A general view of international economic relations becomes more difficult with each year of war, owing to the universal blackout of all key indicators. Statistics of the major lines of production, of exports and imports, ship construction and registration, gold movements, and inter-governmental transactions are withheld, and apart from war requirements international economic intercourse approaches vanishing point—as witness the case of Ireland noted below. This article will therefore be confined to a rapid survey of the financial and economic impact of war in 1942 on two of the belligerent systems—the British Commonwealth of Nations and German Europe. Information as to states not herein covered will be found under their respective titles.
British Commonwealth of Nations.
Great Britain.
The economic life of Great Britain showed a remarkable stability throughout 1942, testifying both to the capacity of the people and to the essential soundness of the system of war finance introduced by Sir Kingsley Wood in his 1941 budget. The Chancellor's review of the financial year ending Mar. 31, 1942, showed very satisfactory results. Actual expenditure reached the huge total of £4,775,694,000 as compared with 1941 budget estimates (including supplementary votes during the year) of £4,668,185,000. Actual revenue was £2,074,057,000 as compared with an estimated £1,786,360,000. (This does not include the value of lend-lease supplies, which probably totaled about £600,000,000 by the end of March 1942.) To this revenue taxation contributed in 1941-42 £1,961,975,000, and of that taxation income tax alone constituted more than two-fifths.
The Chancellor's budget of April 1942 introduced, as was expected, no fundamental changes. Some minor concessions were made to the lowest group of income-tax payers, but the schedules were unaltered. Heavy increases of duty were levied on beer, wines, spirits, tobacco, and a wide range of luxury goods. For the financial year 1942-43 total revenue, after the proposed tax changes, was set at £2,627,100,000. Total expenditure for the year was estimated at £5,286,479,000.
The leveling effect of the drastic British income tax was illustrated in some official figures given to Parliament at the end of July 1942. The number of taxpaying incomes rose from 3,800,000 in the financial year 1938-39 to 10,500,000 in the year 1941-42; but the number of gross incomes in excess of £2,000 was stationary at 105,000. The wide distribution of the tax burden was evident in the fact that whereas the latter group contributed 64.5 per cent of the total income tax receipts in 1938-39, they contributed only 38.9 per cent in 1941-42; and this despite the fact that the averaged proportion of their income taken by income and surtax rose from 37.7 per cent to 61.3 per cent. The tax gradation was so steep that to confiscate the whole of the excess of incomes over £2,000 would add only £30,000,000 to the revenue.
The actual course of war financing during the year 1942 contained no surprises. Apart from expected increases in direct war expenditures, the main increases in government disbursements were for claims under war risk insurance, and for subsidies, principally to agriculture. Bank deposits showed a degree of increase that could hardly be considered inflationary, and the addition to the holdings of government notes and securities was, all things considered, remarkably moderate.
The Bank of England statement of Dec. 16, 1942, showed total deposits of £m 201.5 against 185.5 for a year earlier; bankers' deposits of 146.9 against 121.2; government securities held 152.3 against 135.7. The reserve ratio stood at 21.3 per cent as compared with 22.0 on Dec. 16, 1941. Note circulation was 908.3 against 740.1. Up to October 1942 the note circulation showed a total increase of 77 per cent over 1939, coin circulation an increase of 27 per cent. The limit of the fiduciary issue of the Bank of England, which stood at £780,000,000 at the end of 1941, was twice raised during 1942 bringing it up to £950,000,000 on Dec. 1.
The national debt of Great Britain in mid-December 1942 stood at £16,203,000,000, an increase during the calendar year of somewhat over £3,000,000,000. Included in this total was a floating debt of about £4,000,000,000, as compared with some £3,500,000,000 a year earlier. Public subscriptions to the large assortment of long and short term government loans were well maintained.
As in previous war years the amount of new private financing was negligible, but values were well maintained without inflationary symptoms. The Financial News index of industrial securities which showed a monthly average (based on July 1, 1935) of 78.1 for 1939 and stood at 82.6 in November 1941, reached 92.9 in November 1942. The index for fixed interest securities (based on 1928) stood at 116.8 for 1939 average, 132.5 in November 1941 and 134.3 in November 1942.
British wholesale prices, according to the index of the London Economist based on 1929, averaged 121.1 for November 1942 as compared with 119.7 a year earlier. The cost of living index of the Ministry of Labor, also based on 1929, stood in October 1942 at 122, the same figure as for October 1941. This result does not, of course, mean that the standard of living had undergone no further deterioration, but it does mean that the system of price controls was working with fairly complete efficiency.
The British rationing system came through 1942 with some extensions but no major changes. The sugar and fat rations were reduced in January to ½ pound per week as before Nov. 17, 1941; dried fruits, cereals and pulses were brought under the scheme in that month. Some curtailment of the meat supply was necessary in March, and of the clothing ration in the second half of the year. November 1942 saw the normal milk ration cut to a maximum of 2 pints per week; and the British loaf now included a proportion of oat and barley flour. The most marked change during the year was the abolition at the end of June of the petrol allowance for private automobiles; thenceforward every private owner had to prove his individual case for getting any fuel at all. Further cuts in the allowances for necessary driving were made in October. The coal supply gave cause for increasing anxiety throughout 1942, and in several months sporadic shortages were felt by consumers. The trouble lay partly in the lack of any rationalized system for the industry as a whole and partly in the too sweeping conscription of the miners. As regards the latter a relatively small number of men were released in the latter part of the year. As regards the former, a new Ministry of Fuel Light and Power was established in June 1942 with authority to control both production and distribution of coal; but the extremely controversial question of a general rationing of coal was still in suspense at the close of the year. Meanwhile the coal royalties of the landowners were officially nationalized on July 1 under the Coal Act of 1938; but the administration of the plan was still far from complete.
While British foreign trade has been drastically restricted by the combined effects of war operations and shortage of shipping space, a considerable trade—of which details are naturally not available—has been conducted by and through a government corporation—the United Kingdom Commercial Corporation—and a series of subsidiaries operating in Turkey, Palestine, Syria, Egypt, the Sudan, Iran, Iraq, Iceland, Spain and Portugal. Much of this trade constitutes a form of economic warfare involving preemptive buying or subsidized selling, but in other cases the government agencies use normal export and import channels and supplement rather than supplant the activities of private traders. Such activities however proceed under a constantly widening official supervision which during 1942 brought several new classes of goods under the requirement of export or import licenses. The shipping situation remained grave throughout the year. An estimate of the British Chamber of Shipping disclosed that up to the end of 1941 losses by enemy action amounted to 48 per cent of Britain's total prewar sea-going and coastal steam and motor tonnage. The high cost of repairs and the shortage of materials added to the difficulty of the situation.
Ireland (Eire).
The external economic relations of Ireland (Eire) like those of other neutrals, have improved as a result of the war. Following the liquidation of the trade dispute with Britain in April 1938 foreign trade expanded, and in the last complete year for which figures are at hand (1941) a substantial export surplus was attained. The income from emigrants' remittances also increased, accompanied by an interesting shift from the United States to the United Kingdom as the chief country of origin—reflecting the large employment of Irish workmen in British war industries. But the improved external position has not been reflected in internal economic advance. On the contrary Eire has suffered acutely from the lack of essential imports arising from the inability of Britain and other states either to supply the goods or to spare cargo space to carry them. Coal, oil, bread, tea and fats have been inadequate, and the crippling of internal transport by the fuel shortage has caused faulty distribution. Industry has suffered from the scarcity of raw materials, and despite the shift of labor to Britain unemployment and severe privation have appeared in the larger towns. A correspondent of the London Economist reported in July 1942: 'Eire appears to suffer from all the disadvantages of being at war with none of the compensations.'
Canada.
Canada in 1942 passed from the stage in which war requirements could be met by a general expansion of production into that in which they demanded a marked curtailment of civilian supplies. While the estimated national income rose from $4,800,000,000 in 1939-40 to $7,900,000,000 in 1942-43, more than the amount of that increase had gone into war production by drawing on reserves, inventories, idle capacity and imports. The changed situation was reflected in the budget estimates for the financial year ending Mar. 31, 1943. As against total expenditures of $1,885,066,000 for the previous year, the new budget set the figure at $3,900,000,000. Of this amount revenue ($2,050,000,000) was expected to provide 52 per cent; and it was hoped that the rate of personal savings would suffice to cover two-thirds of the net borrowing. It may be noted that $1,000,000,000 of the new budgetry total represents a grant of funds to the United Kingdom. The situation called for sharp increases in the income tax, an excess profits tax of 100 per cent (subject to a 20 per cent rebate) and the establishment of compulsory savings. The overall increase in the tax burden before the imposition of the 1942-43 additions is evident in the rise of per capita contributions from $40.95 in 1939-40 to $119.17 in 1941-42.
South Africa.
The position of South Africa continued strong throughout 1942, though details cannot be given since import and export statistics have not been published since 1939. The gold situation (See BANKS AND BANKING) and the continued bulk purchases of the British government have built up an extremely active balance of payments on international account. This has been utilized for the repatriation of sterling debt, South African gold shares, and other securities, and so long as the price of gold and the demand for other minerals and staples is maintained at present levels the outlook would appear to be favorable. Some criticism of the Union's gold policy has focussed on the relative neglect of other, and less lucrative, mining developments, particularly in manganese, chromite and copper. In respect of the first of these American buying has gone some way toward making up for the loss of Germany, the Union's principal prewar market for that product.
Australia.
Australia in 1942 intensified its war effort in every direction stimulated by the new threat from Japan. An estimate of the cost may be seen in the fact that the federal budget of October 1942 put war expenditures for the year 1942-43 at £A 440,000,000, just double the amount of the previous budget. Actual war expenditures in 1941-42 were about £A 319,000,000, and the gap between expenditures and revenue for 1942-43 was estimated by Mr. Curtin at £A 300,000,000. The mobilization of industrial manpower for war purposes brought 300,000 men and 50,000 women into the factories between January and August 1942; in the latter month 500,000 men were so employed, though peacetime factory employment did not reach 600,000. The average standard of living in the Commonwealth showed a considerable increase, as judged by retail sales, up to the spring of 1942; but since then the Federal Government has aimed at a cut of one-third. This has been pursued mainly through import restrictions and production control orders, but direct rationing of consumer goods was expected (September 1942) to play an increasing part. The need to find food for the increasing number of American soldiers has added to the demands of foreign buyers in pressure upon the home production, and American spending power has impinged on a curtailed supply of many non-essential goods.
New Zealand.
News from New Zealand in 1942 has been concerned largely with political and industrial disputes, one of which, in coal-mining, reached very serious proportions in both spheres. None the less, the war effort of the dominion has been sharply stepped up. Estimated expenditures, announced in May for 1942-43, put the war item at £NZ 133,000,000 as compared with an actual total of £NZ 53,000,000 for 1941-42. While no increased taxation was called for in respect of the pensions and social services for which New Zealand is famous, the consequences of the war demand were severe. After allowing for large internal war-loans and a still larger loan from Britain, in addition to lend-lease aid, taxes on individual taxable incomes for 1942-43 were set at 5s in the pound rising to 18s on earned income above £NZ 3,700 and unearned income above £NZ 2,500; company taxes ranged from 5s to 14s in the pound.
India.
In India the industrial revolution has been somewhat accelerated by the war, though its scope remains small in relation to either the resources or the population. Only 11 per cent of the people were classified as urban in the 1931 census, and the number available for industrial training, even at government expense, is very limited. None the less, in 1942 India was already eighth among the world's industrial nations. In steel she was meeting the bulk of her own requirements, and pig-iron was exported to Britain in substantial quantities. The Aluminum Company of India at Travancore was progressing toward its estimated annual capacity of 5,000 tons of ingots. There were 54 machine-tool firms, and the government ordnance factories plus a considerable number of small private establishments were in 1941 producing nine-tenths of India's own requirements of small arms, machine guns, Brenn guns, grenades, ammunition, etc. But these requirements were far below the needs of defence under present circumstances, and for other types of armament, as for practically all ocean-going shipping, India continued to rely on British and American equipment. Further development was hampered by the fact that India imported practically all of its copper, tin, lead, zinc and nickel; and an additional handicap was that a large proportion—in some cases, more than half—of the new industrial establishments lay on or near the coast of the Bay of Bengal where they have been exposed to Japanese bombing.
Financially the war situation favored the Indian government. The continued high price of gold and the rising demand for, and American buying price of, silver strengthened its position; but the chief advantage lay in the huge amounts expended in India for supply and defence by the British government. According to an official statement made in New Delhi in September 1942, these amounts totalled £3,000,000 in 1939-40; £40,000,000 in 1940-41; £140,000,000 in 1941-42; and £290,000,000 (estimated) in 1942-43. This is in addition to free supplies of war materials by Great Britain (estimated at £45,000,000 for 1942-43) and to substantial lend-lease aid from the United States; further, it was added, no part of the expenses arising from the use of Indian troops outside India had been or would be debited to Indian revenue. The large sterling credits thus arising were utilized by the Indian government for an extensive repatriation and redemption of its external obligations; and in the latter part of 1942 there was some talk of using unexpended sterling funds to acquire shares in Indian undertakings held by British investors.
Sterling.
Viewing the sterling area as a whole—and the same may be said of the Americas—it is clear that finance is now the servant and not the master of production. The only effective limits on economic activity are those arising in respect of the physical, human and technical resources themselves. The degree to which the purely monetary aspects of the great mobilization have been kept under control has generally exceeded the expectations of conservative economists. How far such control may still be effective when the military phase of the world crisis subsides is perhaps a question; but it may be suggested that undue pessimism is not well founded.
German-Controlled Europe.
The general pattern of German Wehrwirtschaft followed the lines indicated in 1941; but their execution has been hampered by the course of military events. For example, the planned agricultural development of southeastern Europe has been considerably impeded by the drafting of Slovakian, Rumanian and Hungarian manpower, and food supply has suffered in consequence.
Moreover, the need of fertilizer far exceeds the supply from a chemical industry still devoted mainly to war purposes; and while the gain of agricultural territory at the expense of Russia remains impressive, it must be remembered that Russian agriculture was almost entirely motorized, so that comparable harvests can hardly be reaped with a restricted oil supply. The loss of North African produce has increased the pressure on European territory, and agricultural prices have repeatedly been raised by the German commissars; bonuses for increased production have also been resorted to. For example, in Bohemia and Moravia extra fertilizer and improved rations of sugar and vegetable oil have been offered—the former being a significant item inasmuch as this region was formerly a source of beet-sugar export, whereas the present sugar-ration is only 45 per cent of normal consumption.
The loss of North Africa is of major importance to German-held Europe, while its control confers both opportunities and problems on the occupying forces. Before the war 84 per cent of Algerian exports went to France, 56 per cent of Tunisian and 45 of Moroccan. Import percentages from France were respectively 75, 62 and 34.5. The exports to France, which had been restricted in various ways because they were competitive with French agriculture and viticulture, showed a marked gain after 1939, and were stimulated by Vichy policy when the unoccupied zone became so largely dependent on them.
Insofar as the French people did not consume this increase, the blow to the Wehrwirtschaft is obvious; but the failure of the corresponding imports into North Africa of textiles, manufactured goods and fuel oil was a serious problem to Vichy and remains an important issue for the economic strategy of the allies, not unconnected with the state of native morale.
On the industrial front also war necessities have interfered with the rationalization of European industry under German direction. It would appear, from somewhat fragmentary indications, that with the exception of the Skoda arms plant and its central European subsidiaries, there has been a marked tendency toward the concentration of essential war industry in Germany itself. This is reflected in the extensive drafting of foreign labor from all occupied regions; the total of foreign workmen plus war prisoners in Germany toward the end of 1942 was estimated at about 6,000,000. This has been occasioned in part, no doubt, by the continued military drain on German man-power; but the increasing difficulties of transportation have also been significant. The German Control Commissions dealing with essential war materials have now been generally merged into so-called Cooperatives of wider scope by which all materials for specified major lines of production are allocated and distributed.
The foregoing developments have added to the difficulty of maintaining complete control over prices and wages. On a broad view the essential problem of such control is evidently reasserting itself; namely, that it is easier to dictate the financial conditions governing urban labor than it is to compel farmers to produce and deliver increasing quantities of food and raw materials. Such indications as the freezing of the southeastern maize market, the doubling of the wheat price, and the combination of coercive and inducive measures for other crops, suggest that the balance is adverse to the industrial workers, whether German or foreign; a suggestion confirmed by the severe overhauling of German wages in 1942 and the abolition or curtailment of many types of bonus.
It is, of course, inevitable that as the war continues the strain on the economy of German-controlled Europe should intensify as the limit (a shrinking one) of productivity is approached; an optimistic comparison with the resources available to the United Nations is suggested. But it is no less evident that the internal lines of communication possessed by the German economy stand in sharp contrast to the transportation problem of the allies, and that the shipping question remains the critical factor.
No comments:
Post a Comment