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War Economy

Influences on the Direction of Industrial Development

Influences on the Direction of Industrial Development

As early as 1936 an Industrial Efficiency Act had been passed to give the Government power to guide the development of industry. However, until quantitative controls over imports became effective in 1938, there was in fact little the Government could do to change the direction of industrial expansion. At this stage it became possible to influence the direction of expansion by keeping a tighter restriction on imports of materials used by industries whose expansion it was desired to discourage, and by making it page 63 easier to import materials used by industries it was desired to encourage. In the same way, development of a manufacturing industry could be encouraged by making it difficult to import finished goods of that industry but easy to import its raw materials. This sort of influence on the direction of expansion has always been associated to a greater or less degree with the use of import controls.

Under war conditions, emergency regulations gave powers to controllers to guide the rate and direction of expansion of manufacturing, and of primary production and building. There was also some selective protection of industries in the lists of reserved occupations which were issued to recruiting officers in the first weeks of war. The intention was that persons in essential industries should not be accepted for the armed forces.

In the early years of war this latter was a rather negative kind of control. Losses to the armed forces could often be made good if the industry was strong enough to compete on the labour market.

The powers given to industry controllers were seldom used to apply controls directly to the production targets of firms, and it was supply which soon became the controlling influence for nonessential industries. This type of control intensified as shipping difficulties and the diversion of overseas production to the making of war equipment led to serious shortages of materials. As supplies became inadequate to meet the demands of essential industries, complete restrictions were placed on the use of materials for some specified purposes. Controls over the use of building materials in particular became very stringent, and severely restricted private construction or even maintenance work.

Controls over supply remained the only really effective means of influencing the rate and direction of growth of industry until the time came for the Government to take power to direct industrial labour. At that stage, control over manpower gave another powerful influence over production.

These types of influence were not always sufficient to free resources for essential works. The Government itself tended to face supply and labour difficulties. To get certain Government work done for war purposes it was necessary to divert considerable resources from other uses. This could be done either by taking direct controls sufficient to forbid the use of resources for certain purposes, or by offering a higher reward for the use of resources than could be paid by non-essential users. This latter process tended page 64 to be inflationary, but we find it used, along with direct restrictions on the non-essential use of resources. It was not sufficient just to free resources for essential uses. Adequate incentives were also necessary if war production was to meet difficult targets.1

1 Not to mention the need for a supporting fiscal and monetary policy.