§ I can now relate this review of ow external economic policy, and what we have achieved, to our internal economy. The greatest internal danger to the success of our external policies has been, and still is, inflation. If internal inflationary forces were to get the upper hand in our economy our balance of payments position, both overall and in dollars, would deteriorate disastrously, and the reaction of the rest of the world to any such inflation would become a most potent factor in weakening the position of sterling. We must therefore avoid any development of inflationary tendencies which would prevent us from obtaining by importation the raw materials without which our programme of increasing production and full employment would collapse in ruins.
§ The continued growth of production, so much of which is based upon imported raw materials, is the outstanding feature of our internal economic situation. During 1949, industrial production, as strictly defined, rose by 6–1 per cent. in real terms. Over the wider field of business enterprise as a whole, in which transport, distribution, services and agriculture are included with industrial production, output seems to have risen by rather more than 5 per cent. in real terms.
§ Allowing for the increase in numbers employed, this suggests an increase of nearly 4 per cent. in output per man per year in business enterprises compared with the forecast of 21 per cent. in the Economic Survey of 1949. It was not thought that we could rely upon quite such a high increase as 4 per cent. for next year, for reasons I will mention in a moment, and the figure of 21 per cent. has therefore been repeated for 1950. In the light of the tentative figures for the first two months of this year I am inclined to think that the assumption of 21 per cent. may again prove to be on the low side. Anyway, it is very much to be hoped that it will prove to be on the low side.
§ The increase in production is. I think, evidence that the heavy capital investment since the war, as well as the efforts of the more enlightened sections of management and labour, are beginning to have their effect. I should like here particularly to commend the very good work of the Anglo-American productivity teams, a number of whose most remarkable and 50 helpful reports have already been published. I am quite certain—and in this I hope all the Committee will agree with me—that the results in production which we have achieved over the last few years prove the accuracy of the thesis that good relations and full consultation between the two sides of industry at all levels are far more effective levers to increased productivity than the so-called "disciplinary forces" of bankruptcy and unemployment.
§ In some cases where shortages have been overcome and mass production on most modern lines has been possible very striking increases in production have resulted. The total output of all vehicles, for instance, went up by nearly 24 per cent. last year. That industry has made a quite spectacular contribution to our exports, and everyone concerned is to be greatly congratulated. We cannot, however, hope to repeat such very large increases in production in individual industries, and this may tend to bring down the overall average. That is the reason why it is doubted whether last year's 4 per cent. increase in productivity can be sustained.
§ On the other hand, there are signs of a real movement forward in some industries which have so far been somewhat behind-hand. We still have a serious bottleneck in electric power generation, and unfortunately we are not yet through with those difficulties. Agriculture, which is such a vitally important factor in our home production and in our balance of payments, and which has benefited so much since this Government came into power, was somewhat affected by the drought last summer—even more, I think, than by the previous Tory administration—but nevertheless, good progress was made with the restocking of our farms. I am sure we are all grateful to the farmers and farm workers who have given their energies to this vital agricultural expansion programme for what they have already achieved on the basis of the fair price policy that we are operating.
§ Expenditure on gross capital formation was again at a very high level in 1949, and in fact totalled some £2,465 million. Excluding the self-financing expenditure necessary to carry a given volume of stocks when prices rise, which is shown separately in the Economic Survey, real investment was substantially greater, both in fixed capital assets and in additions to 51 stocks and work in progress, than it had been in 1948.
§ For 1950, the total investment for the year will be about the same as in 1949. Had the high level reached at the end of 1949 been carried forward into 1950 without the cuts announced last autumn, the total for the year would have been considerably greater. A major part of this investment will continue to be for industrial expansion of one kind or another; in 1950 about two-thirds of the new investment in the principal sectors will be for productive purposes, and only about one-third will be devoted to the social services.
§ The Committee will remember that one of the adjustments which we made after devaluation was to reduce the housing programme. We are now in the course of considering the investment programme for 1951 including housing amongst other items. The Committee will appreciate that hitherto there have been two reasons for varying the annual capital expenditure on housing: first, the fluctuating supply of materials, including particularly imported timber; and second, the total availability of building resources for our capital investment as a whole, including I may say a very large amount of factory building, especially in the development areas. This latter programme is now tailing off somewhat, and we hope that the materials position is also becoming less critically difficult.