exhausted the potential for fast growth before it had attained particularly high levels o f productivity or real income per head. The meaning o f the term ‘ m aturity’ will, I hope, become evident in the course o f this lecture; it is mainly intended to denote a state o f affairs where real income per head has reached broadly the same level in the different sectors o f the economy. On this diagnosis the basic trouble with the British

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i* that If mffcri from ‘ premature maturity’ . Ih n may vwnd no Jew pcciinmtic a conclusion than ifrjT *|t