The Diseconomics of Growth

H.V. Hodson

Chapter VII.

Charges on Potential Growth

Professor Walter Heller (formerly Chairman of the US President’s Council of Economic Advisers), an apostle of economic growth, writes in his New Dimensions of Political Economy (1967):—

First claims on the products of growth should be to repair the ravages of the growth process. If as by-products in our quest for growth, we destroy the purity of our air and water, generate ugliness and social disorder, displace workers and their skills, gobble up our natural resources, and chew up the amenities in and around our cities, the repair of that damage should have first call on the proceeds of growth. If the damage is essentially a private cost forced on society, as in the case of industrial effluents and smoke discharge, it should be forced back on those private units. But much of the problem and the cost can be met only by government... When we turn to the uses of growth, we find a rather blurred line between programs to speed its advance and overcome its costs, on one hand, and programs to devote its product to the better life, on the other. Each of us has his own conception of these uses. I have put mine in this way:

The polluted air I breathe in many large cities, the now polluted Lake Michigan, Milwaukee River, and Puget Sound waters I used to swim in as a boy, our vanishing wilderness, the persistence of human poverty amongst plenty, the uneven struggle between beauty and ugliness in our surroundings, the excessive incidence of illiteracy, crime and delinquency—all these reach out for a share of that 7 billion dollars annual dividend... For how else are we to gain control of our public environment, rather than letting it control us in a “half-finished society”...? How else can we make real progress towards a society that will not only be large and productive but great and good?

If we change the place-names, and perhaps the degrees of emphasis, Professor Heller’s tally of our prime environmental and social needs accords with those which most of us in the affluent societies would list. But it is still not comprehensive. He does not mention noise pollution or family disruption, or intrusions into private life, or destruction of traditional and cultural inheritance, or lack of economic and personal security, or the sense of alienation from society and its organs, or wasted time, or sicknesses brought on by stress. All these are hurtful to the good life, and debase its quality. Their correction also lays claim to some of the products of growth or of its uses, to follow Professor Heller’s dichotomy, which seems to be approximately the same as that of potential and actual growth in the terminology used here.

Let us therefore consider first those continuing “by-products” of growth the repair of which Heller says should have first call on its proceeds, that is to say, should be charged against potential growth before we see whether we have any left to become actual and be used. They can be classified as effects of successive stages of the productive process: extraction, manufacture or equivalent production, distribution, transport, use and disposal. We have only to list them to see what a heavy charge their correction could levy. To suggest the scale of the problem, and at the same time record that in some countries at least, Britain and the United States among them, industry has not only become aware of the task but has begun to face it, here is an extract from an address delivered to the National Petroleum Council by the US Secretary of Commerce, Mr Maurice H. Stans, on 15th July 1971:

American industries, almost across the board, have launched vastly complex and expensive efforts to help clean up the air, water and landscape of the country. For example:

The chemical industry in 1970 spent 600 million dollars for pollution abatement. The iron and steel industry has spent more than a billion dollars on air and water facilities, and almost two-thirds of that in the last two years. The automobile industry currently is investing a quarter of a billion dollars a year in pollution research and development. The electric industries will spend two-thirds of a billion dollars on pollution control this year alone. Your own petroleum industry is spending more than 500 million dollars in pollution control this year, and in addition is developing expensive facilities in other countries to reduce the sulphur content of fuel oils being shipped here. The oil and tanker industries are working closely with the government to eliminate oil discharges and accidental spills into the oceans.

The fact is that, on average, American companies will have increased their pollution control spending by almost 50 per cent this year over last year. They will spend some 13 billion dollars over the next five years to meet the requisite standards.

That is an average of two and a half billion dollars a year, against a Gross National Product, in round figures, of 800 billion dollars, or one-third of one per cent of GNP. It is a great deal, though it is still far from enough.

The President of the vast American chemical firm of EI du Pont de Nemours, Mr Charles B. McCoy, announcing in March 1971 that it planned to spend more than 300 million dollarsover the coming three years on air and water pollution control in the United States, said that the expenditure would be about evenly divided between the installation of new control facilities and the expense of operating existing and future controls; and he added:

This cost is as much a part of doing business as payrolls, raw materials and other expenses. It must depress earnings potential to the extent that we cannot recover the costs through price increases or more effective production.

He could not have expressed more clearly, in a businessman’s language, the fact that such costs of avoiding industrial pollution, when added to previous production costs, form a necessary limitation of actual as distinct from potential growth.

This fragmentary example is enough to demonstrate that we are not considering trifles, but costs totalling nationwide many billions of dollars, and world-wide hundreds of billions. Du Pont is an up-to-date firm, and the chemical industry generally is well in advance of the average in awareness of the need to control its own pollution. Others have much further to go.

Extraction is the first process to be considered. The initial and basic correction to be made here is provision for depletion of natural resources. This is an immense problem on its own which will be examined in another chapter. Here it is enough to say that tax systems and other public policies, for instance in regard to oil leases, which encourage improvident extraction ought to be reversed. Taxes should be so levied that the more conservative the exploitation is, and the more money is put aside for exploration and for enlargement of reserves, the more lightly the taxes rest upon the extractive businesses and their shareholders; and that they cause a disencouragement for either the business or its shareholders to treat as income what is really the running-down of a capital asset.

Financial provision for depletion of natural resources is not in itself an economic cost to the community: whether put into company assets or held by governments it is, in relation to real costs of production, only a transfer payment, taking money from one account and placing it in another. But how it is actually spent does of course have a material effect upon production and upon growth. To put more back into measures of conserving usable resources, or opening up additional sources, makes a real addition to total costs and correspondingly limits the ultimate capacity to consume in other ways. If the provision is treated as a financial reserve, it becomes potential—in terms of the national economy—for any constructive investment, public or private: clearly the right kind of investment is that which eventually leads to a lower rather than a higher rate of use of natural resources.

There is one form of extraction of scarce resources which is often neglected in this context but is perhaps the most sinister of all, namely, the depletion of the earth’s soil and its natural covering, to which we can add the natural yield of water—sea, lakes and rivers. This is Man’s basic resource, the staple of his life on earth, and he has been as prodigal of it throughout history as he lately has been of other resources like fossil fuels, as the great deserts like the Sahara or the Gobi sadly testify. He has cut or burnt down forests which hold the water, shelter the soil from the elements, and moderate the climate. He has mined out, in two or three generations, the good soil left by thousands of years of vegetation, by his one-crop agriculture and failure to return the humus and trace elements to the land. He has ploughed up prairies and turned them into dust bowls. He has so over-fished the waters, in many parts, that the stock is declining and his depredations have to press further and further afield. He is a spendthrift who has so far been spared from penury only because he has tapped and is still tapping more and more of his inheritance.

Soil erosion is world-wide. The silt from the Ganges Delta visibly colours the water of the Bay of Bengal a hundred miles from the river mouth. Billions of tons of rich soil have foundered there from the now impoverished plains and foothills of the whole Ganges and Brahmaputra valleys. At the other end of the economic scale, the United States of America has squandered much of its natural inheritance in the soil and its covering, in the Great Plains, the Mississippi Basin and the South, mainly through monoculture of wheat, corn, cotton and tobacco. Louis Bromfield, in his story of the revival of an Ohio farm, “Pleasant Valley” writes of the United States as

once a vast wilderness of incredible richness inhabited by a few hundred thousand half-savage redskins. White men from Europe came to it and set out to pilfer rather than to develop it. The riches seemed inexhaustible and a tradition of farming grew up among the frontier men which made the American farmer one of the worst farmers in the world. The tradition and habit was simply that of mining the land... A large proportion of our small farmers exist upon an income and living standards below those of the average European peasant and in some regions we have farmers whose income and living conditions are scarcely better than those of a Chinese peasant. They exist upon lands which should have been left in managed forests, lands which were never suited for agriculture and were worn out and destroyed within a generation or two, or they exist upon rich soils which were destroyed by greed and bad farming within a century or less.

This quotation from an American novelist and farmer is not meant to point the finger at the United States among the agricultural nations of the world. All countries are guilty in some measure of using up man’s inheritance of soil and forest and natural vegetation. Perhaps Northern Europe is a little less guilty than most other places because here the benefit of a less devastating climate than central North America or the monsoon lands is combined with a long tradition of conservative farming going back for hundreds of years and enforced by scarcity of rich virgin land; though we Europeans, too, have our dishonourable scars, such as the deforestation of large parts of Scotland and southern England.

It would be a labour of Hercules to restore the Sahara to fertility, and much else that has been done cannot now be undone. But some can be undone. Fertility can be restored to exhausted soil by making nature an ally, and with the aid of fertilisers replacing some of the lost virtues. Reforestation has become a major preoccupation of many governments, from America to India. And further deplenishment can be arrested, by sounder farming methods, by contour ploughing, by windbreaks, by building small dams to hold the run-off water and its silt, by larger efforts such as those of the Tennessee Valley Authority. One method of higher farming carries, however, a warning: while irrigation greatly increases the area of cultivable land and its potential productivity, it often has the consequence of leaching or salination which counteracts its value. There are no short cuts to good husbandry on a national or world-wide scale.

Differential taxes for good and bad farming are almost impossible to devise: subsidies for good or restorative practices, such as forestation, have their merits. Some bad practices are hard to define and still harder to penalise. In England, for instance, while small fields have been wasteful of land and expensive to till and harvest, in some counties the ploughing-up of hedges has not only ruined the aspect of parts of our lovely countryside but has exposed them to soil-robbery by wind and weather. In the long run we shall save the earth’s soil from deterioration only by education of the farmer and the public everywhere.

Some of the effort to preserve and restore will cost money. In a rational economic system it should be found by the potential predators and their customers. For generations, especially since the opening up of the Americas and Australia, the world has been getting its food too cheap. It has not been paying for the soil and fertility that it has been using up. Now we have to do so, and we should, by rights, load the cost on its source. The age of cheap food, it seems, is over.

The problem is in some ways easier, in some ways more difficult, in regard to the using-up of the natural yield of waters. Easier, because fishing is a simpler, more immediate process than the long cycle of agriculture, and therefore easier to regulate and police. More difficult, because the oceans are open to all, and beyond national fishing limits many nations may have to agree upon the rules and their enforcement. But the need is even more glaring. Whales, salmon and many inshore fish are among the marine species growing scarcer and scarcer while mouths to consume them multiply. Existing conventions to preserve their abundance are manifestly not enough. This is one of the world’s resource problems that needs most urgent tackling. As Wesley Marx says in The Frail Ocean:—

the technological penetration of the ocean is daring, inspiring, and, quite possibly, potentially disastrous. If the ocean is to be a jumbo resource, its exploitation must be carefully husbanded. The ocean can no longer take care of itself.

In the present context the point is that if the cost of protection were charged to the extractors it would be yet another necessary toll upon immediate output and therefore upon growth capacity, at least in terms of consumption totals.

Another charge, relating to extraction, that should be made on the way to the consumer, instead of taxing him afterwards to pay for it, is the making good of extractive mess—the slag heaps, spoil tips, subsidence—causing empty workings, derelict pumping and winding equipment, scarred hillsides and all the rest of the wounds that mining and quarrying and oil-drilling have left upon the habitat. It is absurd, wickedly absurd, that in the past all nations have allowed this desecration to go unremedied and unpaid for. Perhaps the relative poverty of our ancestors is some excuse. We who are so much richer than they can the better afford to pay for what they failed to charge to themselves as users of the earth’s minerals. In that degree, the excuse has now vanished. Coal and oil and metal ore and slate and stone and gold and china-clay and cement should now pay for their own dereliction, or rather for making it good and stopping it from now on. To make them do so is not too difficult in essence.

The first principle to din home is that each generation is only a life-tenant of the resources—physical and environmental—that it inherits, and that the public interest in preserving them over-rides the private interest in exploiting them. The second principle follows from the first: that, however the fact may be expressed, whether by nationalisation of the subsoil rights or by less socialistic fiscal and regulatory methods, private owners are only leaseholders from the public society for the exploitation of such resources, not freeholders to do what they will with their own. Society has therefore the right, and the duty as trustee, to make terms for the lease—such terms as a landowner might make in turning over his land for strip mining, obliging the lessee to return the top soil in fertile condition—among which terms the first and foremost should be that the local environment should be no worse at the end of the period than at its beginning. Even if we enforce such covenants in future, charging the extractive industries with clearing up their own débris, we are still left with the hideous remnants of the past. But the remedy for that comes into Professor Heller’s second category, the uses of such net growth as we do achieve. Meanwhile we have listed another charge to be made on potential growth before it is realised.

In manufacture or equivalent process (such as smelting or refining or power generation) innumerable sins against the environment have been committed. They include ugly and ill-sited factories or other plant; sordid and grimy working conditions; emission of smoke, gases, particulates and other effluents, and of noise and smell; scrap heaps and waste dumps; pollution of watercourses by waste matter and heat. They are too many and varied to be analysed in detail here. Fortunately this is an aspect of environmental damage which has long been recognised—it formed the prime example of the differential between social cost and private cost in the works of classical economists, and its control had a conspicuous early expression in the compulsory tall height of factory chimneys—and which is now the subject not only of continuous public agitation but also of increasing governmental controls, regulations and standards. Very few, even in industry itself, nowadays dispute in principle Professor Heller’s proposition that “if the damage is essentially a private cost forced on society, as in the case of industrial effluents and smoke discharge, it should be forced back on those private units,” that is to say, in his language, it should have “first claims on the products of growth,” or on potential growth. But the net still has too many holes and too wide a mesh. Repaired and narrowed, it would impose additional costs on production, and to that extent further limit the margin of potential GNP growth available for consumption or expansive investment. There would still remain the social displacements and disorders which manufacturing industry has caused, and which can be averted or minimised only by wise planning and land-use policies, including policies of regional development.

In the physical distribution stage of the economic stream from natural resource to consumer, the most glaring example of environmental damage or danger has lately been that of oil transport. The Torrey Canyon catastrophe of March 1967—when the collision of a mammoth oil tanker with a rocky reef in the mouth of the English Channel spread 36 million gallons of oil over thousands of square miles of sea, fouling coasts and killing birds and marine life—awakened the world, particularly the English who suffered most (after the fish and the gulls), to the hugely magnified risks of such pollution that we run when the oceans abound with 200,000-ton and still larger tankers. Coastal oil pollution had of course been a familiar evil, some of it accidental, some the result of deliberate discharge of waste or hold-washings, but it had been in dribs and drabs, and it needed the drama and scale of the Torrey Canyon affair to rouse the grumbles into clamour not only for compensation but for prevention. Another big oil spill off the east coast of Canada provoked that country into asserting a right to impose conditions on shipping far beyond its internationally recognised territorial waters. The blow-out in the Santa Barbara Channel, California, two years later, was a hazard of extraction rather than distribution, but the effect was alike, both on the neighbouring habitat and on public opinion.

As to deliberate oil spillage, four-fifths of the world’s distributors of oil have adopted the load-on-top system, which avoids the need for discharging oil-and-water mixtures when cleaning and emptying tanks compulsion of the minority by international treaty or by national boycotts is the necessary next step. Accidents like collisions or groundings will still happen, and the larger the tankers the greater the dangers of each; but it is right that those responsible should bear the full cost of compensation for the damage, including a contribution to a world pool for off-setting damage to the world’s oceans and their natural resources.

When we turn to transport other than that of raw materials the problem takes on a larger dimension. It could be argued that half our environmental injuries today are due to the development of the means of transport, from the steam locomotive, which in its heyday beset our cities and countryside with its tracks and tunnels and viaducts and marshalling yards, its noise and its smoke; through the internal combustion engine, which crowded towns and cities with automobiles, drenched them with fumes, and insatiably demanded more and more roads with an appetite that “grows by what it feeds on,” using up land, ploughing through homes, bringing much more disturbance further into city and countryside than ever the railroads did; to the aeroplane, whose noise and noxious emissions spread ever more widely, through air and cloud and across broad swathes of land. Certainly the development of transport has been and continues to be a mainspring of economic growth throughout the world, and any brake upon it is more than likely to be a brake upon overall economic growth itself.

In the present context we are, of course, talking about commercial transport, which in its pollutant effects cannot be separated from private transport using the same roads, railways and air-space and emitting the same sort of noise, smoke and gases. Commercial transport can, however, be distinguished in two ways: first, that its cost enters into the total cost of production and delivery of the product (or service), and that any increase in cost to the commercial transporter must either be passed on in the price of the product or absorbed in the other intermediate costs and profits; secondly, that the choice between one mode of transport and another, or between different sitings of factories, warehouses and shops from a transport point of view, is calculated on exclusively economic grounds, unlike private transport where all sorts of subjective preferences enter in.

In the light of these points, in an ideal economic world commercial transport would bear its own full economic cost, including public or social cost (in so far as this can be evaluated in money) as well as the direct cost to the user. That is to say, it would pay for the cost to the community of all the noise, smell, emissions, dislocation, land-swallowing and other ills that it caused—the cost reckoned either in terms of compensation or in terms of undoing the effects. Otherwise there is a distortion of economic pricing and consequently of the best use of resources.

If, for instance, it were to be found on such a broader conception of cost that heavy long-distance haulage were too cheap in relation to shorter and lighter transport, not only would heavy goods be too cheap (or light goods too dear) in relation to each other, but there would also have been an inducement to site factories too far from sources of heavy materials and distribution-points for bulk production, relatively too near to points of final distribution. Again, if it were found that, given the capital works already existing at a particular time, road transport were too cheap in comparison with rail, on this broader reckoning, then not only would there have been false differential pricing of various goods but the choice of sites for factories and distribution facilities would also have been warped diseconomically in favour of proximity to roads rather than to railhead.

We do not know whether such “ifs” are realities, or their opposites, until we tot up the public costs as well as the private costs of different types and modes of transport. What is the true price to the community of a new trunk road, designed to speed commercial and private traffic? Clearly not only the contractor’s price for construction plus the price of the land needed plus compensation paid to those displaced from that land. There is the necessary redress (usually hypothetical only) to those living on the urban edges of the new highway, for the effects of the roaring, foul-breathed monster brought to their doorsteps. There is the necessary (but always hypothetical) redress for the social dislocation caused by a trunk road barrier cutting through a community: if a farmer has his land cut in two, he is either fully compensated or has a tunnel or bridge built at public expense, but if a housewife is cut off from her favoured shopping area by a new motorway, or a man from his employment or daily pleasures, or a family from its friends, they get nothing. This also is a cost of a new highway.

It has been authentically revealed that a series of confidential reports to the Department of the Environment by four eminent British firms of architectural-planning and engineering consultants have demonstrated the very high incidental cost of motorways, not entering into their present financial price, in terms of noise, fumes, disruption and visual offence. “The consultants were able to develop techniques for measuring and costing these losses of amenity and bring them into the total of cost and benefit of the motorways concerned. They also were able to show that the much simpler cost-benefit calculations used so far, relying mainly on traffic effects, are inadequate, and that if the true costs of damage to amenities were brought in, urban motorways previously thought of as giving a satisfactory return would be seen to be causing a heavy loss to society.” [The Times, 29th November 1971]

There is one particular diseconomy which has a heavy bearing on the question of economic growth. If the building of a new trunk road spells a depreciation of the capital assets in and around alternative means of transport, for instance a railroad and its appurtenances, ought not this loss to be added to the capital cost of the road to reach its true total, or, if you like, deducted from the calculable economic value of the road? A manufacturer, building or buying new plant to replace old, adds the cost of writing-off the old plant to the cost of the new before he makes his decision, or (which comes to the same thing) reckons his comparative production costs from the old and the new plant respectively on the basis that the capital of the former has been written down to nil and no longer has to be remunerated. The nation or community should do the same with its capital assets. It is their single proprietor just as the manufacturer is of his several plants. Here we are thinking primarily of roads and railways, but the argument holds good generally, not only in transport. Gross economic product is one thing, net economic product quite another. Economic growth measured by changes in GNP is only a first approximation to net economic growth, even leaving out all those factors which cannot be measured in money, or can be so only on subjective value-judgments.

Another aspect of net and gross relates to human capital. If developing a road network (or an airport, or a dock system, or a railway for that matter) brings production and employment to prosperous areas and takes them from areas of high unemployment and low business expansion—for instance from central city districts to suburbs, or from the north of England to the south—it leaves a residue of disused human capital the cost of which should be deducted from its value; if it does the opposite, the gain should be added. The former is clearly the tendency on competitive economic grounds, for success breeds success and there is always great pressure to expand public facilities where there is private expansion; to redress this tendency is a duty of government as guardian of the true net economic advantage of the community.

Suppose we found, on a broad calculation of net public as well as private cost, that transport, particularly road and air transport because of the vast under-used capital value of railroads, ought to bear a higher charge than it does at present. There are various ways in which this could be levied: tolls and dues, motor vehicle licences, fuel taxes. Each has its merits in particular national or local circumstances. Road and bridge tolls are underrated in Britain: the specious and historically incorrect claim that the highways are free for all has too great a popular appeal, reinforced by business interest. But they are necessarily a fragmentary and incomplete answer. It is probable that everywhere airport dues are far too low: if they pay for the immediate and direct running costs the airport authority is lucky; they contain no margin for all the incidental economic cost of airports to the surrounding communities. But here the complication of international competition enters in. Let us just store in our minds the probability that in this respect, not to mention others, the world has had mass aviation on the cheap. It has to make up its mind whether it wants to go on doing so.

Motor fuel taxes also raise the bogey of international competitiveness. In Britain these taxes, light on diesel oil, heavy on high-octane petrol, differentiate in favour of commercial traffic, a distortion which is diseconomic nationally. At least part of the reason has been the plea that exports would suffer if it were otherwise. The same case is made against differential excise licences on heavy or cumbrous vehicles, designed to apportion the true cost of road use more rationally between the users. Big commercial vehicles not only make more noise and smoke and smell than light vans and cars but they also clog the roads, especially the narrow, winding roads of Britain and other European countries. Anyone who has seen on an English main road (not a motorway or a modern dual carriageway but a typical section of our unmodernised A roads, some of which carry a great volume of commercial traffic) a tail of twenty or thirty cars and lorries held back by one heavy vehicle which speeds at 50 miles an hour downhill and crawls at a foot-pace uphill, or is so long with its trailer that a quarter-mile of clear road is needed in order to overtake it, must have longed for a system of draconian penalty on such obstructive users, which cause not only delays to others but also danger through frustration and risk-taking. Here is a clear case of public cost that is out of relation to private cost and ought to be corrected.

The old plea for industrial competitiveness, especially in exports, comes in again, and it has to be considered. What the argument amounts to, when it is analysed, is this: that commercial road use ought to be subsidised by the community at large, and that, in particular, exports ought to be subsidised in respect of their transport, both by the taxpayer and by those who suffer the unpaid costs of roads and their use. It is a thin claim. If subsidy is right in respect of transport, why not in respect of other costs and factors of production? Yes, indeed this is what we do—in Britain through fiscal aid to capital investment by grants or depreciation allowances, through Selective Employment Tax while it lasted, through income tax concessions open or disguised, even in regard to business entertainment. Other countries do likewise, some more expensively and blatantly than others, according to their circumstances. (In Britain, agriculture is subsidised, partly because it is import-saving; in some countries it is subsidised partly because it is export-earning.) No one country can stop the international merry-go-round, though it can take the risks of jumping off. A better, stronger, more deep-probing GATT [General Agreement on Tariffs and Trade] is needed, but this is a far-off ideal. A country like Britain with its critical dependence on exports and imports must watch its risks very carefully. The first necessity is that we should know what we are doing. The second is that if a subsidy is to be granted it should not be charged against those who happen to suffer in one way or another, as it is through the diseconomies of over-cheap commercial road transport.

Finally we should recognise clearly that the whole process is a hidden promotion of manufacture (and of particular manufactures at that) at the expense both of other sections of the money economy and of non-monetary welfare. It is a cost of economic growth, and if having then created the growth we are obliged to spend its fruits on redeeming the cost, that is to say, undoing the deleterious effects on the environment and on the nation’s material and human capital, what a roundabout and extravagant way of finishing up where we might have started!

Transport and distribution are clearly intertwined. Changing relative transport pricing may well lead to changes in distribution methods and structure—warehouses, wholesale depots, sales organisation, shops, delivery. These segments of the productive process between source and final sale are not usually in themselves specially damaging to real public welfare, though they may be so as part of a larger pattern of consumer residence, travel and behaviour, related to overall social and physical welfare. In this phase of the process, however, there enters another highly relevant factor—sales promotion and packaging. There is no doubt that the financial costs of these are paid by the manufacturer or distributor and are included in the ultimate price on the one side and in the incomes of those engaged in these activities on the other. But the real economic values involved may nevertheless be distorted.

Advertising in its various forms, including technical and other promotion within the trade as well as advertising to the consumer, is a necessary and in many ways a desirable feature of a competitive economy—and of a dynamic one, since new and changing products have to be made known widely or their creation will not be worthwhile by whatever tests. Great socialistic monopolies, like the nationalised industries, public services and utilities in Britain, need to advertise their wares, and the public need their advertisements if they are to make well-advised choices in spending their money. Even government welfare services, given away, need advertisement if their full intent is to be fulfilled. All this aside from the implicit sharpening of the edge of private business competition, the cutting-tool of economic soundness and advance in a liberal-capitalist society. When, however, sales promotion goes beyond its real and acknowledged values it can be diseconomic in two senses. It can make an excessive charge on economic costs, and it can take forms with bad non-economic fall-out. (It can also promote the sale and use of toxic or harmful products, like cigarettes, or addictive though legal drugs, or guns, or dangerous toys, or teeth-rotting sweets and candies for children; but that is another question, more to do with consumption than production.)

“Excessive” advertising is hard to define. It may arise in conditions of over-competition, where total productive capacity exceeds the potential market, and rival producers try to cut each others’ throats; since everyone does the same thing, the massive advertising or direct promotion becomes a basic cost for all the sellers, and enters into the price to the purchasers, however intense the competition or small the profit-margins. Or it may arise in the opposite condition of monopoly or quasi-monopoly, when the producer has little or no competitive interest in keeping the price down but an over-riding interest in expanding the volume of sales. To consider remedies for such conditions, in which sales promotion (as distinct from distributive charges like wholesalers’ and retailers’ mark-up) may account for a quarter or more of the total cost of production and distribution, would take the present debate far beyond its terms of reference. Taxes on advertising have their advocates, but they do not discriminate between its economic values and its diseconomies.

Forms of sales promotion with bad non-economic fall-out include defacement of towns and highways with signs, posters and hoardings; semi-pornographic advertisements which cheapen sex and mislead the young; loudspeaker vans and other street noises; sky-writing; door-to-door sales which browbeat the unaware or susceptible; other intrusions into the home and private life. All these and others bring diseconomies in the second sense. They are best tackled by direct prohibitions or regulations. It is the business of government to check and prevent the exploitation of the environment and peoples’ personalities for business gain in ways like these.

Neither form of diseconomy can be altogether eliminated by any means known to our free societies. Both will continue. They are part of the price of having a liberal, competitive economy. They are also, more than marginally, the price of having a growth economy, to which “market development” is essential.

When we turn to packaging we face a cost of a different kind. It is characteristic of affluent, sophisticated economies that competition in pure price of the things bought and used plays only a part, and often a small part, in the whole complex of selling. What is being sold is not merely the contents but the whole branded and identifiable object, not a pound of sugar or a can of soup but a Tate and Lyle’s pack or one of Heinz’s 57 varieties. Everything comes wrapped, packaged, labelled, aimed as much to be pleasing to the eye as to be economical to the purse. The cost of this goes into the price, of course; no complaint of diseconomy on that score can be made. But the cost of disposing of the package does not. This is serious when the packaging is of a material that cannot be readily consumed or recycled, such as glass and most plastics. The non-returnable beer or soft drinks bottle is a growing pest of our time. It suits the manufacturer and distributor, no doubt, but they do not pay for getting rid of it.

So we come to the last stages, those of use and disposal. Once the maker has sold his product, he washes his hands of it, except for due maintenance of durables or any guarantee of quality or specification he may give. But should he? Does his public responsibility end there? Legally he may be liable for any injury his product may do in individual cases—if, for instance, his bottle of cleaning fluid explodes, or his shampoo makes the user’s hair fall out, or his sedative drug brings deformed babies to birth. Should not his public responsibility extend as far as his private responsibility? If he sells an automobile which makes noxious emissions or is correctibly dangerous to its users or others on the road, or an aeroplane which makes a devastating noise, or a pesticide which poisons wild-life and water, or a grade of petrol which dissipates lead into the air that living creatures breathe, has he no liability? Such questions are the philosophy of a growing body of laws and regulations which prohibit the sale of cars and certain other mechanical and electrical objects unless they conform to rising standards both of safety and of limitation on the pollutant harm they may do. Manufacturers may protest, but it is cheaper for them to incur the cost of conforming to those standards in the course of production and sale than to be obliged to compensate for the harm their products may otherwise do once they are sold and used.

There is a broad lesson here for public policy. When a process or practice is seen and acknowledged to be harmful to the public, it is usually sounder both administratively and economically to prohibit it than to try to compensate for or counteract the harm, even if the cost of compensation or counter-action is charged to the performers. Historically, the most effective defences of the environment in this area have generally been prohibitions or minimum standards rather than differential charges or taxes. British “smokeless zones” are a comparatively recent example. One with a very much longer history is the Alkali Inspectorate, which for a century has controlled the noxious emissions of factory chimneys and effluent vents. If we want to stop factories from putting poisonous wastes into water-courses, it is more sensible to punish them heavily if they do than to tax the practice and use the process to clean the rivers.

Of course such controls add to production costs. This is their economic merit. They assimilate private or business cost to public or social cost. Consumer and business choices which are then made on grounds of price are nearer to the right economic choices for the nation. If growth is thereby checked from turning from potential to actual, there is no loss.

Another kind of check on actual growth is implied by Walter Heller’s sentence “Much of the problem and the cost can be met only by government.” To the extent that neither prohibitions nor enforcement of standards nor differential taxes and other fiscal measures “force back the cost on the private units,” public money has to be spent on correcting and undoing the harmful “by-products in our quest for growth.” This is again a charge on the potential growth, or in Heller’s terms “a first call on the proceeds of growth.”

It sounds dauntingly expensive, after all that has been said in this chapter, and capable of consuming all potential economic growth and even more. For it is an observable fact that the more rapid the economic growth the greater is such social cost to be met out of it. Compare Japan with the United States, or the United States with Britain. Compare the problem (as we now see it to be, though contemporary opinion did not, or if it did was not able to bring about the necessary action or public philosophy) in Britain at the height of the Industrial Revolution, when she led the Old World in economic growth, with the problem in Britain today with her slow economic growth but the far more tractable scale of her task of countervailing its injurious fall-out. Such comparisons themselves suggest the answer.

Setting aside “transfer costs”, or book-keeping measures (like charging for the depreciation of natural assets, or assessing comparative costs of new fixed investment, after allowing for a consequent writing-down of existing capital both physical and human), the real charges that ought rationally to be loaded upon agriculture, industry and commerce to bring private costs and social costs closer together are not on an intolerable scale. In some industries, such as the generation and distribution of electric power, with its ugly and often dirty power stations, its hideous overhead transmission lines, the charge would be very high, perhaps 20 per cent of present costs. In automobiles and transport, it would be perhaps half that figure, in steel and heavy engineering more than half, in light engineering less than half. (The US Council on Environmental Quality estimate that the cost of meeting their 1975 auto-emission standards will add 260 dollars to the purchase price of each car, a figure which may prove on the low side, some manufacturers having estimated the cost per car at about 600 dollars: for the present very broad purpose, we may guess at 500 dollars on a 5000 dollar car, or 10 per cent.) In some industries, including much of service industry, the charge would be relatively very low.

Let us hazard a round average of 10 per cent all over, taking good with bad. That would be a heavy burden for industry to bear all at once. But rationalising our cost system in the suggested way would not be done in a day. Even if public opinion were aroused to the need for it, political leaders were determined, economists were agreed, business were acquiescent and the necessary information were available, the reforms required in our laws, administration and practices would take years to come into effect. That is no reason for not making constant and successive efforts and advances towards the right goal. But the 10 per cent surcharge would be spread over a longish period. If this were only five years, the charge would absorb only an addition of 2 per cent per annum compound to industrial cost. If the period were ten years, we should still be able to turn half of a 2 per cent potential industrial growth into actuality, without loss of productive totals.

Created from a nineteenth or early twentieth century text by Athelstane E-Texts