Appendix 1 EUROPEAN ECONOMIC EXPANSION - Problems and prospects (1932-1956)
Report prepared by Working Party No. 5 of the Council, and approved by the Council meeting at Ministerial level on 28th March, 1952.
INTRODUCTION
1. A Working Party, set up by à Decision of the Council on action to be taken to implement the Declaration of 29th August, 1951, has had as its mandate to submit to the Council through the Executive Committee :
a A Report outlining, on the one hand, the conclusions of the studies on various sectors, and defining, on the other hand, in the light of these studies, the problems of a general nature for which it considers a solution must be found if the overall production of Western Europe is to be increased in accordance with the Declaration;
b Any Recommendations necessary for immediate action arising out of these studies or the definition of the problems of a general nature referred to in paragraph («•) above, and
c If necessary, any suggestions concerning the subsequent solution of any problems encountered during its work. (Paragraph 3 of C (51) 394).
2. The studies on sectors referred to in paragraph (a) of the above Decision consist of the Reports of the Special Groups of Experts on coal, electricity, steel, agriculture and by the Secretary-General on housing, together with the comments of the competent technical committees on those Reports and by the Economic Committee. A special working party has also made a report on manpowor which has been commented on by the Manpowor Committee.
3. The first part of the Working Party's Report deals with general problems, which were considered to include the general aspects of the problem of manpower. The solution of these problems depends primarily on the individual and collective action of Western European Governments. The Working Party proposes that the Council should make a series of recommendations on the action to be taken. It has also suggested a number of general problems on which it seems desirable that there should be further study on an international basis. In certain cases, the Council has already approved studies; the report refers to these studies, and, where necessary, makes suggestions as to the action to be taken on them.
4. Similarly, in the second part of the report, which deals with sectors, including transport, the Working Party suggests either recommendations or further studies. It also suggests that the Council should request the Governments to inform the Organisation, insofar as such information would not be forthcoming under present arrangements, of the action they are taking in the light of the recommendations, the obstacles they are encountering and the measures which they intend to take, or which they consider might usefully be taken at international level to overcome those obstacles; and of the results they expect,
5. The differences between the individual positions of Member countries are too great for the recommendations to be applied uniformly to all of them. These differences will be reflected in the response of Member countries to the request mentioned in the previous paragraph.
6. The Working Party proposes to the Council that the reports and commentaries on individual sectors listed in paragraph 2 be transmitted to Member Governments.
Part I. — GENERAL PROBLEMS
1. The problems discussed relate to the general conditions which must be fulfilled in order to achieve the increase in overall production contemplated in the Declaration of 29th August, 1951, i.e. an increase of 25 % between 1951 and 1956. These problems can be briefly stated in the following terms at the same time showing their relations with one another and the order in which they will be treated.
a The expansion aimed at calls for adequate supplies of manpower, energy, raw materials, basic foodstuffs, capital goods and transport and a sufficiently-developed production capacity. The first chapter on available resources deals with the problem of manpower and with physical shortages of raw materials which might jeopardise the expansion if no solution is found.
b The second chapter deals with specific measures to increase productivity, so as to increase the yield secured from the available resources.
c The third chapter deals with certain questions of priorities in the use of resources.
d The ability of each country to obtain the products needed for expansion which it does not itself produce or of which it cannot increase the production sufficiently rapidly, depends, apart from problems of physical shortages, on its balance of payments position. General problems connected with trade and balance of payments will be dealt with in a fourth chapter, one section of which will be devoted to the dollar problem and a second to intra-European problems.
e In each country, movements in the balance of payments arc linked with changes in the internal financial situation; from many points of view the problem of internal financial stability, which will be dealt with in a final chapter, dominates all others. Insofar as production capacity is insufficient, the increase in production will depend on the volume of investment; the problem is to obtain the necessary investment capital, and to do this without jeopardising internal financial stability; another section of the chapter will therefore be devoted to the financing of investment. Price policy (on which the volume of capital available for investment to some extent depends) will be dealt with in a third section. Finally, there can be no question of expanding production unless demand is adequate. At present overall demand is high, but the future level of demand is less certain; this aspect will be dealt with in a last section.
2. This brief survey at once establishes a point of great importance; the problems which Western Europe will have to overcome in order to increase its production during the next five years are fundamentally the same as those with which it had to deal constantly during previous years. However, during this period, Europe was able to advance so rapidly, that in 1951 its industrial production was 56 % higher than in 1947. In the case of agricultural production, even if one ignores the increase between 1947- 1948 and 1948-1949, which was abnormally large because of the very bad season experienced in 1947-1948, the two following seasons show an annual increase of approximately 9 %, in spite of a 30 % reduction in imports of animal feeding-stuffs as compared with pre-war imports.
3. These results, however, provide no guarantee that progress will be continuous. The problems referred to above, which have been a dominant feature of the post-war period, often appear in new forms, and some of them have recently become graver. They vary substantially from country to country. The general features of this situation are sufficiently well-known; it is more difficult to increase production from a relatively high level than from a very depressed one; in many countries rearmament has greatly worsened the terms of trade and has created difficulties for their balance of payments; the burden of defence expenditure is disturbing their internal financial situation; American economic aid has been reduced. The individual and collective effort of Member countries must be commensurate with the difficulties which they will encounter from the outset of the five-year period during which they intend to increase by 25 % the real national income of Western Europe over and above a level which is already higher than pre-war.
I. Available resources
SECTION 1. — Manpower
1. It is not possible to give numerical indications of the manpower needs for the achievement of a 25 % expansion of overall production of goods and services. It is clear, however, that manpower shortages, particularly of skilled workers, are to be expected in certain countries in achieving the expansion, and that shortages already exist in coal mining, and to a lesser extent in the building industry. Such shortages are geographically concentrated in particular countries, or in areas within these countries, while in other countries there exists large structural unemployment.
2. The basic obstacle to offsetting these shortages and surpluses is the high degree of immobility, both geographical and vocational, of labour.
3. To overcome this, there is a need for effective manpower organisation and programmes in each country, with a certain minimum of co-ordination of procedures and methods between countries.
4. A pre-condition for any material development in the way of introducing foreign labour is the achievement of a satisfactory state of affairs regarding the employment of manpower at home.
5. The group of experts were of the opinion that the objective for the five-year period should be the elimination of the restrictive rules, formalities and other obstacles to the free movement of workers across national boundaries. The Manpower Committee were of the opinion that it was impracticable to dispense with these entirely, and the objective should be to establish among Member countries that all that was possible in this direction was to be achieved.
Recommendation
6. The Working Party endorses the views expressed in paragraphs 10-13 and considers that the international objective for the five-year period should be for Member countries to do all in their power towards the elimination of restrictive rules, formalities and other obstacles to the free movement of workers across national boundaries, even though it is clearly impracticable to dispense with these entirely during the period.
7. The Working Party wishes to emphasise further that countries suffering from shortages should not regard the immigration of foreign labour as a last resort in the solution of their difficulties. It wishes to point out that surplus manpower existing in certain European countries can make an important contribution to the development of production where this is impeded by manpower shortages.
Proposed study
8. The Working Party also endorses the recommendations made by the experts for further study, which amount to proposals for the development of work already under way, e.g. on statistics, vocational training and the use of skilled manpower, the mobility of manpower and the problems of migration between Member countries together with administrative systems and methods. In connection with this last item, the Working Party lays stress on the fundamental importance of Member Governments ensuring the existence of an efficient employment exchange system, with offices operating in each important industrial area and in labour supply areas, and effectively co-operating with one another in order to stimulate mobility of labour. Contacts which are in view between the Organisation and the European Recovery Programme Trade Union Advisory Committee will be useful in respect of all these manpower problems.
9. The more technical recommendations on manpower are set out in Chapter VII, Part II, of this report.
SECTION 2. — Shortages of particular goods
1. The expansion of production called for in the Declaration of 29th August, 1951 will necessitate increased supplies of basic commodities for Western Europe.
2. Apart from the shortages which are dealt with in the second part of the report, the physical shortages, recently experienced or now apparent, affect various industrial raw materials and various types of investments goods, especially machine tools.
Raw materials
3. Since the outbreak of hostilities in Korea, Member countries have been recommended by various decisions of the Council to increase production of scarce materials; these decisions have also contained recommendations for economies in use and have determined the rôle and activities of the Organisation in these matters. Member Governments also took a prominent part in the initiative which led to more extensive international co-operation in I. M. C.
4. According to the most recent of these decisions, dated 10th March, 1951, " Member countries shall draw up long-term production programmes for those raw materials which give rise to problems of availability or price, whether it be in their metropolitan areas or in their overseas territories ".
5. In order to carry out this Decision, the Vertical Committees appointed by the Executive Committee drew up a final list of materials, to which these programmes would apply; aluminium, non-ferrous ores, sulphur raw materials, paper pulp and textile pulp, cotton, artificial and synthetic fibres, raw hides and skins. Member countries were invited to transmit to the Organisation the programmes which they proposed to carry out with their own resources and those for which they felt that they must invite the co-operation of other countries.
Proposed study
6. The Vertical Committees have now prepared their reports on these programmes, and these are due to be examined by the Economic Committee. The Working Party suggests that the Economic Committee be asked to examine these reports and other reports dealing with raw materials which are to be submitted to it in the light of the expansion referred to in the Declaration of 29th August, 1951.
7. As regards co-operation between Member countries and other Governments, the Secretary-General intends to submit very shortly to the Council (at Ministerial level) a report on the relations of O. E. E. C. with the I. M. C.
Investment goods
8. In the field of investment goods there is a problem of physical availabilities, which may not continue throughout the whole period referred to in the Declaration. Problems of international payments may continue to restrict the amounts of such goods which certain countries can secure.
II. Productivity
1. The whole conception of a 25 % expansion of the gross national product in five years implies that output per head must be increased substantially. A satisfactory solution of the problems discussed in other chapters would greatly facilitate such an increase, but it is very important that measures should also be taken specifically to increase productivity, many of which require relatively little in the way of investment.
2. The position and possibilities vary greatly from country to country. For Western Europe as a whole, taking into account the increase in population and possible reductions in unemployment, the rate of increase in productivity required to secure the overall expansion of 25 % in the output of goods and services is higher than that considered normal before the war, though lower than the exceptional rate secured during the period of post-war reconstruction. It will require a considerable effort to secure the necessary rate of increase, and the whole economy must contribute to it.
3. The Working Party proposes that the Council should recommend to Member Governments :
a to maintain and develop facilities in their countries for scientific and technical research, research into market conditions and the provision of advisory services to industry and to take full advantage of possibilities for the exchange of information with other countries, and, in particular, with the United States, through the Organisation and by other methods ;
b to encourage zeal for productivity in all sections of the community;
c to encourage where appropriate the introduction into industry of incentive payments methods;
d to give special attention to the principle that there should be a fair distribution of the benefits accruing from increased productivity between owners, workers and consumers ;
e to ensure that their tax policies foster the improvement of productivity within the limits compatible with internal financial stability;
f to seek to secure the best possible relations between labour and management, particularly at the level of individual undertakings, by improved methods of personnel administration and joint consultation.
Proposed study
4. Already there is a strong trend in this direction both nationally and within the O. E. E. C. The Technical Assistance Group and the Committee on Scientific and Technical Matters have been occupied for some time with particular tasks directed to concrete results, and with studying a series of specific problems which require examination and clarification. Generally speaking, it is clear that there remains an enormous task of technical education and popularisation to which the O. E. E. C. can and should bring a useful contribution. Consideration might, for instance, be given to the possibility of the Organisation contributing to the effort needed to secure an adequate training of managers. The Working Party proposes that the Council should make arrangements for the immediate determination of the scope and nature of this contribution, taking account of the results of the work already done by the Organisation and of the suggestions presented at the symposium on productivity held on the 30th and 31st Junuary, 1952, and, to this end, that the following two points be clarified :
a to what extent should the terms of reference and methods of work or, perhaps, the structure of the Committee on Scientific and Technical Matters and the Technical Assistance Group be modified;
b to what extent, and by what methods, the Organisation can co-operate with other bodies, or encourage their action to increase productivity.
III. Priorities
1. The Working Party is not in a position to judge to what extent the sectors studied in the second part of this report should receive a priority in the allocation of manpower, materials or capital, since these activities may compete with other important branches of production, notably those industries producing goods for export to the dollar area. The Working Party wishes to emphasize, however, that the development of the basic industries covered by the Declaration is particularly vital for the future position of Europe as an industrial and political power.
2. The development of these industries will require a substantial amount of investment in the immediate future, and this, coupled with the need to increase defence expenditure and improve the balance of payments position, will mean that the improvement of living standards has to be postponed, unless a very rapid rise in output per head can be secured by a special effort.
IV. Trade and balance of payments problems
1. However great the effort of Member countries to direct increased production to the commodities essential to economic expansion, an expanding European economy will still need an increased volume of imports. Moreover, these imports will consist largely of raw materials, which will have to be paid for before they can be used to produce the additional manufactured goods for export.
2. Insofar, on the other hand, as the increase in production will not be directly used for covering Europe's own requirements, it will imply an increase in export availabilities. The basic problem of paying for the additional imports will consist in finding markets for potential exports and converting the proceeds into currencies which could be used to pay for the imports. The solution of this problem depends partly on the action taken by Europe to make its exports competitive, partly on the level of demand prevailing on the import markets, and also on the trade policies adopted by these countries.
3. Moreover, during the period covered by the Declaration, Europe will have to strive to dispense with foreign aid, to assist in the expansion of under-developed regions by its own investments and to restore the convertibility of currencies. Under such circumstances, a substantial import of foreign capital will be required to alleviate the difficulties of Europe and its associated monetary areas.
4. The dollar problem, which for Europe as a whole is the most serious, is discussed below. Europe's trade with the non-dollar area gives cause for less anxiety, insofar as Western Europe is able to purchase greater quantities of basic materials and foodstuffs in this area, the dollar problem will be correspondingly eased. The problems of intra-European trade and payments, which are of a different kind, are also dealt with below.
SECTION 1. — The dollar balance
1. The seriousness of this problem is amply demonstrated by the fact that the deficit of the trade balance of Member countries as a whole with the United States and Canada passed from 370 million dollars in the last quarter of 1950 to 915 million dollars in the third quarter of 1951 (at current prices).
2. The solving of this problem will require a reduction in the dollar expenditure and an increase in the dollar receipts of Western Europe; the more the increase in receipts limits the need to cut expenditure, the more satisfactory will be the solution.
Imports
3. In present economic conditions, Western Europe's dollar imports consist mainly of foodstuffs, coal, equipment goods and various raw materials, fn general, the problem of reducing dollar imports has been and should be kept under constant review by the Organisation. The Annual Reports, and the Second Report in particular, have analysed this problem and indicated the lines along which solutions should be sought.
4. The studies on increased production of raw materials now in progress in the Organisation and referred to above (Chapter I, Section 2), together with those arising out of the Report of the experts on coal production, aim at reducing dollar imports. In Part II (Chapter IV), too, the Working Party proposes a supplementary study on the possibilities of increased agricultural production, thus allowing a reduction of dollar imports.
Dollar earnings
5. The problem of increasing dollar earnings has also been before the Organisation for a long time. In particular, at its meeting of 11th January, 1950, the Council took note of the Trade Committee's intention to undertake studies, following a first report, on the promotion of exports to the dollar area and invited the Governments of Member countries to provide the Organisation with a report on the action taken on the suggestions in this document. In September, 1950, Member countries were requested to submit, in 1951, a further memorandum on their export drive to the dollar area. These memoranda were received by the Organisation during the last quarter of 1951, and are due to be examined.
Proposed study
6. The Working Party suggests that a report be speedily produced on the practical possibilities of undertaking collective action of a positive nature to increase exports to North America.
Recommendation
7. The Working Party proposes that the Council should adopt a recommendation to Member Governments which would :
a recall the recommendations included in the Second Report of the O. E. E. C. :
7.1.1 to reduce dollar imports by increasing the production of goods which they are able to produce themselves at reasonable cost, by switching imports from the dollar area to Member countries and associated monetary areas, and by economising in the consumption of dollar goods;
7.1.2 to increase dollar earnings by increasing European production at competitive prices, extending facilities for exports to the dollar area, encouraging tourism, etc. ;
b Invite Member Governments to economise in the use of dollars during the period of dollar shortages, and to increase dollar earnings.
8. The Working Party also proposes that the Council should recommend the Government of the United States :
a to reduce the obstacles to imports from Europe, e.g. by the methods recommended in the Second Report of the 0. E. E. C, paragraphs 502-511;
b in particular, to adopt a shipping policy which would allow freer competition between the merchant fleet of the United States and those of Member countries.
SECTION 2
Intra-European trade and payments
1. The objective of a 25 per cent increase in the output of goods and services was laid down for Western Europe as a whole and so, in consequence, were the objectives for particular sectors. Furthermore, in considering the problems involved in achieving these objectives, the studies of the various sectors dealt with Western Europe as if it were a single antity and did not examine the additional problems which arise out of the division of Europe into a number of independent countries.
2. It is essential to the attainment of the 25 per cent expansion that intra-European trade, both visible and invisible, should be raised to a very high level. This is needed to provide wider markets for both importers and exporters, to stimulate increases in efficiency, and to improve the allocation of resources generally.
3. To achieve such an increased volume of trade it is essential to devise satisfactory multilateral arrangements both for intra-European payments and for the reduction of commercial barriers to trade. If the present difficulties are allowed to lead to a reversion to bilateralism, the initial effect, at least, is bound to be a large reduction in the volume of trade, which would be disastrous for the process of economic expansion.
4. The Organisation has always devoted a great deal of attention to this subject, which is, indeed, the one which most clearly calls for European co-operation. The measures in the commercial field which are already under study, or which have at various times been suggested for study, include the stabilisation and development of liberalisation, specifically by means of the Common List, the reduction of tariff barriers ; more positive action to reduce the harmful effect of export controls; integration within various sectors, etc. The future arrangements for the European Payments Union are being very actively considered; its functioning could bo greatly eased if intra-European transfers of capital were increased, and these would also help some countries with the problem of financing the investment which is necessary for an adequate expansion in their production.
5. The Working Party does not consider it necessary for this report to discuss the merits of these particular technical methods, but it wishes to lay the utmost stress on two points :
a the vital importance of reaching satisfactory solutions, so that the necessary increase in trade may be secured, and of reaching them quickly, so that the present difficulties may not start a disastrous move back towards bilateralism;
b the fact that satisfactory solutions in this field will be impossible unless the participating countries also solve the problem of maintaining internal stability, which is discussed in Chapter V below.
V. Financial stability
SECTION 1. — General considerations
1. The attainment of financial stability is a key objective for the achievement of the overall expansion of 25 %. Not only would financial instability have harmful effects on production directly, it would also render a solution of the other general problems vastly more difficult.
2. The Working Party considers it of the utmost importance that the problem of financial stability should be kept under effective review in the Organisation. But, in view of the fact that there has recently been a report on financial stability and the fight against inflation, it does not consider any further general study to be necessary in the present phase of the work in relation to the implementation of the Declaration. It wishes, however, to stress the fact that, in selecting measures in order to maintain stability, Member countries should take account of the influence which these would have on the achievement of the other objectives set out in the Declaration of the 29th August, 1951— notably the high level of investment needed to make possible the expansion of output, especially in basic industries; the achievement of a satisfactory balance of payments position, both within E. P. U. and on an overall basis; the necessary increase in defence expenditure; and the pursuit of policies Avhich will promote the well-being of the less-favoured sections of the community.
3. The need to secure all these objectives simultaneously calls for the use of a wide assortment of measures, even though the maintenance of financial stability by itself might seem easier to achieve by relying mainly on one or two. Insofar as there may be a conflict between the policies needed to keep a Member country in line with the others (notably in the E. P. U.) and those which would best suit its internal conditions, the close contact and co-operation which already exist between Member Governments should be further developed.
Recommendations
4. The Working Party suggests that the Council should draw the attention of Member Governments to the following points :
a Financial stability is one of the fundamental conditions of a continuous expansion such as that envisaged in the Declaration;
b In considering which of the various possible measure they should use to secure financial stability, they should take account of the influence of such measures on the attainment of other objectives envisaged in the Declaration and, in particular, on the distribution of resources between alternative uses (e.g. investment versus consumption, home-market production versus production for export) ;
c The simultaneous achievement of all the objectives envisaged in the Declaration will normally call for the use of a wide and varied set of measures to secure financial stability, rather than exclusive reliance on one or two;
d Particular heed should be paid to the impact which measures taken by one country would have on other Member countries and on the working of the E. P. U., and the system of continuous considtation and co-operation should be maintained and developed.
SECTION 2. — Financing of investment
1. The studies of the various sectors show the need for very large capital expenditure in certain basic industries if the supply of basic products needed for expansion is to be forthcoming. From these studies, which do not make a distinction between countries, it is clear that the realisation of these investments is a sine qua non condition for the achievement of the objective.
2. In many countries, the industries in question have great difficulty in raising the funds needed for this capital expenditure, and there is a danger that, in consequence, expansion will be held up.
3. The difficulty is partly one of price policy, which is discussed in Section 3 below. The selling prices of basic industries are frequently controlled, and the prospect of earning adequate profit is considered unattractive, whilst the scope for self-financing by the use of undistributed profit is very limited. There are, however, other aspects of the problem.
4. In some countries, particularly where the level of income is low, the rate of saving is inadequate to permit necessary investment on a sufficient scale. For Western Europe as a whole there is a shortage of capital which might be alleviated by an inflow of foreign capital. In this connection assistance may be obtained from the International Bank for Reconstruction and. Development, provided that detailed investment projects are prepared.
5. In some countries, there may be difficulties in mobilising capital for long-term investments, especially when there seems to be a risk of a fall in the value of money. These problems may be especially acute in the case of industries which may only be able to offer fixed interest bonds expressed in national currency (e.g. because the industry has been nationalised or of individual borrowers (as in the case of agriculture and of housing).
6. The problem of financing investment has already come before the Organisation in connection with a report by the Electricity Committee of 8th June, 1951. The Executive Committee, referring this report to the Economic Committee, drew its attention to the broader aspects of the problem of the financing of investment. This study has not yet begun.
Proposed study
7. The Working Party proposes that the Council should ensure that in the context of the work on expansion a report should be submitted to it in the near future on the problems of the financing of investment. This should deal with the action that might be taken by Member countries, both at the national level and collectively, to facilitate such financing, including action in the field of credit and fiscal policy; it should take due account of the work already done by the Organisation.
SECTION 3. — Price policy
1. The main problem arising under this heading is that of prices which are out of line with the general price level.
2. In the first place, this may arise in the case of essential goods whose prices are fixed by the Government (or other public authority) too low in relation to the costs of production or to other prices. The danger is then of production being diverted to less essential items while consumption demand for goods which are in short supply is stimulated. The problem is likely to be particularly important where it is necessary to secure a large increase in production, especially if this involves a large capital expenditure.
3. A second set of problems arises in the case of price fixing by cartels, with which the exercise of any degree of monopoly by trade associations or even large individual sellers needs to be considered. Such price-fixing may have an adverse effect on the supply of essential items and may further entail discrimination both between consuming industries at home and between home and foreign firms. The maintenance of a high minimum price may both prevent an increase in consumption and thus in output and also reduce the incentive to the adoption of improved methods. A policy of this kind is often associated with other types of restrictive practice, such as the allocation and division of the market by means of quotas or other devices, which may also have a detrimental effect on the expansion of production.
Recommendations
4. Consequently, the Working Party proposes that the Council should recommend Member Governments :
a to pay special attention in their price-fixing policies to the need to ensure an adequate incentive for the production of essential items on the scale required if the overall production of Western Europe is to be increased in accordance with the Declaration, and to avoid increasing unduly the demand for things which are in short supply;
b to take adequate steps to keep themselves informed about the actions of cartels and other price-fixing bodies, and be prepared to take measures to prevent them following a policy which is impeding economic progress, more particularly where this would limit the increase in production or reduce the incentive to the adoption of improved methods.
SECTION 4. — The future level of demand
1. In present economic conditions, overall demand has reached a high level, although, in certain sectors, the lack of demand is limiting their output and poses a problem of transfer of resources. In some countries the level of overall demand is even excessive; and owing to increased expenditure on armaments most countries have to face the danger of inflation. Subsequently, however, if there should be a decrease in military expenditure or even if a ceiling should be reached, it might be necessary to take special measures to maintain an adequate level of demand, for which the necessary preparation should be made well in advance.
2. The uncertainty regarding the future level of demand raises an immediate problem in connection with the expansion of production, insofar as it affects the readiness of entrepreneurs to take the risk of substantial capital expenditure and the willingness of wage-earners to accept improved techniques and to agree to increases in the labour force.
3. In this connection, the favourable psychological effect of the Declaration can only be maintained and its scope widened if definite measures are taken to implement the Declaration and to ensure a steady increase in demand. It is important that the public should be informed of their preparation by an adequate publicity campaign.
4. Insofar as the increase in demand is to flow from an increase in investment, it should be noted that the preparation of investment programmes requires some time. Work should therefore begin forthwith on the preparation of such programmes, e.g. for housing in the metropolitan areas, or the development _ of overseas territories, even though the carrying out of some of them may have to be postponed.
5. It is not within the power of European countries alone to ensure the future level of demand. External demand is one of the constituent factors of the overall demand for European products. The volume of this demand will undoubtedly depend largely on the competitive position which Europe succeeds in obtaining; but it also depends—as has been indicated in connection with balance of payments problems—on the economic policy of the United States and Canada. This is a fact of which public opinion is rightly aware.
6. In conclusion, it is proposed that the Coxmcil should recommend :
7. A. The Governments of Member countries
8.
a to pay due regard to the estimates of entrepreneurs and wage-earners regarding the future level of demand—such estimates constitute one of the factors determining the volume and trend of present production—and to study the possible methods of sustaining their expectations;
b to be ready to stimulate demand by appropriate means, for example, by the preparation of supplementary investment programmes for home and overseas territories and for other under-developed areas to be implement when the pressure of defence requirements on resources is sufficiently relieved;
c to keep public opinion informed, by extensive publicity carried out, either individually or collectively, of action being taken to ensure the maintenance of a high level of demand.
9. B. The Governments of the United States and Canada
a to avoid as far as possible in their countries harmful fluctuations in the demand for imports particularly of raw materials;
b to begin now, in the spirit of the Point IV policy, the study, in co-operation with Member Governments and other interested Governments, of long-term investment problems in under-developed countries.
10. C. The Governments of Member countries, the United States and Canada.
11. To study means of increasing the ability of Member countries to earn dollars, and, in connection with such studies, to take into account the assistance which might be provided by such international agencies as the I. M. F. and the I. B. R. D.
PART II. — STUDIES OF VARIOUS SECTORS
I. Coal
1. The study by the Special Group of Coal Experts was considered by the Council at Ministerial level at its meeting on January 11th. The Council set up a small Ministerial Coal Production Group to study the problem of production in the light of the study by the Special Group of Experts and of the replies of Member countries with regard to the measures they intend to take to increase coal production and economise in its consumption. The Working Party, accordingly, did not consider the sector study on coal.
2. It is, however, clear that an adequate and timely solution of the coal problem is an essential pre-requisite to the attainment of the objectives of the Declaration of 29th August, 1951.
II. Electricity
1. The sector study by the Special Group on Electricity suggested that Member countries' global requirements of electricity would rise by 40 % between 1951 and 1956—from 248 thousand million kwh to 347 billion kwh. Countries had already indicated in the course of the Electricity Committee's second enquiry in July, 1951 the possible expansion of their capacity
Noteup to the year 1955. It was estimated that if, in fact, that expansion was achieved, and the same rate held good over the final year of the period under consideration, total capacity would reach a level in 1956 that would be, in the aggregate, sufficient to meet the increased requirements expected to result from the general economic expansion. There was appreciable risk that, on the one hand, the construction of new plant might be held up by shortages of raw materials (particularly copper, steel and electric sheet), and, on the other, that the absence of firm longterm programmes in some countries might lead to delay in the placing of orders and in the achievement of the desired expansion. The expansion of electricity generation, moreover, would require considerable extra quantities of coal. The view of the experts was, however, that the major difficulty would lie in the financing of the investments.
Observations by the Working Party
Appraisal of objectives for 1956
2. The Working Party endorsed as an objective the expansion of electricity production to 347 billion' kwh in 1956, as suggested in the sector study, subject to the observations made in paragraph 75 below. The sector study indicated that, if the expansion of production envisaged was carried out, Europe's production and requirements as a whole would balanco. It was not clear, however, how far some countries would have surplus power and others would be suffering from a deficit.
National programmes
3. The Working Party noted that certain countries had not yet established national programmes for the expansion of their generating and transmission systems for the period 1952-56, and considered that it was most desirable that Member countries should forthwith draw up firm programmes on an economically co-ordinated basis to meet the estimated demand. Considering the uncertainty as to the estimates of the future requirements of generating capacity, the uncertainty of the estimates as to power availabilities and the fact that these are based on average hydro conditions, the Working Party also wished to suggest that Member countries should establish additional projects, to be realised if the course of demand should at any time require this.
Inter-connection
4. The Working Party draws the attention of the Council, however, to the fact the national programmes may not be adequate to attain the objective mentioned in paragraph 73 in years of bad hydraulic conditions and suggests that the programmes of construction should provide for adequate capacity to secure the continuity of supply under adverse weather and hydro conditions. In dry years it might be necessary to have an increased output from thermal plants to make good shortages from hydro-electric supplies. The Working Party considered that the European interconnection network should enable the timely transfer of power from areas showing a surplus to those with a deficit, while reducing the reserve capacity required by individual countries as a guarantee against adverse conditions. It should also permit the fullest possible use to be made of hydro-electric capacity in years particularly favourable to such production, thereby enabling thermal production to be reduced—with a consequent saving of coal or other fuels.
Coal supplies
5. The Working Party further wishes to stress the importance of making economies in the use of coal by thermal power stations and of securing adequate reserves for thermal plants against years of adverse hydro conditions.
Electricity rates
6. The Working Party observed that unduly low rates for electricity, particularly promotional two-part tariffs or unduly low prices for consumer's electrical equipment, may tend to raise less essential demand and thereby increase the investment needs of the industry, while at the same time hampering it in its attempt to secure the financing of these investments. In judging the appropriateness of the rates fixed for electricity, the latter should be compared with the prices of other sources of power, as well as with costs of production.
Recommendations to Member Governments
7. The Working Party proposes that the Council should recommend to Member Governments :
a As regards their individual action :
a to draw up firm national programjnes for the period 1952-56, thus enabling the necessary orders for new equipment to be placed at the appropriate moment.
b in drawing up their national programmes, to consider the extended use in new installations of resources other than high-grade coal, in particular water power, and also lignite and low-grade fuel;
c to set in hand additional longterm projects, to be realised if the course of demand makes it at any time necessary;
d to ascertain for these programmes and projects the amount of investment required, and, if necessary,
e to plan their electricity rate structures so as to prevent any uneconomic stimulation of demand or any undue difficulty in investment financing.
b As regards their action at the international level
a in planning the development of their power systems, to consult with one another in order to ensure that :
7.2.1.1 enough thermal capacity is available to compensate for reductions of hydro-electric output in dry years;
7.2.1.2 adequate transmission capacity is provided by the European high-tension network to meet such a situation;
b to ensure a rational use of Western Europe's resources by co-operating in the drawing- up of joint development plans with neighbouring countries.
Further studies
8. The Working Party proposes to the Council to take all appropriate steps for the carrying out by the Organisation or other appropriate bodies of the following studies :
a a study of the geographical pattern of such increases in production and consumption as are contemplated and of the structure of production and transmission systems required to enable equilibrium between supply and demand throughout Western Europe to be obtained;
b a study of the means available for planning the utilisation of resources for the European electricity industry so. as to ensure adequate fuel reserves to meet possible deficiencies in availabilities of hydro power;
c a study of technical measures which could be taken to reduce consumption of high-grade coal in the electricity-generating industry, mainly by the greatest possible use of lignite and low-grade fuels;
d a study of the European transmission network as a means of securing greater power availability under all conditions, increased operational flexibility, reductions in the needs for spare plant and savings in fuel consumption.
III. Iron and steel
1. The sector study by the Special Group on Iron and Steel suggested that domestic steel consumption would rise between 1951 and 1956 by 34 per cent, from 47 million tons to 63 million tons, and that exports would decline from 9 million tons to 6.5 million tons. Total steel requirements were therefore expected to rise from 56 million tons to 69.5 million tons, while present known expansion plans were expected to raise production capacity from 64 million tons in 1952 to at least 70 million tons in 1956. It was made clear that the rise in production would not be possible unless the coking industry was able to make available the necessary increased supplies of coke, and unless the required expansion of iron-ore supplies was forthcoming.
Observations by the Working Party
Appraisal of the objectives
2. Noting that the production of crude steel in Western Europe was in 1951 about 56 million tons, the Working Party consider it reasonable to adopt, as a provisional objective, a crude steel output of 70 million tons in 1956. Requirements of steel, however, may well prove larger than the " middle view " reflected in this figure, particularly since it is based on a rather modest estimate of export possibilities and on the assumption that changes in the relative proportions between the different steelconsuming industries will have no net effect on steel consumption as a whole in the period under review.
Considerations as to future action by Governments
3. Since a shortage of steel would have serious consequences it is important, in view of the time-lags involved, that the necessary action in all sections of tho iron and steel industry should be taken in the early years, which would permit output to be raised above the level of 70 million tons in 1956 if this should prove desirable, either because structural changes in the steel consuming industries lead to higher domestic requirements for steel, or because export possibilities prove more substantial than is at present forecast.
4. It is equally important that attention be given to the fact that failure to expand in any one sector of the iron and steel industry would prejudice the attainment of the overall objective for steel expansion—a danger which applies to iron-ore expansion programmes. On this subject, the Working Party notes that the most recent forecasts of production of iron-ore in 1956 are, for certain Member countries and overseas territories, substantially lower than earlier forecasts. This raises a problem concerning the possibility of reaching a production of 70 million tons of crude steel. It therefore seems that a supplementary effort to expand iron-ore production will be required.
5. It is recognised that fears of over-production might well prove an important factor leading to failure, particularly as regards ironore, where a considerable part of the expansion of output required consists in production for export. In these circumstances, any possible measures to prevent such fears, through, e.g. the adoption of long-term contracts, would help to promote the conditions necessary to the attainment of the objective for steel production.
Recommendations to Member Governments
6. The Working Party suggests that the Council should recommend to Member Governments :
a As regards their individual action :
a to arrange for the production plans to be on the generous rather than on the low side;
b to encourage all concerned to assume in their planning, in respect of both the steel industry itself, including finishing, and of the industries producing steel-making raw materials, that there will be no shortage of outlets for the increased production and that new capacity will not be left idle for lack of materials ;
c to make every effort, subject to the vital interests of industries of Members countries, to increase the ability of the steel industries to supply steel to third countries at competitive prices, and thus combat the fall in exports anticipated by the Special Group, bearing in mind that the market for steel in underdeveloped areas will depend, to an appreciable extent, on investments made in those areas;
d to make every effort to ensure that the steel industries dispose of sufficient quantities of metallurgical coke in order to meet their production objectives and that, in case of a shortage of coking coal, the requirements of the steel industries should be considered in comparison with those of other coke consumers. In these circumstances, the desirability of establishing a system of priorities might be examined with respect to the supply of coking coal to coke-ovens as well as with regard to the supply of coke to consumers in general;
e to take all measures to promote the output of iron-ore and collection of scrap so as to enable the steel industries to reach their production targets.
b As regards their international action ;
The Working Party suggests that the Council draw the attention of Member Governments to the contribution that the sharing of risks between producers and consumers by other suitable means, e.g. the adoption of long-term contracts, can make to increasing the production of steel or of steel-making raw materials.
IV. Agriculture
1. The Special Group on Agriculture estimated that, corresponding to a 25 % expansion in total economic activities, there will be an increase of 12 to 16 % in demand for foodstuffs. This is equal to 16 to 21 % of present agricultural production in the participating countries.
2. The Special Group examined, product by product, whether this increase in demand could be met by a corresponding increase in production. It concluded that total production could be expected to expand by 14 to 17 % in a six-year period from 1951-1952 to 1956-1957, equivalent to an increase of 12 to i 4 % in the five-year period covered by the Declaration. These percentages were established without taking into account tho potentialities of increasing Turkish agricultural production, on which the Special Group did not feel able to form a judgment.
3. The Special Group has estimated that, given the likely pattern of demand at the end of the five-year period, a slight increase of food imports into Europe by comparison with current levels would be required over and above this increase in European production.
4. The Special Group noted that, to achieve this expansion, extraordinary efforts will be required both to extend the arable area and to increase yields, and that the necessary conditions include strong advisory services and other forms of technical help, increased supplies of agricultural machinery, fertilisers, etc., despite the defence programme; selective expansion of agricultural investment; improvement of credit facilities, particularly to small farmers; assiirance of outlets at reasonable prices and expansion of intra-European trade. The current tendency for the rate of increase in the use of fertilisers to fall off was noted by the Group as particularly dangerous for the achievement of being the expansion target.
Observations by the Working Party
Appraisal of objectives
5. The Working Party notes that the Special Group does not envisage a reduction in the present volume of food imports by Western Europe if the increase of demand resulting from the 25 % expansion is to be met. In view, however, of the considerations stated in the first part of this report (Chapter IV), a reduction in these imports, in particular those payable in dollars, may very well become sheer necessity. The Working Party, therefore, considers that it is advisable :
a to adopt as a minimum objective an expansion of 17 % in the agricultural production of Western Europe during the period defined by the experts ;
b to make a further examination of the possibility of further expanding agricultural production in such a way as both to satisfy the increase in demand envisaged in the experts' report, though not necessarily commodity by commodity, and to reduce substantially the present volume of agricultural imports, particularly those from the dollar area;
c to revise, if appropriate, the objective defined in sub-paragraph (a) above so as to take account of any additional possibilities shown by the study envisaged in sub-paragraph (b) above.
Efforts to be made
6. The need for an increase in production greater than that envisaged in the experts' report makes it even more necessary that the efforts they have asked for be accomplished.
National and European policies
7. The Working Party considers that effective Government action is necessary to overcome the various difficulties noted by the Special Group and by the Food and Agriculture Committee. It emphasises the need for a coherent and forward-looking agricultural policy on the part of Governments, which would lay adequate stress on the production of grains and other primary products, and for consultation between the Governments to harmonise their programme.
Agricultural products for industrial use
8. The Working Party noted that the Special Group's study covers only food products. However, as noted in Part I, Chapter I, section 2, of this report, the expansion of production of cotton and natural fibres is receiving consideration within the Organisation.
Fisheries
9. The report on marketing of fish which the Fisheries Sub-Committee is shortly to consider should, in the opinion of the Working Party, be taken as an opportunity to consider the contribution that fisheries might make to the increased supply of foodstuffs.
Recommendations to Member Governments
10. It is proposed that the Council should recommend to Member Governments :
a to aim at fulfilling the conditions necessary for the expansion of agricultural production, namely : the existence of strong and efficient farm advisory services and other technical assistance; maintenance and increase of supplies of agricultural machinery, fertilisers, etc., in spite of the defence programme; selective expansion of agricultural investment; improvement of credit facilities especially to small farmers; assurance of outlets for farmers at reasonable prices; expansion of intra- European trade by all practicable means;
b to encourage the development of scientific research in the agricultural field;
c to take full advantage of the possibilities of drawing on experience in other countries, including the United States ;
d to foster the adoption of the methods for improving the efficiency in agriculture which have been defined by the technical reports established within the Organisation.
e to give special attention in view of the check to increased use of fertilisers and other requisites occasioned by rising prices :
10.5.1 To the maintenance of appropriate relationships between the prices of farm products and of agricultural requisites;
10.5.2 to the provision of adequate and appropriate credit facilities to farmers for fertilisers and requisites;
10.5.3 to the elimination of taxes and obstacles to trade raising the cost of fertilisers, high-quality seeds, breeding stock, etc. ;
f to encourage expenditure of capital to increase the productivity of existing agricultural enterprises, where this is likely to produce the quickest return;
g to establish well-defined programmes of irrigation and land reclamation, indicating the investments involved, and, if necessary, the need for recourse to foreign capital for their realisation;
h to give special attention to the lack of assurance of satisfactory outlets felt by farmers, as a major factor limiting the expansion of production, and therefore to the need for :
10.8.1 publicity about the foreseeable growth of demand;
10.8.2 long-term contracts;
10.8.3 the vigorous intensification of efforts made to develop intra-European trade in agricultural products ;
10.8.3.1 to consider the extension to other commodities of agreements similar to the International Wheat Agreement.
Further studies
11. The Working Party proposes to the Council to secure :
a the further examination of the possibilities of increasing agricultural output, taking account of the possibilities of expansion of agricultural production in Turkey, in such ways as both to satisfy the demand envisaged in the experts' report, though not necessarily commodity by commodity, and to reduce agricultural imports substantially, particularly those from the dollar area;
b a regular review of the factors affecting the supply and demand for fertilisers, aimed at securing a balance with a high level of demand.
V. Housing
1. The report of the Secretary-General says that at the end of 1950 the housing accommodation of Member countries consisted of some 70 million dwelling xinits, which was 6.5 million less than the figure required to maintain the pre-war ratio between the number of dwelling units and the size of the population. The annual increase in the population is such that 600,000 dwelling units must be built each year to maintain the status quo. During the last two years, the number of dwelling units built per year was about 900.000. This is much too low to meet the requirements arising from the growing population, to replace existing buildings and to remedy the accumulated shortage within a reasonable period of time.
2. Any overall building objective for Member countries must of necessity be somewhat arbitrary, in view of the different circumstances prevailing in the various countries, and the vario\is assumptions on which it must be based. However, it seems that a reasonable objective would be to raise the number of dwelling units built in Member countries as a whole from 900,000 a vear in 1950, to 2 million in 1956.
3. In order to attain this objective, appropriate action must be taken at once to increase productivity in the building industry and to solve certain problems of finance.
4. While the shortage remains acute, and the volume of building is limited by the need to strengthen defence, Member countries should speed up building in mining and agricultural areas where the shortage of housing may impede general economic expansion.
5. They should also make the best possible use of existing accommodation and concentrate on building a larger number of separate dwelling units of a simple type with a small number of rooms.
6. From both points of view, the fixing of rents at too low a level has harmful effects; it tends to prevent existing accommodation from being kept in proper repair, increase the number of large premises occupied by small families, hinder the.mobility of labour and limit the building of new houses for letting.
Comments by the Working Party
Special features of the problem of housing
7. The Working Party noted that the problem of housing has two special features : problem of housing presents two special features :
a It is in the main a national problem, not only because the extent of the shortage varies from country to country, but also because the steps required to overcome this shortage are nearly all of a national rather than an international order ;
b since defence requirements will put unusual pressure on resources otherwise available for housing construction, it will require special efforts to assure an increase in house building. The opening for future investment arising from the continued existing of a housingshortage is of great importance in connection with the problem of future demand, as has already been pointed out in the first part of this report. - The comments which follow are governed by these two considerations.
Appraisal of the objective
8. Without making any detailed investigation of the objectives suggested for 1956 in the Report of the Secretary-Gen era], the Working Party expresses the view :
a that, at first, the objective will be to maintain rather than to increase the ressources made available for building; but that at the same time :
8.1.1 provision must be made for the special requirements of mining and agricultural districts where the shortage of housing is an obstacle to the settlement of additional manpower from other areas within the country or from abroad and, hence, to the increased production essential for the overall expansion;
8.1.2 the number of independent dwelling units of simplified design and with fewer must be increased;
b that, later, in order to improve living conditions, and to encourage a continuous and reasonable increase in total demand, the resources which become available must be used in such a way as to increase considerably the number of dwelling units built in Western Europe as a whole, so that by 1956, or as soon afterwards as possible, the objective of 2 million units per year will be attained.
Methods to be employed
9. The Working Party, concurs with the report of the Secretary-General on the methods which should be recommended for adoption. It attaches particular importance to measures which will ensure the best possible use of the limited resources at present available in Member countries for building.
Recommendations to Member Governments
10. The Working Party proposes that the Council should recommend to Member Governments :
a to speed up the building of houses in areas where essential production centres are being developed (mining and agricultural areas, etc.);
b to endeavour to build more independent dwelling units, with fewer rooms and of simplified design, without building them less well or less sturdily than at present;
c to accelerate the industrialisation and rationalisation of the building industry, particularly by :
10.3.1 revising and making more flexible administrative regulations;
10.3.2 the grouping of orders and the signing of long-term contracts for building schemes financed out of Government funds;
10.3.3 appropriate fiscal measures;
d so to direct their subsidies to the building industry that-they will further the achievement of the aims listed above;
e to take the necessary steps. to ensure that, whenever a system of rent control is inevitable, its inherent disadvantages will be mitigated as much as possible; i.e. to ensure that it does not :
10.5.1 prevent existing accommodation from being kept in repair;
10.5.2 limit the building of new houses for lettings
10.5.3 increase the cases where existing accommodation is inadequately occupied;
10.5.4 hinder the mobility of labour;
f during the period when the building programme will still be limited by the shortage of resources, to prepare for a wider programme to be carried out later, particularly by studying :
10.6.1 plans for this expansion;
10.6.2 labour and supply problems affecting the implementation of such plans;
10.6.3 town planning schemes;
10.6.4 the creation, expansion or re-organisation of financial institutions (mortgage banks, " Credit Foncier " establishments, building societies) wherever the existing institutions are inadequate for the proposed expansion.
Further investigation of this problem at the international level
11. Though the main aspects of the housing problem are national in character, surveys and exchanges of information at the international level with regard to its technical and financial aspects are extremely useful. The Economic Commission for Europe of the United Nations does valuable work in this connection, and the Council may, later, have further recommendations to make, based on this work.
VI. Transport
1. The general expansion of the economy by 2 5 % will require a large increase in the volume of goods transported, both in Europe and in the overseas territories. The Report of the Committee of Experts on Coal refers to the possibility that transport difficulties may aggravate the fuel shortage, particularly in Germany and the United Kingdom; the difficulty in the United Kingdom is largely one of a shortage of railway workers but, in Germany, the difficulty lies largely in the shortage of rolling stock.
2. The problem has many international aspects : thus international trade as a whole depends on transport; transport systems of various countries are inter-connected; some shortages in the transport system may be overcome by international trade in rolling stock and other railway material, others by the international movement of workers.
3. Long-term development programmes may be necessary, particularly in the railway sector.
Proposed study
4. The Working Party suggests that the Council should arrange for the carrying out by the Organisation or some other appropriate body of a study on the development of transport facilities called for by the 25 % expansion vizualised in the Declaration, including the difficulties which might be encountered in such a development and the action which might be taken, whether nationally or internationally, to overcome these difficulties.
VII. Manpower
Recommendations to Member Governments
1. The Working Party proposes that the Council should recommend to Member Governments :
a To review their employment services in order to ensure the existence :
1.1.1 of an efficient employment exchange system with offices operating in each important industrial area and in labour supplying areas;
1.1.2 of a system of national co-operation between local operating offices of such a nature that :
workers in areas of labour surplus are informed of openings in areas or in occupations which are suffering from a labour shortage;
the nation possesses up-to-date information regarding the labour surpluses and shortages, actual and impending, for each area, industry and key occupation;
b Where necessary, to establish a system of labour priorities, and give instructions to labour exchanges that, in so far as they are able to do so by persuasion, they should aim at getting the vacancies in " priority " occupations filled before others;
c To give careful consideration to means by which inducements can be offered to encourage workers to enter those key sectors of industry which at present suffer from a manpower shortage, to discourage absenteeism and to raise output per head;
d To introduce or encourage schemes for vocational training for these industries both in countries where full or nearly full employment exists, or, in appropriate cases, in countries with a manpower surplus which may be trained for employment in these industries in other countries ;
e To consider the advantages offered by the holding of tripartite conferences between labour administrations, trade unions, and employers, on manpower problems.
f Where their countries are suffering from manpower shortages, to take appropriate steps to investigate and, as far as possible, alleviate the fears of trade unions and other bodies which at present hamper the acceptance of foreign workers in their industries.
g To examine, through the Organisation, means to facilitate enquiries by countries desirous to accept foreign workers in their industries, in countries where there is a surplus of manpower. This would involve :
1.7.1 exchanges of information among countries as to the fields of industry in which such manpower could employed;
1.7.2 that the employment services of countries with a manpower surplus co-operate actively with the countries desirous of receiving immigrants, so that the latter may have at their disposal the maximum information on all potential manpower availabilities.
