ABSTRACT
As Keynes pointed out, prolonged growth could have a remark able effect on output and living standards. In Chapter 1 it was remarked that continuous 2% growth would result in 624% growth in a century, and continuous 4% growth in 4,912% growth in a century. The argument of past chapters suggests that output could be increased more quickly than it has been in most developed economies. In the UK , for instance, growth has not been main tained at anything approaching the potential rate since 1900. Expansion has rarely been maintained without demand inflation, and attempts to get output to expand steadily without excess demand at rates close to the potential rate were generally un successful. In consequence, growth was periodically halted alto gether, and investment was much less than that needed for the potential rate. Growth also often had to be restricted to the critical rate compatible with trade equilibrium, because the exchange rate was fixed during much of the period, and there was no effective mechanism to reduce home prices relatively to foreign prices when this was necessary. Moreover, the potential growth rate which was not realised was itself lower than it might have been. There were tariffs on imported machinery during much of the period. Little attempt was made to ensure that there was sufficient research and development activity in industries (such as the machinery producing industries) where firms are too small to have adequate research departments. No real attempt was made to check restrictive practices until 1956. Profits (rather than ‘pay-roll’ or ‘value-added’) were taxed at high rates during much of the period, and investment incentives were only introduced in 1954. Thus the actually achieved growth rate was less than it might have been, both because the potential rate was less than it might have been, and because the actual rate must have been much below this
low potential rate. In other developed economies, growth must also have been slower than it might have been for reasons such as these. The actual rise in output per worker between 1900 and 1964
was 77% in the UK ,1 or 0-9% per annum. If the argument of past chapters is correct, policy to raise and achieve the potential growth rate along the lines suggested could raise future output per worker much more quickly than this. The U K ’s immediate growth target is 3*8% per annum, or a 3*4% growth rate in output per worker.2 Opportunities for growth might well be sufficient to permit growth at this rate as against the 0-9% rate achieved between 1900 and 1964. In the remarks made below, it will be supposed that output per worker might grow 2% per annum in the next century. This is not to suggest that a 3-4% growth rate could not be main tained-even higher rates than this might well be practicable-but a 2% rate is one which would be widely agreed to be practicable, and even a rate as slow as this would have very startling effects by the year 2064. In the past, real wages have risen at much the same rate as out
put per worker, so real wages might rise 624% between 1964 and 2064 if output per worker rose 2% per annum. In 2064, a worker in the UK might then earn £140 a week or £7,000 a year in place of the £18 10s. a week he earned in 1964. It might be thought that workers would then enjoy so high a standard of living that economic factors would cease to play an important part in life, but it is far from clear that this would be so.
