(From a Financial Times report. ) 1501, new assessment of the extent of surplus manufacturing capacity throughout industry, with an estimate of how far production could be expanded without causing labour shortages and high imports, will be published next week by the Institute of Directors, It is based on @nquiries made of the Institute's 20,000 members, and” will show how an increase in output could reduce unit costs and help boost exports.
The survey is intended not only to impress the Government with the scope for further expansion, but to restore business confidence, on which capital investment decisions depend. Another aim is to prove to industry that this time-unlike previous expansion drives- a boom could be maintained without running into bottlenecks, and that Britain could have a "go" without a subsequent "stop", Although there have boen some signs in the last few weeks of a quickening pace in orders for new capital equipment from private industry there has so far been no evidence of the major * upsurge in this sector of the economy which Mr, Maudling's measures of November ast were designed to produce.
Industry as a whole is still adopting a "wait and see" attitude to new invest= ment. The main reasons advanced are: 1. The existence of substantial surplus capacity; 2. Uncertainty about the outcome of the next general election, and fear of the policies which would be followod by a Labour Governments; 3. Uncertainty about the economic prospects of the U.K. after the Brussels debacle, and the need to give priority in planning new capacity to building up production inside the six, This atmosphere of caution and uncertainty is in danger of creating a vicious circle. One of the main objects of the National 400nomic Development Council's work is to create a growth psychology in industry, by pointing out the increase in demand which may be expected to develop over the next few years. In view of the length of time which major investment projects take to mature, it is future demand rather than present demand which is re e..ant to the need of new investments. An industry which is working well below capacity to-day may easily find itself unable to meet demand in a few years' time if it does not initiate new investments, The vital factor in the trend of the growth curve. On the other hand, if industry itself is not persuaded of this— and so far N.2.D.Ce's projections have made little impact on industrial boardrooms in general—then the growth plan itself becomes endangered, because the 4 per cent. per annum growth which the N.B.D.C. envisages itsolf depends heavily on major increases in demand for the capital equipment industrios.
There is now a good deal of concern in "Neddy" about the feasibility of its 4% growth plan unless investment begins to turn up fairly soon. Failing a change of mood, it is argued, industry may by its own caution prove its present fears to be justified, whereas, if it is adventurous, it will dispove them. Obviously much more needs to be done by the Government and by industry itself, to popula. "Neddy's" calculations, The Institute of Directors! survey is a step in this direction. It will show that there is a sibstantially greater reserve of capacity in the economy than at any time since the war, and therefore less danger than in the pad that expansion will run into bottlenecks and therefore have to be restrained. The argument of surplus capacity, of course, cuts both ways. But the demonstration that this time there is much less likelihood that "go" will have to be followed _guickly by "stop" could have important consequences, for industry and for Government. So far as industry is concerned, the post-war experience of “"stop-s0" policies by the Government has created a general mood of cynicism about expansion. As one industrialist put it the other day; "“Zxperience teaches us that when the sun shines and we put our heads out, sooner or later we get hit. But if we keep quiet and immobile in our dug-outs, we're all right." It is this psychology which the N.4.D.C. and Mr, Maudling have somehow to alter in the next few months,
The Budget is obviously crucial in this respect. Probably a large number of major investment decisions will hang fire until after the Budget. But the Government faces a possible problem of timing here. The Budget will certainly contain a number of stimuli to consumer spending. If these produce a consumer goods boom in the lato summer and early autumn, and this in turn produces a boom in private investment which coincides with the maturing of a substantial part of the public investment projects already going through the pipeline, this could lead to a strain on the external payments even if it did not drain internal resources (as it probably would not). This is 4 secondary problem of which the Government is well aware. In this roespoct the trend of exports is crucial, Although the survey will probably show that material stocks in industry are at a high level, it is clear that extra production at home will lead to bigger imports at some stage. As labour costs are rising less fast than those of most main competitors overseas, it is somewhat surprising that exports have not been doing better in recent months, But one reason for the tailing-off is almést certainly that current prices in the main export markets do not make exports suff iciently profitable, Most firms claim that they earn much lower margins on oxports than on home sales, and the pressure on prices grows steadily keener. Some fires have been selling abroad at a loss and there has boen a growing tendency to question the wisdom of going on doing so. The agreements being negotiated in steel are a response to increasing competition in world markots,
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