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FOREWORD

The foreign section of the World Economic Review, separated for the first time from the United States section, continues the earlier studies of economic policies and developments in various countries. A certain degree of recovery has been found in most countries, but the elements of uncertainty, distrust, and isolation still operate in many areas to prevent a complete return to prosperous conditions. The economic effects of rearmament, of the self-sufficiency programs which are characteristic especially of totalitarian States, and of currency readjustments are discussed in detail. Special attention is given to the recovery in international trade and the extent to which the gains are concentrated in the export trade of producers of raw materials and staple foodstuffs. The few instances of liberalization of commercial policy are noted, but these are confined principally to the broadening of quotas and reductions of duty in connection with currency devaluations in the European area. The more encouraging developments of the year are to be found in the trend toward elimination of currency uncertainties, although the gain in nominal foreign-trade returns as a result of devaluation is largely illusory. Tables in the appendix showing month-by-month production of a few primary minerals and metals reflect both the gradual general recovery and the progressive extension of armament programs.

The reviews in the foreign section of the World Economic Review have been prepared in the Division of Regional Information under the direction of Louis Domeratzky, Chief, but the basic material, and in many cases much of the text, was furnished by the foreign-service officers of the Department of Commerce and the Department of State. ALEXANDER V. DYE, Director. Bureau of Foreign and Domestic Commerce.

JUNE 1937.

IV

WORLD ECONOMIC REVIEW, 1936

PART II-FOREIGN COUNTRIES

EUROPE AND THE NEAR EAST

UNITED KINGDOM

The prosperous condition of British industry and trade was further improved throughout 1936. This improvement, which had its origin in the building industry in 1933 and which had communicated itself not only to building-accessory industries but to most of the basic industries as well, had gradually accelerated in 1935. In 1936, the year under review, the pace was quickened still further until shipping, textiles, and coal, which had remained persistently depressed hitherto, were gradually drawn into line; by the end of the year these "black spots" in the picture of British welfare no longer served to becloud the otherwise prosperous situation. Only two factors in the general economic situation continued to act as a brake upon the forward movement. Conditions in the depressed areas-no less dejected through being renamed the "special" areas still defied all efforts toward their amelioration; and the degree of unemployment persisted at a level of about 1,700,000, a number that seems inconsistent with the abounding welfare. Years of preoccupation with these two problems have shown that the depressed areas and the number of unemployed cannot be correlated with the business cycle and that the problems that they present must be solved by permanent sociological measures rather than by temporary economic expedients.

The emergence of the coal, textile, shipping, and shipbuilding industries out of an apparently perennial state of depression was the most encouraging feature of British economic progress in 1936, because their advance was not due solely to the momentum acquired by all other branches of industry; if this had been the only basis of their betterment, then the first signs of slowing down of other industries would involve a slump back into depression by coal, textiles, and shipping. Instead, the improvement in the three branches of industry seems to be as well established as that of other branches. Shipbuilding is backed by the Government's naval and merchant-shipping policy and by support of Empire passenger and cargo lines in the Pacific; the subsidy for tramp shipping provides higher freights and less price cutting; and the more economical concentration of production, following rationalization work undertaken by the National Shipbuilders' Security, means a more compact and efficient industry, with work more evenly spread and continuous and with a better competitive position.

The textile trade owed its improvement in large degree to the Cotton Spinning Industry Act that became operative in September and immobilized surplus spindleage. The finishing trades are now also planning schemes to adjust production to demand.

The coal industry prospered through the best domestic demand ever experienced, but the fundamentally favorable factor was the opportunity to benefit from this improved demand through the creation of the Joint Standing Consultative Committee. The commercial affairs of the industry were reorganized by schemes for central control of the sale of coal.

In emerging from their depressed state the three lagging industries shared the experience of the rest of British industry in deriving their advantage almost exclusively from the domestic field. In shipping only 1 percent of new construction was on foreign order, instead of 50 percent as in 1929; in coal and in textiles foreign orders were impeded by the innumerable quota, exchange, and tariff controls. But this same complication faced all other branches of industry, and there were already indications, late in 1936, that ways could be found to secure foreign business. Further evidence of the increased momentum acquired by British trade and industry during 1936 is furnished by the following statistics (see also tables at the end of this section). Employment increased by a little over half a million in 1936, and, through additions in early 1937, the total of insured in employment was 11,178,000 by April 1937; correspondingly, insured unemployment fell from an almost even 2,000,000 to 1,639,000 in April 1937. Industrial production in the final quarter of 1936, at 132.1, was 11.4 points higher than a year earlier and 44.7 points above the depression low of the third quarter of 1932, an improvement of 50 percent. Iron and steel production set up new records, pig-iron production reaching 7.7 million tons and that of steel 11.7 million; the monthly average of pig, 642,000 tons in 1936, was exactly maintained in the first quarter of 1937, while that of steel, 975,000 tons, was increased to more than a million tons per month in early 1937, with a prospect of still higher output, as iron and steel consumption increased 24 percent in the preceding year. British motors had another record year, and there was greater demand for higher powered cars. Production of private cars, commercial vehicles, and taxis (461,352), as well as their exports, nearly doubled 1929 figures. Bank clearings, company profits and dividends, imports and exports, wholesale prices, retail sales, wages, and new capital issues reached levels higher than those of 1935. At the same time, the money market remained easy and the cost of living increased only moderately, chiefly in food and clothing items. In other words, the very material increase in business had not brought about any real inflation that would have made the business improvement illusory.

The building boom which began in 1932, and which was therefore the forerunner of the general improvement in British business, continued during 1936. The number of houses completed in the 12 months ended September 30-339,538-constituted a record that was more than 10,000 houses above previous totals. The building industry had acquired a sort of sanction as a barometer of general conditions; consequently, when the last quarter of 1936 showed an appreciable drop in the value of plans approved for dwelling-house construction, there was an inclination to regard this as a forerunner of a slack in industry

in general. It appears, however, that there has merely been a change from residential to factory and public-building construction. Building-material suppliers expect the activity to continue throughout 1937 because of the efforts to speed up the subsidized schemes of slum clearance, overcrowding abatement, and rural house conditioning. At the same time, the demand for labor in the rearmament industries serves to retard the rate of construction. This does not occasion concern, as it merely defers construction to a later period when the activity in general industry slackens, when the building industry can again assume its role of leader out of the next period of depression.

Figures for the early months of 1937 indicate that some departments of British trade and industry, aided by the stimulus represented by armament orders, were rapidly approaching a boom condition. Company profits for the first 3 months were much heavier than in the comparable period of 1936, the index, with 1913 as 100, rising from 95.3 to 106.7. The wholesale price index rose from 102.9 in January to 107.3 in March. The steel industry entered the million-tons-a-month category; the coal industry faced the unique experience of inability to meet an unabated demand abroad as well as at home; in the engineering field old-fashioned blast furnaces were being put in blast, after many years of idleness, to enable demand to be met; in the woolen industry prices were advancing steadily and stocks were low. Exports as well as domestic orders were expanding; cotton production was at full capacity, and the majority of manufacturers were booked with orders for the rest of 1937. Spinners were in a better position than for 15 years; the 1937-38 budget was the largest in peacetime history, except for the immediate post-war years, and the income-tax rate was restored to 5 shillings in the pound; consumer requirements for most commodities continued to expand, beyond the expansion power of plants already working at capacity; import duties and other controls were being reduced in some lines to enable industry to obtain adequate supplies of raw materials; industries and services recently emerging from their long depression, unable to finance their sudden increase in business, were seeking bank accommodation; between March 1936 and March 1937 clearing-bank nonspeculative advances had risen by £81,000,000, with a prospect that the demand would further increase.

The degree to which the above-outlined near-boom development is conditioned upon armament activity, and, what is more important, the economic effect of any sharp recession in armament orders, is difficult to define. Even the degree of probability of a tighter money market, with a firming tendency of interest rates, could not evoke any unanimity of expert opinion in the early months of 1937. The intrusion of a variety of more than usually abnormal factors deprives a conventional analysis of the situation of much of its value. Especially the factor of international trade, hitherto recognized as indispensable to British welfare, is at present difficult to analyze in its proper relationships. It is admitted that present prosperity is very largely confined to domestic affairs, while foreign trade is thrown out of gear, first, by British armament business that requires full operating capacity of plants, secondly by similar armament activity in some other countries that are normally good customers but are now to a considerable extent out of the market, and finally by the multiplicity of trade and exchange restrictions and prohibitions. Concerted efforts

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