Industrial Alcohol (no 2) Bill, July 22 1938
Professor Johnston: It seems to me that I should say a few words in the discussion of this Bill. I always approach these matters with a certain sense of inferiority to the Minister, because he has to take into account social, spiritual and cultural values, whereas I, as an economist, am more interested in purely economic values. I recognise fully that the point of view of the economist is necessarily a somewhat prosaic and pedestrian one, and that there are occasions when the nation has a perfect right to incur economic losses in order to achieve cultural, spiritual and national values; but at the same time I think that, in aiming at those values which stand higher in the hierarchy of values, a nation should take into account what precisely are the economic losses involved.
In a matter of this kind, one of the difficulties is the extraordinary one of measuring what economic losses are incurred in policies like this policy of industrial alcohol and the other policy of beet sugar.
In theory, if you could ascertain the national income after the full establishment of these schemes and compare that national income with what the national income would have been if factors of production had been allowed to find their own national direction, without this artificial diversion, the difference between these two national incomes, one actual and the other hypothetical, would be a good enough measure of the economic loss; but apart from that criterion, which may give rise to some controversy and ambiguity, the only rough and ready way that occurs to me of measuring the economic losses involved in these schemes is: what is going to be the loss to the revenue account?
If I am rightly informed, the full operation of this industrial alcohol scheme would involve a reduction in the import of petrol of 1,000,000 gallons a year. If I remember rightly, the tax on petrol is 8d. per gallon, and if my arithmetic is correct, 1,000,000 eight-pences is roughly £30,000. I am quite prepared to take an annual loss of £30,000 on revenue account as a rough and ready measure of the economic loss involved in this scheme.
That amount of £30,000 a year, capitalised at 5%, is the equivalent of £600,000, and so we may as well face the fact that in putting through this scheme, we are, in fact, adding to the dead weight national debt a sum of money which is at least £600,000. I am not sure that we ought not to go further and take into account also the additional cost to the users of petrol which will result from this mixture, and capitalize their loss also as consumers. In that way, you would probably add substantially to this estimate of £600,000 as the dead weight addition to the national debt.
I do not want to talk at any length on this aspect of Government policy at the present stage because there are reasons why it would be more convenient to delay a more serious consideration of all these aspects of Government policy until we have more of the facts available, and especially the facts that will he brought to light when the report of the Banking Commission is available; but I should like to go on record as being utterly in disagreement with these economic policies.
I think we should not take on any additional commitments in that way until we have completely explored all the aspects of the policy in question. Of course, the outstanding example of a policy of this kind is the beet sugar business which cost the taxpayer, in loss of revenue, £1M a year, which loss, if we had capitalised it at 5%, is the equivalent of a dead weight addition to the national debt of some £20,000,000. We might have had some excuse for that kind of thing during the years when the economic war was in operation, but now that that has been happily terminated, I hope we have seen the end of these very expensive economic policies.
In the meantime I want to emphasise the fact that they have, in fact, added to the dead weight national debt sums of money running into tens of millions of pounds which do not appear in the national accounts at all. On the contrary, in so far as they do appear, they appear as assets. They are not assets at all, but sources of continuing loss to the taxpayer and the nation.
The only real argument in the Minister's speech in favour of this industrial alcohol policy is the situation of the Cooley farmers in County Louth. I recognise that they do occupy a difficult position because they are not allowed to send their potatoes to the rest of the country, or even to the rest of their own county, but have been completely dependent on the export market. If you put it to those 2,000 or 3,000 potato growers whether they would rather have a free gift of £600,000 contributed by the rest of the nation, or the industrial alcohol factories, I imagine they would plump for the £600,000, and we would be doing a perfectly rational thing, from my point of view, if, instead of going ahead with these factories, which are going to cost the country an additional debt of £600,000, we were to make a present of that £600,000 to the only people who are likely to be the beneficiaries
.
Now, with regard to potatoes, I think that is one of the few agricultural products of which by far the greater amount is absorbed by the home market. Surplus potatoes, for the most part, are used in the feeding of pigs and poultry. I think, myself, that it would be a much better policy to encourage further the pig and poultry industry.
In the matter of pigs alone our export to the British market is only a matter of some 300,000 or 400,00O cwts in the year, whereas other countries, such as Denmark, export something like 6M cwts in the year, and, at times, have been even exporting 9M cwts. Of course, for some years, owing to certain circumstances, our market was restricted; but now that our export market is free once more, I would much rather see money being devoted to encouraging the production of pigs and poultry than being used in this perfectly absurd manner.
Of course, this policy, although it may have seemed to be good politics, was always bad economics, but I think the time will come when the reverse will he true, and the Government will realise that it is both had politics and bad economies; and I have no doubt that, in the next general election, the Minister will reconsider his attitude with regard to this and similar policies.
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Copyright Dr Roy Johnston 1999