ARTICLE No. 1.
The years immediately following the war wiill be years of great activity in rebuilding and developing the capital assets of both private producers and public authorities. Men, materials and money will all be in heavy demand by governments and private businesses for making good arrears of plant and transport maintenance, and for long-range programmes of development necessarily postponed during the war.
COMPETITION FOR LABOUR AND MATERIALS.
A major fault of the pre-war economy was that the scale of new investment in capital goods was, as a rule, insufficient to ensure productive use of the available resources. Hence the chronic disease of under-employment, which has been so exhaustively diagnosed by economists and social investigators over the last few years in the search for a corrective. But in the early post-war years under-employment is unlikely to present a serious problem. In fact, the reverse situation is almost certain; resources will be scarce in relation to the demand for them, and there will be strenuous competition for short supplies of labour and materials.
Until the manifold materials needed for industry and for government constructional programmes are again available in ample quantities -- this may be three or four years after the war ceases -- we will be called upon to discriminate between the two broad categories of investment, public and private, and also between the more essential and less essential in each individual field. The question of which category should be given preference is one of the most difficult and far-reaching post-war problems.
OFFICIAL OPINION LEANS TOWARD PUBLIC INVESTMENT.
There is little doubt that, by and large, official opinion leans heavily in favour of expanding public investment at the expense of private investment. Although figures of total investment can be made to vary widely according to the basis of calculation the following estimates are sufficiently close to the facts to prove the point: --
In the last year before the war of a net national income of £880 millions, the amount invested by public authorities was of the order of £45 millions. Private investments totalled approximately £100 millions. That is to say, the magnitude of private investment was more than double that of public investment and constituted nearly one-eighth of the total national income.
After the war it is planned to spend on public works of Federal and State Governments and of local authorities about £100 millions a year. At their conference last February with the Commonwealth Government, the manufacturers were informed of the decision of the Loan Council "to formulate an initial programme of completely planned works roughly equivalent to two years' work measured by pre-war standards" and costing approximately £200 millions. This figure does not include the cost of the government section of the housing programme, estimated to be of the order of £40 millions a year. Nor does it include expenditure of a capital nature on the greatly enlarged peace-time defence installations which will be essential to the national safety after the war. Official indications place the annual post-war expenditure on defence at around £60 millions. Of this roughly half, £30 millions, may fall in the category of capital investment. Here, then, is £170 millions for public investment, more than three times the corresponding investment in the last post-war year. Nor is this all. Social amenities -- new schools, hospitals, community and civic centres and the like -- will call for large additional sums of capital. Estimates are vague, but £10 millions may be a conservative assessment. This would give an annual figure of £180 millions for capital expenditure by governments, made up as follows: --
| Public works | £100 millions |
| Government housing | £40 millions |
| Capital investment in defence | £30 millions |
| Social amenities, etc. | £10 millions |
NEEDS OF PRIVATE INVESTMENT.
No reliable forecasts of the needs of private enterprise exist, or, if so, they have not been made public. But we might ask what amount of capital will remain for private investment after roughly £180 millions has been allotted for government purposes. Statistical investigations into the economic structure of democratic communities have suggested that the people of the advanced economies set aside about 20 per cent, of their current national income in the form of savings. It is not easy to forecast what the national income of Australia will amount to in the first two or three years after the war -- certainly competent authorities differ widely. However, the most optimistic prophet would hardly go beyond £1,500 millions. Dr. Coombs has suggested £1,380 millions at 1943-44 prices. On these estimates the annual savings of the community would be of the order of £300 millions. Taking all circumstances into consideration, and allowing for the prospect of some "enforced" savings in the early post-war years owing to shortages of consumption goods on which people can spend their incomes, this seems a reasonably accurate figure. With the best part of £180 .millions absorbed by government requirements only £120 millions would therefore be left for private investment. After allowing for a price rise of, say, 30 per cent, this sum would be somewhat less than than the total volume of private investment in a normal pre-war year.
ESTIMATES BY DR. COOMBS.
Using the 1943-44 price level as a basis of calculation and on the assumption of a total investment expenditure of £325 millions -- the figure seems high -- Dr. Coombs, writing in an unofficial capacity, allows £140 millions for private investment compared with £185 millions for public investment. The £140 millions figure would be just slightly above the total of pre-war private investment after adjustment for price differences. The noticeable thing, however, is that Dr. Coombs, basing his calculations largely on estimates current in official circles, would about treble the amount of investment by public authorities, while restricting the outlay of private capital to its pre-war proportions.
DANGER TO PRIVATE ENTERPRISE.
Clearly, if this type of planning is put into effect, free enterprise, from being the central fact of the Australian economy in the pre-war years, will be reduced after the war to a position of secondary importance. The justification for this course in the light of the economic needs and political realities of the Australian scene will be examined in the next article.
ARTICLE No. 2.
The first article suggested that present government planning for the immediate post-war years contemplates a large -- about a threefold -- increase in public investment over the standards set in the pre-war period. This increase could be achieved only by severely restricting the volume and scope of private investment. Is this policy wise? What are its economic and political implications?
SCALE OF PUBLIC INVESTMENT.
Few people who have given thought to problems of post-war economic policy will dispute that public investment will need to be on a scale greater -- perhaps substantially greater -- than before the war. This follows from two considerations. First, is the new responsibility accepted by most democratic governments for maintaining the economy in a state of high employment. While it is theoretically possible, it is in practice unlikely that this responsibility could be successfully fulfilled without .some increase in the magnitude of public investment. The second consideration is that the war has given rise to a host of new and legitimate demands for improvement in the field of social services -- in educational, health and cultural facilities, and in the housing of the people. In Australia there is the additional fact that, as a comparatively young and unexploited country, we present a favourable field for large-scale developmental works, which can only be satisfactorily carried out under the direction of governments.
But to commend all these purposes of government activity as socially and economically desirable is not necessarily to support their pursuit on a scale, and at a speed, which would involve the sacrifice of other sections of the economy. To suggest, for instance, as government representatives have been at pains to do, that the £200 millions programme of public works to be spread over roughly two years provides for urgent and indispensable projects only, is insufficient vindication if it becomes necessary to sacrifice other plans more "urgent and indispensable". Social need and economic indispensability must alike wait upon the national productive power. It is perfectly clear that Australian resources immediately after the war will not be adequate to support a public investment programme of the order of £200 millions, unless the size of both private investment and consumer expenditure is rigidly curtailed.
DEMANDS OF PRIVATE INDUSTRY FOR CAPITAL.
A policy, which would involve restricting the volume of private investment in the two or three abnormal years which will succeed the war to its level in a normal pre-war year, would constitute a blow at the foundations of private enterprise in this country. The demands of private industry for capital in the period of transition will be incomparably greater than its normal investment needs before the war. The reasons are these: first, industry has worked its plants at exceptionally high pressure over the last five years, and because of shortages of manpower and materials it has been unable to make good the excessive wear and tear that has occurred. There is a tremendous backlog of deferred maintenance and especially of replacement work to be overtaken. Second, the general renovation and modernisation of existing equipment will require further large sums of capital. Wartime advances have made obsolete a good deal of industrial plant which should be scrapped as soon as possible if our post-war economy is to be brought to a high state of productive efficiency. Third, the war has compelled most industries to postpone their programmes of peace-time capital expansion. Consequently for several post-war years the scale of capital additions and development would, if allowed to proceed, greatly exceed that of an average pre-war year. Fourth, deferred expenditure in home and office building would indicate an annual rate of investment in these fields much above the pre-war rate. Fifth, although some businesses have surplus stores of various kinds which were accumulated in the early stages of the war, most industries will require larger amounts of capital than normally for building up peace-time stocks of raw materials, supplies and finished goods.
NEED FOR MORE CAPITAL EQUIPMENT.
To all these must be added a final and most important consideration. The magnificent feats of the United States in production during the war are impressing upon the world again an axiom of economics, so familiar, that the policies of most countries in recent years have paid it little conscious attention. This is that the power of a country to produce wealth and raise the standards of its people depends above all else on the quantity and nature of its capital equipment. If Australia is to meet its new social commitments at home and improve its competitive prospects abroad, then the capital investment in private industry from year to year must be speeded up and enlarged by comparison with pre-war standards.
CAUSE OF DISEQUILIBRIUM.
There are two further arguments, both powerful, against an arbitrary limitation of private investment in favour of public investment in the transition years. The first derives from the fact that the main cause of disequilibrium, and consequently a danger point in the economy during those years, will be the tremendous pressure of demand caused by purchasing power banked-up during the war on a limited supply of consumption goods -- food, clothes, furniture, household appliances of all kinds. So long as the discordance between the supply and demand of consumer goods remains, so long will a fairly high level of taxation, rationing, and control of prices be necessary to prevent inflation and ensure an equitable distribution of the limited quantities of goods available for purchase. But these every-day consumption goods are produced almost in their entirety by private businesses. The rapidity with which existing shortages can be overtaken will therefore depend on the speed at which private industry is re-equipped and tooled up for peace-time production. Any delay in this respect, caused by an inadequate allocation of materials, manpower or equipment for purposes of private investment, must inevitably prolong the period in which controls will be necessary.
POLITICAL ASPECTS.
This question, too, has most vital political implications. Quite apart from the economic rights or wrongs of the matter, strong political pressure will be exerted by all sections of the community soon after the war for the removal of controls, particularly rationing and priority restrictions, and for the reduction of taxation. It is doubtful whether any government, no matter what its colour, could safely pursue a policy involving the retention, for any longer than absolutely necessary, of controls which the community, even while the war continues, is beginning to find extremely irksome.
STABILISING OF EMPLOYMENT.
The second argument is connected with the major post-war aim of stabilising employment at a high level. The classic theory -- accepted in the British Government's White Paper -- on this subject is based broadly on the conception that when private investment is low, public investment should be high, and conversely, when private investment is high, public investment should be low. This doctrine does not necessarily exclude the desirability of a basic minimum below which public investment should not be allowed to go, but it does take the view that, when there are both a need and the promise of heavy private expenditure on capital goods, public investment should be kept within reasonable bounds.
From this standpoint the wisdom of embarking on exceptionally large schemes of public development and social amelioration immediately after the war is very much open to question. It would appear far sounder policy to hold back government expenditure in the immediate post-war years, when private investment, given reasonable encouragement, is likely to be unusually heavy, to enable the output of consumption goods to catch up on the demand and to reduce the risks of post-war inflation. When that period is over some recession in private investment would be almost certain -- arrears of maintenance and capital improvement would be overtaken while programmes of large-scale capital expansion would be nearing completion. The time would then appear most propitious for government developmental works and social amenities to enter the economic field in a big way. All considerations then would point to the conclusion that the best investment policy for the transition years is very nearly the reverse of what official quarters appear to have in mind.
PROFESSOR COPLAND'S REPORT.
In his report on Economic Conditions in the United Kingdom, the U.S.A. and Canada, Professor Copland has convincingly argued that, for a country such as Australia, there should be a basic level of public investment of the order of 25 per cent, to 30 per cent, of total investment. He points out that with a programme of this magnitude it could not be contended that private investment would be in any way seriously hampered. Little exception could be taken to his proposal. Whilst in the early post-war years there is a special case for keeping public investment down to a minimum, certain public projects cannot and should not be delayed, particularly all those connected with the proper housing of the people. But Professor Copland's suggestion would appear to be distinctly at variance with the indications of post-war public investment plans emanating from official sources.
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