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Economic Instability and Growth of Output
Published online by Cambridge University Press: 03 October 2014
Synopsis
Much concern has been expressed in recent years about the slow rate of growth of output in the U.K. as compared with the achievements of a number of other countries. One of the several explanations advanced is that Britain has suffered so much from instability—often referred to as “stop-go”. The first part of the paper sets out to test this proposition.
The statistics of gross domestic product, industrial production and fixed investment over the years 1950 to 1963 or 1964 are analysed for the U.K., the U.S.A., West Germany, France, Italy, Sweden, and Japan. The results show that the fastest rates of growth were achieved in countries where there were also violent fluctuations of output. Fast growth, but not the fastest, was also associated elsewhere with a high degree of stability. The evidence is thus too contradictory to support, on the face of it, either the view that stability is a necessary condition of fast growth or that instability is necessarily the price of growth.
The second part of the paper discusses some aspects of stabilization policy with particular reference to recent British experience.
- Type
- Research Article
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- Copyright
- Copyright © Institute and Faculty of Actuaries 1966
References
page 386 note 1 Economic Growth in the West, by Maddison, Angus, George Allen & Unwin Ltd., 1964, p. 49Google Scholar.
page 387 note 1 The effect of changes in the participation rate (i.e. the ratio of occupied to total population) must be interpretated with caution. When this ratio rises, more people will be working for cash, in particular more housewives. But other services not recorded by the statistics may be less adequately supplied, in particular work in the home.
page 388 note 1 Maddison, op. cit., p. 37.
page 388 note 2 Op. cit., p. 49.
page 393 note 1 There is an interesting illustration of the importance of such shifts in the distribution of manpower over the years 1955–64 in Mr.Maddison's, article “How Fast Can Britain Grow?”, Lloyds Bank Review, January 1966Google Scholar. He confines his attention to transfers between agricultural and non-agricultural employment and assumes that those previously employed in agriculture were really in “disguised unemployment”, an assumption recognized to be extreme but introduced for the sake of illustration. The U.K. gained, on this basis, a modest 0·9 per cent. addition to her labour force, and the U.S.A. gained 44 per cent. Italy, however, gained 18 per cent., Japan 12·3 per cent., France 8 per cent. and Germany 6·1 per cent.
page 395 note 1 These are the estimates made by Godly, W. A. H. and Shepherd, J. R. in the National Institute Economic Review, August 1964Google Scholar.
page 396 note 1 “…the shift to a restraining policy was a gradual one, with the first halting steps being strengthened again and again as they were seen not to produce the desired results.” (Gilbert, Milton : “The Postwar Business Cycle in Western Europe”, Papers and Proceedings of the American Economic Association, May 1962, p. 99.)Google Scholar
page 399 note 1 Cf. the comment in the Thirty-fifth Annual Report of the Bank for International Settlements, p. 10 : “Thus the basic policy formula was in accordance with a bipartisan economic model.”
page 400 note 1 Initially the fault rested with the Conservative Government, but its successor can scarcely lay claim to better insight. As late as the autumn of 1964, a White Paper announced: “Moreover, the Government reject any policy based on a return to stop-go economics.” It would, of course, be a great help if the somewhat abusive and misleading expression “stop-go” could be abandoned.
page 400 note 2 Cf. “The End of Stop-Go” by Brechling, Frank and Wolfe, J. N., Lloyds Bank Review, January 1965.Google Scholar