The debate on the Central Fund Bill gives us an opportunity to review aspects of general Government policy. This year one of the obvious topics for discussion is the White Paper laid before the Seanad last August entitled Second Programme for Economic Expansion. I propose to devote practically all my contribution to this debate to a discussion of the Government's programme as outlined in this White Paper and also to give some alternative ideas of what I think might be better approaches to planning. In order to do this properly, it is necessary to examine first the outcome of the first Programme for Economic Expansion.
In discussing the Second Programme, it is impossible, without unduly wearying the Seanad, to deal with all aspects of the programme which properly arise and I intend to confine myself to a discussion of the targets of the programme and of the financial aspects of some of the Government's policies which are implicit in it.
In regard to possible alternatives, I wish to put forward that I think we could go a great deal further in adopting the type of Liberal Planning which is being adopted by the countries of EEC and by the Christian Democratic Parties of these countries, in particular. We could go much further in the direction of planning without any loss of personal freedom if we had Liberal Planning.
Therefore, let us first look at the outcome of the First Programme, published in November, 1958 and covering the period 1959-60 to 1963-64. We recall that in the White Paper introducing that programme it was estimated
that the implementaion of the programme would result in an increase in real national income of some two per cent per annum.
When we come to read the White Paper on the Second Programme, we see on page 7:
This two per cent growth rate was mentioned not as a target but as a deliberately modest forecast of what action on the lines of the programme might be relied upon to achieve.
There seems to be a slight difference in emphasis in the two. When one reads the Second Programme it suggests that the sponsors of the First Programme foresaw a rise of more than two per cent and were not surprised in any way by the fact that the outcome showed an average rise of four per cent. The impression is given also that since the views of the sponsors were so true in this respect their views on 1970 outlined in the Second Programme are equally true.
The most interesting fact about the Programme for Economic Expansion published in 1958 is that it was never carried out. There was a definite programme of development investment laid down in the Government White Paper, a programme which in 1958 was estimated to give two per cent, though now we read that really two per cent was not all the sponsors hoped for. What was actually done from 1958 onwards? What was done was that the development expenditure proposals contained in the White Paper were replaced by a different development investment expenditure programme, one involving 2½ times more capital than had been planned for. So what was carried out between 1958 and 1963 was a development capital expenditure programme some 2½ times that given in the White Paper on the First Programme.
Also, if we look at what was to be the mechanism of success in the First Programme, we are told in it that the release of the dynamic was to be through agriculture. Of course, we can agree with this in principle; with sound agricultural policy in a country such as ours we would expect the release of the dynamic to come through agriculture. But if we look at the outcome of the First Programme what do we find? We find that expenditure in agriculture increased by more than the average and agricultural output increased by less than the average for the economy as a whole.
Agriculture, which was to be the secret of the dynamic was, in fact, something which lagged behind the remainder of the economy. Look at one of the definite targets in the First Programme and we find that the number of milch cows was expected to increase from 1,200,000 to 1,500,000, a rise of 25 per cent. I have not got the latest figure but the indications are that this increase has been achieved only to the extent of about 50 per cent.
The success achieved between 1959 and 1963 was, certainly, not achieved in the direction which the sponsors of the programme had expected. Can the overall success achieved during the five years be attributed to the fact of the existence of the Programme? Can it be taken that even though the programme did not work in relation to agriculture it did in relation to industry? In other words, can we say the programme was a success because the increase in industry actually gave us an overall four per cent increase?
I suggest that not all and maybe only half of this industrial progress can be attributed to what was in the White Paper. If we look at the way in which this progress occured we shall find it was not an increase of industrial production leading off into increased industrial exports. What happened was that a rise of industrial exports came first and was followed by a general rise in industrial production. If we look for the reasons for this we can find a number of factors which had little to do with what was contained in the White Paper on the First Programme.
From 1957 onwards, the slight advantage we had over Britain in labour costs became quite marked. At the same time, the tax relief on exports introduced by the previous Government began to bear fruit. When this first impetus was over, we had the apparent imminence of our entry into the Common Market to keep up the momentum by causing many managers to take stock of their competitive position.
Other factors, which were part of the Government's programme, did undoubtedly contribute, one being the amendment of the Control of Manufactures Act, which removed in part a very serious distortion in our economic structure. If we look at this First Programme in order to find a guide to the reliability of the forecasts in the Second Programme, I fear we must conclude that the targets in the Second Programme will only be realised if similarly helpful circumstances arise.
Since 1963, our labour cost advantage over Britain has declined and the position in this respect will certainly have to be improved if we are to hold a really strong place in the British market for our industrial exports. An intensive policy would have to be used to encourage efficiency and innovation in all spheres. I submit that we need something more than a half promise about the repeal of the surviving restrictions of the Control of Manufactures Act.
If we take the White Paper of August 1963, containing the Second Programme for Economic Expansion, we shall find it very difficult to discuss this White Paper because as it stands the amount of quantitive information in it is altogether inadequate for an analysis of the assumptions and reasoning which lie behind it. At the time it was published, it was intimated that a further document giving the meat of the problem would be available early in 1964: I believe the month of February was mentioned. So far, we have not had this further document and so we are left with the White Paper of last August as the only official publication.
This White Paper has no technical appendix to help us to analyse its effects. It was only last month when Professor W.J.L. Ryan presented a paper to the Statistical and Social Inquiry Society of Ireland, entitled the Methodology of the Second Programme for Economic Expansion, that one was able to appreciate at all the way in which the figures in this White Paper had been built up. Some help towards an understanding is given in another paper by Dr. R.C. Geary, presented to the Statistical and Social Inquiry Society in January last.
Let us look at this White Paper and look at the objectives of the Second Programme as set out there. The objectives are given on page 17 and are as follows:
(i) It will cover the period to the end of this decade.
(ii) It will have as its chief objective the raising of the real income of the community by 50 per cent in the 1960s, in line with the collective target of the OECD.
(iii) Its complementary aim will be to secure the progressive reduction of involuntary emigration so that by 1970 net yearly emigration will be reduced to 10,000 at most. The net increase in employment envisaged in the decade is 78,000.
(iv) Special attention will be given to education, training and other forms of "human investment".
(v) The obligation of Ireland to give increased aid to less developed countries will be recognised.
(vi) The basic principles underlying the first programme will continue to be respected.
The overall targets given here are clear enough—a 50 per cent increase in GNP, reduction of net emigration to 10,000 by 1970, and 78,000 new jobs.
When this White Paper came out, there were certain critics—they were not political critics—who said of it that it seemed largely to consist of the adoption of the 50 per cent target and the working out of its implications. So seriously did the Government take this criticism that the Government Information Bureau on 30th August, 1963, denied that the general target of a 50 per cent increase in the gross national product between 1960 and 1970 was an unconsidered adoption of the collective OECD target.
The position is that there is no indication in the White Paper, no indication in Professor Louden Ryan's paper to the Statistical Inquiry Society and no indication in Dr. Geary's paper to the Statistical Society as to how the 50 per cent was arrived at. Dr. Geary starts off with it as a basic assumption. Professor Louden Ryan talks of the various rates of increase which were possible and, having rejected high rates, says a rate between three and five per cent would be appropriate and eventually states:
Four per cent was the highest rate which seems possible in the light of the limitations imposed by the availability of internal and external resources.
You can see from the White Paper that if you adopt this figure of four per cent and round it off to 4.14, in order to get the 50 per cent target, you find you involve yourself in £16 million a year deficit on your balance of payments. Is this a reasonable figure? Was this 4.14 per cent taken because it was considered that £16 million a year out of balance on external payments was a reasonable criterion? It seems to me that the shift to 4.14 per cent has been affected to a great extent by the OECD target. I should like to ask the Minister specifically what rate of increase, given all assumptions other than that the balance of payments be out by £16 million, would be appropriate; in other words, what rate of increase would have balanced us on external account, all other assumptions remaining as in the White Paper?
The statement issued by the Government Information Bureau also goes on to say that the individual sector figures are not merely arithmetical figures implicit in the total 50 per cent: I heartily agree. The sector figures given do not immediately follow from the figure of 50 per cent. They require additional assumptions, and some of these are less reasonable than the assumptions leading to the overall figures of 50 per cent growth in ten years.
The first assumption made is in regard to employment. The assumption is made that employment will rise between 1960 and 1970 by threequarters of one per cent per annum. It is very difficult to discuss at all figures in regard to total employment in this country. The only information we can get is the standard information in census years, and outside those years the only official information we can get is that the figures given are wrong. Therefore, we are in grave difficulty in trying to work out what is the employment increase.
Can the Minister give us figures, and can he indicate the accuracy of those figures in relation to the rate of increase of total employment during the past three years? Certainly it appears to me from the figures in the annual volume of employment and unemployment that in the past three years we do not seem to have been in a position to increase total employment. If we apply the figure of threequarters per cent to the figure given in the White Paper for the total number employed in 1960, we come up with the figure of 78,000 more people at work in 1970 than there were in 1960.
The further assumption is made, before calculating emigration, that there will be a fall of 20,000 in the number unemployed, and this, as far as I can read it from the various documents, means there will be an unemployment rate of 3½ per cent. I should like to ask the Minister is this assumption implicit in the White Paper. It is rather interesting to go back over the figures for the past few years in regard to the percentage of insured persons on the live register. In 1959, it was 8.0 per cent; in 1960, 6.7; in 1961, 5.7; 1962, 5.7; and 1963, 6.1. The figures so far in 1964 are less than those of last winter, but they do not show improvement over conditions in 1961 and 1962. It is easy to say that these figures are unrepresentative or that the figure of 6.1 per cent last year was due to the fact we had a very hard winter. But, if so, it is only fair to ask the Minister in his assumption of 3½ per cent in the White Paper that from now until 1970 we are not going to have any more hard winters?
The figure of threequarters per cent, which is taken for the increase in employment, corresponds, if we take the Minister's figure of growth rate, to a 3.4 per cent increase in productivity. This is a reasonable figure to take. It is reasonable, not in the sense that we can say we are bound to attain it, but rather in the sense that it is a figure we must reach if we are to remain competitive in the export market.
I find difficulty in following the figures in regard to emigration. The White Paper says that by 1970 emigration should not exceed 10,000. On the other hand, if you look at Professor Louden Ryan's paper read to the Statistical Society last month, you find in table I, with the pencentage growth very close to the one given in the White Paper, average emigration during the ten years 1960 to 1970 at 16,300. Of course, there is the difficulty that the figures of total employment used by Professor Louden Ryan do not correspond with those given in the White Paper and we are back again to the old problem of unreliable employment figures. Nevertheless, we can take the figures given in the White Paper and pro-rate the figures given in Professor Louden Ryan's paper—this may not be correct procedure because there may be hidden assumptions. The number of new jobs is 78,000 and checks with the White Paper. This seems to indicate that I am not completely astray—the net figure of emigration, however, between 1960 and 1970 is 158,000 on my calculations.
I should like to ask the Minister specifically how he arrives at this figure of 10,000 by 1970. Is it bound up with the assumption that there is bound to be continued building up of total employment? Is it bound up with the assumption that if you get 3½ per cent of unemployment, the rate of emigration will fall to 10,000? I should like to ask the Minister specifically what is the estimate of total emigration in the White Paper for the decade 1960 to 1970. I should also like to ask him if he would give the derivation in the same manner as it is given in Table No. I of Professor Louden Ryan's paper. It is clear that, if the Government's optimistic figures for total unemployment are not maintained, emigration will be higher, and one of the objectives of the programme will not be attained.
If we move from the overall picture to the division, as it were, of the objectives between the different sectors, we find this division given in Table 1 on page 20 of the White Paper. Here we are given the sectoral products in 1960 and the percentage increase between 1960 and 1970 and the sectoral products at 1960 prices. Here again we can tell very little from the White Paper because there is no technical appendix. If we turn to Professor Louden Ryan's paper, particularly pages 6 to 11, we find a series of assumptions which lead to a breakdown of the sectors, starting off with the assumption of the gross national product growing by 50 per cent in ten years. It is assumed that indirect taxation minus subsidies will also rise by 50 per cent. This is subject to policy decisions but may be taken to be a reasonable assumption. Then we come to the key assumption in regard to the division which the whole country has to make between the sectors.
The next assumption made is that the increase in agriculture will be at the rate of 2.7 per cent per annum and we are not given any details by Professor Louden Ryan except that it is based on the estimates by the Department of Agriculture. Further assumptions then follow but I do not think there is any need to go into detail except the assumption as to what industry is expected to do. An estimate was made that industry was expected to do something between six per cent and eight per cent. When this was studied initially the answer came out at six per cent but it was the wrong answer, and it was decided that there was a built-in factor of pessimism. In Professor Louden Ryan's paper he quotes from Tinbergen a well-known econometrician in support of this point. When the exercise was repeated, a rise of seven per cent was obtained which allowed the equations to be balanced
The next step made in drawing up this programme was an estimation of the employment productivity in the different sectors. This is given in Table 2 on page 21 of the Government's White Paper. Here again there is a series of assumptions. The first one is that the rise in productivity would be least in the other domestic sector, that is, the sector including transport, public administration and other services. That is a reasonable assumption. The second one is that, since it is policy aim to level earnings in the agricultural and non-agricultural sectors, productivity increases should be greater in agriculture than in industry. It is not a question of whether productivity increases in the agricultural sector can be greater than in other sectors but the assumption is made that it is greater.
It is not possible to deal with all the assumptions but I should like to pinpoint the assumptions in regard to agriculture: that agricultural production will increase by 2.7 per cent per annum, that agricultural productivity will increase by 4.6 per cent per annum, and that agricultural employment will decline by 1.8 per cent per annum. I quote now from paragraph 29 of the Second Programme for Economic Expansion:
The target figure is also based on the assumption that, in the second half of the 1960s, international market arrangements for our agricultural products (which at present, due to reasons outside the control of the Government, are unsatisfactory) will be considerably improved, as a result, inter alia, of our being admitted to membership of the EEC. At present, a major factor impeding agricultural growth is the depressed and disorganised State of international markets, and the solution of this problem must be found if our agricultural potential is to be fully realised.
Of course, we are all conscious of the fact that the position in regard to our export markets is critical for agricultural production. On the other hand, it is too naive to assume that if our marketing problems were solved everything would be all right, or to assume that membership of the EEC would make all that difference in regard to our marketing prospects in agriculture.
What is really at stake here is— how good this assumption is. It is quite clear, and the Taoiseach repeated it only this week, that there is no question of our going into the EEC without Britain. Therefore, the assumption that we go in well before 1970 is an assumption that Britain goes in well before 1970. Here, maybe the Government have information not available to the members of the House but this is the first assumption which is made.
The second assumption is that if we go into the EEC then we are no longer in any trouble in regard to agricultural markets. I should like to quote from the report of the Central Bank of Ireland for 1962-63. I quote from page 12:
Referring to a paper on agricultural policies which was before the conference, Dr. Mansholt—
who is vice-President of the Commission of the EEC—
accepted the views that, for the countries of the Organisation for Economic Co-operation and Development, the prospects in the nineteen-sixties were for a rate of increase in gross national product slower than in the nineteen-fifties and that the demand for food products would not grow proportionally. If present policies were left unchanged, there was a risk that there would shortly be non-disposable surpluses of certain commodities. If the disequilibrium between production and consumption should worsen further, the terms of trade for agricultural products would deteriorate and, in fact, agricultural prices had already, since 1954, been in constant decline in relation to prices in the industrial sector. Dr. Mansholt emphasised the seriousness of the situation for countries which need to export agricultural products and to import industrial goods. While recognising that farm incomes are still relatively low in Western Europe, he strongly advised against a policy of increasing agricultural incomes by raising the prices of agricultural products. Although in the case of meat, especially beef, he anticipated that the import requirement of the European Economic Community in 1970 would be at least at the same level as at present, he considered that in this sector also a "prudent price policy" seemed essential. The situation concerning dairy produce he described "as very serious indeed".
We can take this view of Dr. Mansholt and we can take also the forecasts made by FAO for "Agricultural commodities projections for 1970"—these projections being for the production and consumption of various agricultural commodities in different areas for 1970, the year the White Paper is concerned with. The position as stated by FAO in regard to dairy products is that the countries of the EEC which had a surplus in 1960 will have a surplus of more than three times as great in 1970. Even in regard to meat, on which we seem to feel ourselves fairly secure, in the countries of the EEC the projections are that in 1970, relative to the figure for 1960, the amount of meat which would be imported into the EEC could vary anywhere from 14 per cent of the 1960 figure to 152 per cent. The indications, indeed, from the rates of growth in the last few years in these countries are that we would be getting away from the upper part of that range. On the other hand, if we look towards the question of Britain, we find that for 1970 the projection is that British meat imports will lie between 109 per cent and 114 per cent of what they were in 1960. If we look at these two figures and remember that the British import figure in 1960 was six times that of EEC, we come back to a conclusion which some people reached a very long time ago that in regard to seeking agricultural markets, the British market is really the only hope for the Irish farmer. It was very gratifying, indeed, to have a statement to this effect from the Taoiseach on Monday of this week.
I do not want to prolong the discussion by going into aspects in regard to other sectors but I want to make some comment about the financial aspect of the Second Programme. In this regard, I cannot help feeling that there is a distinct change of tone between the first Programme for Economic Expansion and the White Paper which was laid before this House last August. Remember that it is stated in the White Paper which was laid before us last August that the basic principles underlying the First Programme will continue to be respected. On page 9 of the First Programme we find the following statement:
As well as encouraging increased production, the Government will strive to reduce the effective burden of taxation by moderating the growth in net debt service charges, by achieving the maximum efficiency in administration, by relating further improvements in the social services to increases in real national income and by reducing subsidies to the minimum necessary to secure a permanent increase in economical production.
However, when we come to the Second Programme we can read there, on page 63, the following statement:
It is not expected that the increase in taxation, which will occur in the context of rising individual and social standards, will be considerable (the present 23 per cent ratio of total taxation to GNP may have to rise by one or two percentage points), or that, given a mature sense of social interdependence, there will be any adverse effect on initiative and output.
I detect a change of tone between these two White Papers.
If we look further into some of the figures given, there does seem to be a difference of approach. I think the statement that there ought to be a one or two percentage rise in taxation relative to GNP is not something that can lightly be dismissed. In this respect, there is just one comment that I should like to make. It is to the effect that all the percentages which are given here for taxation are percentages of GNP. It is rather handy for the Government that the basis of relating taxation has changed from what used to be the custom, that is, taking the percentage of national income. For many years, the figures given were those of total taxation as a percentage of national income. We all remember the criterion given that passing 25 per cent of national income was passing a danger level in regard to taxation. However, taxation did exceed 25 per cent but this is now handily side-stepped by the fact that total taxation is now related to GNP. It is just as well to remember that talking of 23 per cent to 25 per cent of GNP is equivalent to talking about 28 per cent to 30 per cent of national income. I think this rate, no matter how you express it, is a relatively high rate considering our level of income in this country and our low defence commitments. Unless this taxation discriminates, and discriminates pretty heavily, in favour of innovation and rationalisation, such a level of taxation could inhibit growth.
I want now to take up the question of transfer payments and subsidies. Again, it is very difficult to work this out in view of the scanty data available. My arithmetic, too, may be at fault; if so, I should be glad if the Minister would give the correct figures. If we take it that, in 1970, total taxation will be 24 per cent—we will not push it up to the 25 per cent level—of GNP, the total tax income then in 1970 will be £240 million. Trading and investment income of public authorities was about £15 million in 1960. If we take that as increasing something the same as GNP, we can take a figure of £23 million in 1970. This would give us a total income for public institutions of £263 million.
We are told in the White Paper, in Table 3, that current expenditure of public institutions would be £121 million. That leaves us, if we neglect saving for the moment, that transfer payments and subsidies would amount to £142 million. This figure of £142 million represents a 67 per cent increase over 1960. On the other hand, we remember the clear statement in the first White Paper that transfer payments and subsidies should be controlled, that transfer payments would rise with GNP and that subsidies would be reduced. Lest anyone should think this is an indication of a move to the left, let me point out that transfer payments include interest on the national debt as well as old age pensions. The White Papers definitely, the first in particular, would lead us to expect at the very most a 50 per cent increase in this figure and a 50 per cent increase would give us only £127 million as against £142 million. This leaves us with about £14 million unaccounted for.
I should like to ask the Minister specifically how will this £14 million enter into the account of 1970? Is it represented by Government saving, in which case it would appear that the Minister is endeavouring to produce a surplus in his Budget rather than reduce taxation? Or is this to be used to reduce taxation, in which case there should be no necessity to go up to the figure of 24 per cent of GNP? Or is this sum going to be used to increase transfer payments by 70 per cent where we would have expected them to rise only with GNP? Or is it going to be used to increase subsidies by 120 per cent over their 1960 figure, whereas we have been encouraged to think they might be reduced? Or is it a factor of safety which is being built in? Or is it a mistake in my arithmetic?
The next point I should like to take up in regard to this White Paper is the effect on the banking system of the proposals which are given here. Now for the past ten years, the ratio of money supplied to the GNP has varied between about 30.7 per cent and 32.8 per cent. Over the past five years the variation was slightly narrower, from 30.7 per cent to 31.4 per cent. We would expect, therefore, under the conditions of 1970 that the total money supply would be something of the order of £300 million.
This money supply consists, of course, of current accounts and currency. If we look at the Report of the Central Bank we will see that currency is being gradually replaced by current accounts. At the moment currency is about 38 per cent of the total, and it is decreasing. If we assume it as equal to, say, one-third in 1970—that is not an unreasonable assumption—then, in 1970, we will have £100 million in currency and £200 million in current accounts compared with £84 million in currency and £139 million in current accounts in 1960.
With regard to the deposit accounts, in 1960 these amounted to £210 million. These are not strictly connected with GNP but we would naturally expect them to rise with GNP and, in 1970, they would certainly be above £250 million but, to be absolutely conservative, I take the figure as merely £250 million. Under these circumstances, in 1970 the banks would require £16 million extra in currency in order to operate the economy, £61 million extra in current accounts and, at the very least, £40 million extra in deposit accounts.
The question then arises as to what way the banks are expected to handle this particular problem. To get the currency the banks would have to part with the same amount of external assets to the Central Bank. Or is this procedure to be relaxed? In the present circumstances, I understand they would. This matter is, of course, important because it raises the question of the net external assets of our commercial banks. In the White Paper, known as the Grey Book, Economic Development, the author mentions, in regard to the commercial banks, that “their first obligation is to remain solvent”. He goes on to state that expert opinion has agreed that there is a minimum safe level of external reservations to the total of current and deposit accounts and that this minimum safe level is 30 per cent and should not be allowed to wander more than three per cent away from this figure of 30 per cent. At this rate, the banks would need at the very least an extra £30 million of external assets in order to keep up this 30 per cent ratio.
We must remember, too, that the programme calls for an external deficit which, in ten years, would total £160 million. Unless that deficit is to be financed through an international organisation and not through our commercial banks, this would be a further burden on our banking system. There is also, of course, the ordinary operation of the financing of Irish purchases of foreign securities. During the past seven or eight years this has averaged about £16 million a year. Assuming that all this had to be handled through the commercial banks, there would be a sum involved of £366 million and, to finance this, would require a capital inflow to this country over the decade of something of the order of £37 million per year. If we look at what has been happening in recent years in regard to capital inflow, we find very severe fluctuations, but with an average of about £24 million coming in, and I do not see any real sign of an upward trend. If these figures are correct, then the position is that over the next ten years, there will be a gap here of something of the order of £120 million.
I should like to ask the Minister now what does the programme envisage in regard to this particular situation. Is the assumption made, as indicated by a footnote on page 20 of the White Paper, that our external deficit will be completely covered by arrangement with one of the international organisations? Have the Government already been assured that this £16 million a year deficit can be covered, that we can get investment in this country from an international monetary organisation to cover this? If this is not certain, how do they envisage this deficit may be handled? Is it to be handled through the ordinary banking system? To do so, it seems to me there would have to be a 50 per cent increase in capital inflow or else an abandonment of the 30 per cent ratio.
It may well be it would be a proper thing to abandon this 30 per cent ratio of net external reserves to accounts but if so, this should be stated in the programme. We should be told these things and the arguments should be put before us. I should like to ask the Minister specifically what capital inflow the programme envisages. I wish also to ask him whether the 30 per cent is to be maintained or abandoned. Does the programme assume that the external deficit is to be financed outside our own banking system?
The question of the balance of payments is not something on which we should be doctrinaire. The question of the balance of payments deficit at any time is not one for taking up a rigid attitude. The argument should rather devolve on whether the money coming back to this country is being put into worthwhile investment or not. On the other hand, it is dangerous to start a programme of this type and to plan for a continual deficit of £16 million a year. OECD are quoted to the effect that everything is all right as long as "the underlying trend is clearly in the right direction." Is the running of a deficit of £16 million a year for seven consecutive years an underlying trend in the right direction? It would seem to me much wiser to interpret what the OECD Report says here as referring to short-run deficits. Surely to plan for £16 million deficits running over seven years is something quite different. Has there been any consultation with OECD or other international bodies in regard to this point?
I believe the removal of the psychological benefit the balance point has in regard to the external account is a dangerous thing. It may lead to even less emphasis than there is already on real economic criteria in investment decisions. The Government may be using proper investment criteria in regard to large-scale economic investment but they are not telling the Dáil or the Seanad what these criteria are and we can only remain in doubt about this point and remain anxious that it will be thought that if it is all right to plan for £16 million deficits, then it is all right to plan for £26 million deficits.
It can be said that our record of investment is relatively poor. It is very difficult to judge this because indicators such as capital output ratio are very crude indicators indeed but in the absence of anything else, we can point to the fact that we have had for a long number of years a capital output ratio of something of the order of five. That is an indication there is something wrong with our investment procedure. Whether the fault lies mainly in the public or the private sector, the indications are that on the basis of international comparison, we do not seem to be investigating in a proper manner.
Finally, I should like to bring up the question of control. We have here what is described as a Programme for Economic Expansion but it seems to me rather a prediction based on certain assumptions and that before it could be dignified with the name “Programme” it would have to indicate in some way the measures which are to be taken if it shows signs of missing any of the targets which are mentioned. It may be that this has been done in the drawing up of the programme and it may be the Minister feels he should not reveal what these studies have shown. It would allay my anxiety to some extent if the Minister were to state categorically that there has been an examination of the steps that would be taken and taken rapidly if these targets are not being reached. We know the perennial troubles which arise in this country. We know what will happen if our prices get out of control here at home, that we shall suffer in regard to our exports. This is something which can be seen and fairly well evaluated by means of the trade statistics which are available monthly and within a month. I should like to ask the Minister what are the sort of steps which would be taken. The failure to describe the procedure whereby this machine is to be controlled makes me rather doubtful of its ability to ride even a minor storm. Even elementary programming should include an analysis of possible deviations from the intended path and an examination of possible corrective measures.
In any of the various achievements that have been made in the control of man's environment, there have been certain stages in control of environment. First of all, we try to observe it. When we have learned to observe it, we try to analyse it and the next thing logically is to try to predict what will happen. Of course, we become masters of our environment only when we are able to control it and complete masters when this control is something which happens automatically. It should not be something which happens when things come to a sudden crisis and then a very big lever has to be pulled. Unless this programme is examined from this point of view, the Minister may find himself in the position of having, at some time or other, to pull a very big lever in order to divert the economy from this particular path.
Having spoken about some of the insufficiencies of this programme, I should like to bring forward what might be alternatives to the propositions laid down in it. Naturally it is possible to do this only in a general way. Programming or planning is accepted in principle by virtually everybody and if one is logical, one's attitude to planning is influenced by one's political philosophy. The great argument in regard to planning going on throughout Europe today is in regard to different types of planning. There is, at one extreme, the planning of the doctrinaire socialist who likes the completely centralised type of planning which reaches its peak in the collectivist community.
We also have, of course, another type of planning which is also centralist and which for lack of a better word can only be called the bureaucratic approach which is also centralist in the sense that all the main decisions are located in either one or another small decision-making authority very close to the centre of power. On the other hand there is the idea of liberal planning which is decentralist in nature and which is the type of planning which is being adopted by the countries of the European Community and indeed the type of planning which each of them has used in their own way with a great measure of success.
Now I want to be quite clear about what I mean by decentralist in this respect. It has nothing to do with decentralisation or the deconcentration of men or buildings. It is actually a question of the deconcentration of power and the deconcentration of decision making. Thus the fact that the Minister for Justice had sent the Gardaí to be trained in Templemore has nothing to do with decentrism. This is the deconcentration of certain buildings. On the other hand, it is a very good example of centrism that the Minister for Justice has come again and again to this House and sought to remove power from judges in court to the office of the Minister for Justice. This is centrism in action. This is something which I find myself unable to agree with because of my fundamental political views. For that reason, I would much prefer to see in this country an approach to planning that was more obviously decentralised than what we have at the moment.
The essence of this liberal planning is to make the market economy work as smoothly as possible, to remove distortions from it, to remove frictions from it, to give a free choice in real terms to the individual consumer, to combine the maximum possible degree of economy and the widest possible participation in decision-making, to get all these together in a consistent system. This planning, as I said earlier, has been adopted by the Christian Democrat Parties of Western Europe and they have applied it to the local circumstances in their own countries. This work is sometimes, though very wrongly, confused with a return to laissez faire, which it definitely is not and the market economy is sometimes confused with the crude, uncontrolled inter-action of supply and demand.
The true nature of the market economy is brought out by the following quotation from Mr. Pierre Massé, Director General of the French Plan, in a paper on "Productive Investment":
Should an economy, whose object is to promote the general interest, bother about adopting an overall strategy as such, or should it allow it to arise spontaneously from all the individual strategies worked out at decision-making centres?
This question is put not to fan the embers of academic controversy, but for two very precise reasons.
One of these illustrates a trend in modern economic thinking which does not seek to determine in the abstract whether the individual and overall approaches coincide but endeavours through research to define the conditions under which this can be achieved.
The second reason is that this fundamental research throws light on some of the mechanisms devised to meet practical requirements. The effect is more significant because it is not the result of conscious planning.
Massé goes on to discuss how this works. He says:
Thus, the centralised approach by way of quantities and the decentralised approach by way of prices are complementary, a fact which should put an end to the controversies to which I have referred. The snag is that this is only true in a certain number of hypotheses. Some of these are almost self-evident. For example, monopolistic practices and the exploitation of dominant market positions must be excluded. Costing must be invariably truthful, and in particular there must be a proper apportionment of welfare charges. The speed of growth must not be pushed to the point at which control by prices would be swamped in ever-recurring new disequilibria.
Now, markets freed according to the market economy approach of the Continentals can move very quickly from one equilibrium point to another because of the influence of natural prices. Of course, we must in these cases avoid the mistake of taking any action which would remove one set of rigidities from our economy only to find we have replaced them by another. It is quite true to say that the market cannot be left alone; this was the mistake of the 19th century. There are in the market certain tendencies towards disequilibrium and these are largely concerned with the concentrations of power. It is quite obvious that all of this movement of the market must be controlled by our social and political objectives. It is the solution to this particular problem that has given a meaning, and given a whole coherence of purpose, to the work in recent years of the members of EEC, something which has brought them closer together in their thinking and something on which their true unity of purpose depends.
Once they have this unity of thinking on economics, you can see it going on fitfully towards a unity of purpose in regard to other problems. This system is something which not only safeguards the freedom of the individual consumer but has been shown under diverse conditions to improve real productivity. Once prices are real prices, productive efficiency will be more readily increased. Productive efficiency has two elements; there is a price efficiency and a technical efficiency. You can do all the work study you want and you can have all the management consultants in the world and increase the efficiency of your actual system, but unless your actual allocations of inputs are according to a correct price system, you will not play the part you might play in the productive firm or industry or factory or in the whole economy. It is by natural prices that the economy is best served.
I think this is vitally important for this country because first many of our prices are controlled from outside. Many of our prices, indeed, are controlled by the fact that we are linked to the British economy. It is, therefore, all the more important that we have the real price system which will enable us to prove our efforts in the right direction. It is for this reason that I believe it is absolutely essential, if the Second Programme is to work at all, that the distortions of our position regarding such matters as the Control of Manufactures Act must be removed. Of course, the main problem likely to confront our economy between now and 1970 is instability and, from what has happened over the past two years, the Government apparently have no real policy for dealing with instability other than a stop-go one. If they have, they certainly have not announced it. I have already commented that the White Paper is extremely vague as to what would constitute a deviation from a target so significant as to call for action.
According to the principles of liberal planning, there is no control by means of a large lever and a sudden movement. Control is built into the actual situation and the ideal situation is one in which most of these controls are automatic. In order to achieve this it is necessary that the economy becomes an information system, a system in which each element both gives and receives information. For the proper working of a programme such as the one which the Government have outlined it is necessary that we do have information not merely travelling towards a centre but diffused throughout the economy. Unless information is to travel rapidly throughout our economy, then I think it would be very difficult for the individual parts of the economy to play their proper part in the carrying out of this particular programme.
The adaptation councils set up by CIO represent a very rudimentary form of what Continental firms have been doing in this regard to information exchange for very many years past. An OECD Report of 1957 on "Inter-firm comparison; an incentive to productivity" is most enlightening on the amount of information exchanged between firms and the consequent benefit to everyone within the group. Indeed, the most striking fact is that when all of the information is exchanged the benefit is found usually in an unexpected quarter, so that an individual query would not produce anything like the same result.
Since trade figures are available monthly and trends can be quickly spotted and analysed, there is no reason why this information should not be diffused and why, indeed, a great deal of decision-making could not be decentralised and left to individual sectors, individual industries and individual firms.
The Central Bank of Ireland has shown that advance estimates of national income and its components can be precise enough to act as indicators for policy reviews and some of these estimates of the Central Bank could be produced, I think, almost weekly.
In fixing targets and in aiming at them, the proper approach calls for a good deal of discussion, both discussion vertically within sectors and industries and discussion horizontally between firms and groups of industry and this discussion, I think, should not merely be the passing on of decisions but a real involvement such as the involvement which has made the French plan work so well.
If this idea of diffusing throughout the economy information and, indeed, the decision-making, were adopted and if in this way an involvement can be produced, it would be possible to generate enough motivation in order that there would come from within the sector and from within every one of the sectors enough energy to make the whole system move ahead. Unless we have that, it may be very difficult to keep up momentum under the conditions which we face.
I would say, in summary, that I think we need a positive approach that has something to offer beyond mere pragmatism. We need, in fact, to design our economic system in accordance with our principles and not be content with just using arithmetic and algebra to predict the performance of our present patchwork economy. I think we must see in the alternative approaches to planning a reflection of the stand we must take in regard to the problems which split the world, split Europe, and split us all off into peoples with different fundamental beliefs about the extent to which the individual should be left in freedom as an individual.
I think we have an opportunity in this country to combine efficiency and a high degree of personal freedom. Not only do I think that, but I think that if we adopt a system of planning based on a high degree of personal freedom and based on a diffusion of decision-making to individuals and to smaller units, this will be a guarantee of the efficiency of our economy and the best guarantee that we could have of the competitiveness of our exports in world markets.
