Letter: Paying for a high growth rate

R. C. D. Hicks
Thursday 29 August 1996 23:02 BST
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Sir: The simpleton in me says that Paul Ormerod's conclusion "The larger the increase in labour's share of national income (and, as a corollary, the greater the fall in the share of profits), the more marked has been the fall in the growth rate." is a perfectly axiomatic statement ("Don't follow the European model,: it's collapsing", 27 August).

To take this to its logical conclusion: if labour were to be paid nothing, corporate profits would be massive, nearly all those profits would, in theory, be available for capital reinvestment; and lo and behold, the growth rate of the economy would be huge, providing of course that all the "produce" were to be exported, since nobody (in Britain, for example) could afford to buy anything.

Isn't this though precisely what happens in countries known as the "new tiger economies"? Isn't it also true that once the underpaid population starts to become better educated and their expectations start to rise, they become interested in sharing some of the wealth that they have helped to create, and then, as you point out, less available to grow the economy, as in the case of Japan?

What Mr Ormerod seems to be suggesting is that Britain, even though we have an educated population, has reversed this trend, and the other countries in Europe should follow our example. But this is strictly a short-term phenomenon (by short-term, I mean several decades). Are we not about to change the government in this country (despite the fact that in its lifetime we have enjoyed a better growth rate than our European neighbours) because the national income is not being shared equitably with "labour"?

R C D HICKS

Managing Director

PMC Specialities International

London W1

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