§ I have summarised the prospects for the coming year in the narrow budgetary sense. What can and should be done in the Budget depends not only on issues of Exchequer arithmetic, but also upon the economic outlook for the coming year. We enter here upon the realms of prophesy. The future can be discerned only in part—and then uncertainly—by statistical analysis. It depends upon many-other factors—the actions of employers and workers, the skill and energy with which we all set about our various tasks, and upon developments abroad as well as at home.
§ I want to look at the main categories of demand on our resources one by one. I have every confidence that we can look forward to an increase in exports. World trade is growing and our manufacturers have been making a strong effort to expand their markets abroad. Orders have been coming in at a high rate. There is a wider appreciation of the opportunities for our goods in the vast North American market. Whether we shall this year exceed or fall short of the increase of 6 per cent. in the volume of exports achieved last year I cannot tell. It will depend on our ability to deliver the right 980 goods at the right time at a competitive price. But I confidently hope for a substantial increase.
§ Certainly, the opportunity to export must be the first and most important answer to those who complain about stagnation. The condition of an expanding economy is, indeed, that we should sell more abroad. Increased production upon any other terms will merely increase our import bill. If we sell more abroad, we shall achieve not only our first objective, which is a larger trading surplus and an increase in our reserves, but our second, which is expansion at home on a safe and sound basis.
§ Next, consumption. Last year, there was virtually no increase in consumers' expenditure in real terms. Instead, there was a big increase in personal saving and repayment of debt. Part of this was a temporary adjustment due to the pressure on credit. Once people have paid their debts they not unnaturally tend to buy more. Indeed, the latest retail trade figures confirm this expectation. It seems likely, therefore, particularly in view of recent wage settlements, that there will be some increase in consumption this year. It would be a stony-hearted Economist who would altogether deplore this. The object of production is after all, consumption. But we must watch that we do not consume too much at the expense of other objectives vital to our economy.
§ This brings me to investment. Of course, we have to have a high investment economy. It is a condition of our survival. But people sometimes forget what a rapid increase there has been in investment. Since 1952, gross fixed investment has increased by 7 per cent. a year, compared with a growth of just over 3 per cent. a year in total national output. Thus, year by year, the proportion of our resources devoted to fixed investment has steadily increased. It was 12 per cent. of the gross national product in 1947, 14 per cent. in 1951 and 16 per cent. in 1956.
§ True, some countries do more than this, just as we must ourselves seek the opportunity to do more. Let us, however, not forget that circumstances in other countries are often quite different from our own. Some have rapidly growing populations to provide for. Some have smaller defence burdens. On the whole, we have 981 a good record in home investment. I wish that we had an equally good record of investment in our gold and dollar reserves.
§ At any rate, in the coming year, and, indeed, beyond, I see no sign of stagnation in investment. In the public sector the plans designed for atomic energy, for coal, for transport are large. The problem posed by investment plans for the basic and in part publicly-owned sector of the economy is not, in the main, whether we contemplate too little, but how we can manage to do so much. Yet we are right to do it. Ask any industrialist! Few would say that in this section we are guilty of being over-bold. We need more power, more steel, and more transport facilities. Investment such as this is, indeed, vital to the economy of our country.
§ As to the private sector itself, the rate of investment has mounted sharply in the last three years. Future plans vary. Some firms may wish to pause before making a further advance. But the pressure for capital on all sides certainly suggests to me that too hasty or too vigorous encouragement might well lead us to just that over-extension of the economy which we have been at pains to correct and avoid.
§ At this stage, investment is at a high level. If we can ensure that in both the basic and manufacturing sectors it is pushed quietly and steadily up over the years, if we can do it in a volume and at a pace within our material and monetary resources, we shall make a great contribution to our economy. But investment must be matched by savings. To spend too much too quickly, to watch inflation grow, to try to correct it by raising taxes and restricting credit—this is a sequence of events tempting to embark upon, but to be avoided at all costs.
§ To sum up the economic outlook, I foresee expansion in exports, some increase in consumption and probably a slight increase in fixed investment as well. Thus, there is a fair promise of renewed growth this year. It must be remembered that our first objective is the earning of a surplus on overseas current account substantially larger than that of recent years in order to build up the reserves, to repay borrowing, to finance overseas investment, and to provide for further drawings by the holders of sterling balances. We need this not only for our own security as a 982 trading nation, but also to honour our commitments as a world banker. We hold, after all, the reserves of many other countries within the Commonwealth and outside it and are the centre of the sterling system on which so much of world trade is based.
§ How, then, should we summarise the prospects? After making full allowance for the factors I have mentioned, I see some grounds for cheerfulness. As I see it, the temperature of the economy has been brought down to a more normal level by our disinflationary policies in the last 18 months. Resources appear to be at least adequate to the demand on them. It is reasonable to hope for further substantial export gains. All this seems to be a basis not for standing still, but for going forward. Expansion must be the theme, but we must do it at a pace and in a manner consistent with our large responsibilities as a trading and a banking nation.