Indicative Planning

One interesting aspect of the project and the model was that it supported indicative planning. This is the idea that the provision of consistent detailed information on outcomes for industrial output, investment, and employment to governments and industry was sufficient in itself to identify constraints to growth, such as insufficient investment, labour, or foreign exchange reserves. Government and industry could then react by corrective action and hence this would lead to faster growth.

This was certainly in accord with the political thinking of the time. The Conservative government set up the National Economic Development

Office (NEDO) in 1962 to support a council bringing together the government, employers, and trade unions to develop consensus economic policies. Both the main parties in the 1964 General Election campaigned with promises to raise the rate of growth by some form of economic planning. In the event, Labour won and Harold Wilson became Prime Minister, with James Callaghan as Chancellor of the Exchequer and George Brown as Deputy Prime Minister. An earlier Labour government had Stafford Cripps as Minister of Economic Affairs and Wilson wanted to hive off into a new department the long-term planning functions of the Treasury from its shortterm management of the economy and government finances. So came about the outstanding example of indicative planning in the UK with the creation of the Department of Economic Affairs in 1964 under George Brown. It was, however, to be short-lived.

The theory of the CGP model, and its application in the form of the 1965 publication Exploring 1970 by Alan Brown, correctly identified an increase in imports and a consequent deficit in the current account of the balance of payments as one of the constraints to faster growth (ibid.: 59-60). Devaluation is mentioned as a short-term solution and improving price, design, and quality competitiveness as long-run solutions. However, the model did not include price effects, so the restriction on imports (exports were exogenous) had to be imposed in the solution that met the balance-of-payments constraint. The failure to fully recognise this constraint was fatal to the policy experiment of The National Plan of 1965, with the failure exacerbated by political infighting at the Treasury. The Plan lacked strong and long-term policies, such as import controls or devaluation of sterling to offset the increase in imports that accompanied faster domestic growth. The new government emphasised the importance of the current account deficit, which it blamed on its predecessor, but decided not to devalue sterling. Instead, the response was to introduce the Temporary Surcharge on Imports in October 1964 as an emergency measure. Economic policy became focused on defending the pound, irrespective of the depressing effects on investment and growth. The Plan was effectively discarded when deflationary measures were introduced in July 1966. But these too failed to save the pound, which was devalued in 1967.

Indicative planning was discredited because the crucial message it gave in 1964, that balance-of-payments deficits would increase as a consequence, was politically unacceptable. The academic work of the CGP, however, flourished. Stone continued to chair the weekly seminars in term time; he supported new areas of research into the financial and energy sectors, and foreign trade; and he edited most of the Green Books. The CGP responded to this failure of indicative planning by extending the modelling to allow for a better understanding of how the constraints on growth might be relaxed through changes in economic policy. Econometric equations for exports and imports were introduced to allow for price responses in the model, so the effects of tariffs and exchange rate changes could be simulated. Eventually, in the 1970s, the idea of transient and steady-state versions was abandoned and one version was estimated as an annual dynamic simulation model, with various options for closure. A consumption function was introduced to allow the incomes for industries and government to affect total consumer expenditure.