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November 7, 1957

SUBPANEL IV - U. S. ECONOMIC AND SOCIAL OBJECTIVES AND POLICY

FOREWORD

The task assigned to Subpanel IV is as challenging as it is formidable.
It is the assessment of our prospects for social and economic development
over the next twenty years.

Such a task would be difficult enough were it confined merely to a
review of the material resources and the technological skills which will
determine the physical extent of our future expansion. But it is rendered
still more complex by our knowledge that America's future does not rest solely
with such material considerations: at best, these delineate the limits
within which realism forces us to confine our calculations. Within that broad
framework of possibilities, the actual course of American development
depends on the ideas and ideals which motivate us as well as on the moral
aims and attitudes which guide and restrain us. Thus to project what our
future _can_ be inescapably involves us in an effort to project what _it should_
be -- to take into account, that is, the non-material goals as well as the
material drives and desires which give us our national impetus.

Hence we base this report not alone on the _possible_, but on the
-desirable; and we are guided in our suggestions, conclusions, and cautions
by the ultimate objectives to which we aspire as well as by the immediate
capabilities which we have at hand. These ultimate objectives appear to
us to be the creation of a society in which each individual has the fullest

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possible opportunity to live in conditions of personal creative endeavor,
social peace, and progress, material comfort, and spiritual affirmation.
This is the goal to which we believe all Americans would wish our social
and economic policies to be oriented.

We view our purpose, accordingly, as the discussion of the ways in
which we can work toward the achievement of that environment. And our
unanimous conclusion is that we can best do so if we concentrate our nation
social and economic effort, over the span of years of this Report, toward one
paramount objective. This is *growth*. Only by the steady enlargement of
economic output can we accommodate the varied needs of our people -- needs
which range from the imperative requirements of national defense to the
satisfaction of a steadily rising horizon of individual wants. Only by a process
of regular expansion can we undertake the development of welfare policies
which contribute to personal dignity and self-realization. Growth is thus
not an end in itself, but the means by which our national, our private, and
our moral objectives can be attained.

Because our scope of interests is so large and the matters pertinent
to growth so varied, we have sought to avoid the presentation of an exhaustive
catalogue of the problems facing our nation today and over the foreseeable
future. Instead, in the interests of unity and brevity, we have limited this
Report to what we believe to be the most *critical* issues, and have even cur-
tailed a full discussion of their complexities in favor of a concise statement
of their principal features and of the line of action we favor in regard to each.

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Readers who wish a fuller exposition of some of these issues are referred to the rich background of supporting material which forms the foundation of many of our remarks.

Within our overall concern with these main issues of growth, three distinct but complementary tasks have devolved on our Panel. The first of these involves a consideration of the *process* of economic growth itself. Here we begin by an examination of the objectives which can be realistically envisioned for the foreseeable future and then take up the problems which hinder and the measures which may assist us in the achievement of that goal. This task occupies the first and much of the second sections of our Report.

The second task of our Panel concerned a discussion of the social problems of our society. Many of these -- such as our depressed minorities -- have important implications for our rate of growth. Their claim to our attention does not rise from this, however. These are the moral concerns of a society in which economic growth finds its ultimate justification in the enhanced opportunities accorded to the individual.

The third task is not less important. It consists in an examination of the *use* to which the growth process shall be put. Here we have two functions to perform. First we considered the claims against our total output -- the demands which our economy will be asked to satisfy. These claims originate in part from the conclusions of other subpanels and in part from our own analysis of what is required of a growing economy. Secondly we sought to

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adjudicate among and adjust these claims insofar as they exceed the available output of our economy. These exceedingly important concerns are dealt with at length in the third section of this document.

Since our Report touches on a wide diversity of matters, it may assist the reader to present here a very abbreviated summary of the main conclusions which the text develops at greater length:

- We believe that the possibilities for growth which now confronts this nation are of unparalleled magnitude. It is well within the bounds of our capabilities not only to eliminate poverty in the traditional sense in the United States by 1975, but to create an economy of very newly universal modest abundance by that date. This would represent an unprecedented social advance in history.

- We further believe that this promising environment can be reached within the framework of our present economic system. While there will undoubtedly be an evolution of many of economic and social institutions, we believe that the structure of American capitalism will give us the stimulus, the vitality, and the responsibility by which we may arrive at our desired objective.

- Within this overall setting of sanguine expectation, many difficult problems remain to be dealt with. Indeed, the attainment of our objectives requires that we will cope with obstacles, many of which are formidable, if never impassable, barriers to growth. We group these problems under five

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headings: Resources, Motivation, The Role of Government, Social and Economic Distress, and National Priorities, and we now very briefly review our main conclusions with regard to each.

- We find the problem of **Resources** a permissive rather than active factor in growth, and our summary view is that a shortage of men or materials is not apt to present a major obstacle to growth. This generally hopeful finding must however, be importantly qualified in respect to at least two raw materials, petroleum and water, and also in respect to our misuse of some human resources. We shall recommend husbanding of our domestic oil reserves, a unified federal water policy, and an improvement in employment practices with older workers and certain ethnic groups.

- The problem of **Motivation** is a crucial one for growth and we are fortunate in possessing, on the whole, a superb economic and social morale. Yet even in this area of strength there is room for improvement if we are to encourage our growth to the maximum. We are disturbed at the lack of efforts to make jobs for many factory and office employees more creative and meaningful, and no less concerned by the neglect of executive self-reliance in the upper echelons of industry and government. Both problems need scrutiny and action by the business community, labor unions, and civil service.

- The problem of the **Role of Government** in an expanding economy naturally bulks large in our analysis of growth. We find reason for satisfaction in the evolution of a climate of agreement on the general relation between

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government and business, and believe that this in itself augurs well for the continuance of growth. Within this agreement, however, lies a wide variety of desirable government actions to encourage growth. Specifically we call attention to the crucial role of private investment, and to the ways in which tax and fiscal policy can create an atmosphere favorable to private expansion.

This leads us to recommend:

* The reform of our tax structure to encourage economic growth.

* The refinement of our anti-inflation and anti-recession fiscal and monetary powers to minimize the fluctuations that impede growth.

* The provision of needed public assets to support the demands of a growing economy and of an increasingly urbanized society.

* The desirability of increased efficiency and economy in some areas of government spending to make room for needed public expenditures.

* The pressing need for an impartial commission to review the entire field of local, state, and federal financial policy with reference to how best to promote our general objective of growth.

- The problem of Economic and Social Distress involves our growth directly and indirectly: directly, by presenting bottlenecks to the general advance, and indirectly by sapping our human vitality and undermining our moral purposefulness. In our report we deal with two such areas of distress in particular, agriculture and urbanization. We recommend a revised agricultural

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policy which seeks to cure rather than to palliate the problem by recognizing
the need to reeducate and reorient the submarginal improverished farmer.
The urbanization problem, with its sombre overtones of racial discrimination,
strikes us in many ways as one of the most serious and difficult of any we
face, and we shall urge vigorous coordinated private and public measures to
eradicate our slums, and to reutilize our urban centers.

As a final aspect of the general area of economic and social distress
we have turned to aspects of our social welfare programs which interest us
not only from our desire to achieve economic growth as from our general moral
concern for our fellow men. Here we have called attention to changes in the
concept of social welfare and we have recommended a number of improved
health measures, both public and private, and suggested some changes and
adaptations in our social insurance plans.

- The final section of our report deals with the problem of <u>National Priorities</u>. Here we confront the fact that our economy of growth will accomodate many, but not all, of the claims which are levied against it.

It will be our conclusion that if we are to carry out in a free market economy just the <u>minimum</u> programs needed for national security and national welfare, a number of otherwise desirable public programs will have to be deferred, and than even consumer growth may have to be held below its upper limit of natural increase. This is not a pessimistic conclusion, in that it recognizes that without growth it would be impossible to accommodate many of the demands which we <u>will</u> meet. But it is a necessary reminder of the continuing need for

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intelligence and moderation if we are to make the best of the opportunities
before us.

A final word concerns the consensus of the Report proper. We have
been fortunate in drawing upon the wisdom of many scholars in the fields
with which we have been concerned, and in benefitting among ourselves, by
the variety of backgrounds, areas of special competence, and diversity of
viewpoints of our Panel. We cannot hope that so far-ranging a discussion will
do justice to all the expertise from which it has benefitted, nor that the
views of every member of the Panel can always be adequately represented
by it. Yet with full allowance for individual reservation about details, we
believe the broad outlines of the objectives and policies which appear here
command the assent and affirmation of all.

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I

The Opportunity

An extraordinary economic opportunity confronts the American nation at mid-century -- an opportunity not only without precedent in terms of all previous American accomplishment, but quite literally without parallel in history. Barring the catastrophe of war, another twenty years as productive as the past two decades can bring about in America a degree of well-being never before attainable or enjoyed by any great nation. This is the culmination of a long-term economic trend in America, whose future impact, as that of its past, is not limited merely to its economic effect. It is not only in terms of its further quantitative elevation of our standard of living that the future must be assessed. It is also in terms of qualitative change, for in our economic potential achievement lies the foundation for a profound and hopeful elevation of our standard of life.

This challenging statement is not a prediction of what will be, but what _can_ be. It is a projection of the opportunity which lies within our grasp -- of a future for whose realization we have the necessary materials, energy and skills.

Whether we shall in fact realize that future is a question which only history will answer for us; how we may best go about trying to realize it is the theme of this report. But before we turn to an analysis of the problems which must be met, let us briefly describe the statistical basis which indicates that such a projected future is possible.

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For the past seven years -- in fact since the unleashing of the economy
from the controls of World War II -- American business enterprise has been
adding to its productive equipment at a rate of approximately $25 billions
a year. This is in itself too large a figure to be visualized: we may give
it concreteness by pointing out that it is the equivalent of adding to the nation
each year the combined productive assets of General Motors, Standard Oil
(N.J.), Ford, U. S. Steel, and General Electric.

If the American business community continues for another two decades
to add $25 billions a year to its plant and equipment, this will give us half
a trillion dollars worth of new capital goods by 1975. In fact this is a
conservative estimate, since the trend of capital expenditures in a growing
economy must be upwards -- indeed, those expenditures are the growing edge
of the economy itself. However, the half trillion figure is stupendous
enough. It is the virtual equivalent of adding fifty percent to the value of our
entire present stock of national wealth -- the land, gold, machines, houses,
cars, grain which comprise our national economic riches.

This colossal increase of plant and equipment will bear its fruit in
the quantity of goods and services which the American people can annually
produce. Combined with stimulus of a growing population and a dynamic
technology, the leverage of this investment on our Gross National Product --
the gross value of the annual output of the nation -- could raise it by 1965
from today's value of $432 billions to at least $550 billions, in value terms
of today's dollar. By 1975 the total could easily reach $700 billions. And these

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to metropolitan areas, will very likely aggravate and heighten the tensions of daily living. And finally, it is to be expected that the gain in mass well-being *itself* will produce new problems in the place of older ones: the use, or misuse, of an unaccustomed leisure comes quickly to mind as such a problem of the future.

To many of these issues we will revert in the course of this report. But at this initial juncture it is well to realize that the cautions and reservations at best obscure the magnitude of the underlying potential achievement itself. If, -- and it is this *if* to which the bulk of this report addresses itself -- the American economy performs according to its capacities, we shall have created an economic environment which will offer the average individual an opportunity for self-realization comparable to that enjoyed only by the favored strata of past societies.

## The Framework of Economic Organization

The projected economy of 1975 will be the outcome of, and will itself represent, a method of economic and social organization which we call *American capitalism*; and it is directly germane to the purposes of this report to reflect for a moment on the meaning of that term.

Capitalism as such implies an *economic* system -- a means of arranging the essential social provisioning process. Its core is private ownership and direction of the means of production, freedom of contract for labor, and the use of the competitive price mechanism as the means of ensuring social co-ordination.

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But such a bare description of capitalism is at best a kind of abstract text book definition. It brings out the two main points by which capitalism is critically differentiated from alternative economic systems, but it fails to clothe these economic abstractions with the garments of reality. For capitalism cannot be described in economic terms alone, any more than communism can be accurately depicted only with an economic vocabulary. Capitalism in living reality must be visualized in its full context as an amalgam of social, political and moral -- as well as economic -- ideas.

This point is of the essence when we talk of American capitalism. For the path which "capitalism" has followed in many foreign nations differs importantly in social, political and moral ways, from that followed by American society. Consequently we often bear the opprobrium which attaches to these social and political and moral attributes -- or lack of attributes -- of other "capitalisms". The most important stereotype in this regard is the common communist assumption that the features of social and moral life of 19th century England which so forcibly struck Karl Marx are inextricably connected with and bound into any society which bases its economic structure on private ownership.

Americans do not need to be told of the falsity of this assumption, but it is useful nonetheless very briefly to enumerate some of the influences which have gone into the making of the system in which we believe, and which will go into the making of our future.

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It is well to bring our Introduction to a conclusion with this warning.

For the importance of the individual, indeed the paramountcy of the individual, was never more necessary as the ultimate justification of our economic system than today and tomorrow, within the perspective of growth which we have projected as our national objective. There is a certain danger in the magnitude of the achievement before us, and in the natural feelings of pride and eagerness which the vision of a society of well-being inspires. The danger is that of confusing *more* with *better*, and of assuming that because we may bring about an environment of unprecedented abundance, that this will necessarily be an end in itself.

It will not. Indeed, if the prospect of such a society "solves" some age-old questions of economics, it opens new questions of a still deeper nature. There is not, in a society of increasing abundance, the same easy rationale for much economic endeavor, for the pursuit of private gain, or for the high estimation of economic activity itself, which prevails in a society still coping with the strictures of want and need. In the past American society has not had to ask itself for what purpose it worked so hard, saved so much, built so furiously: the answer was apparent in the needs of the people themselves. But when those needs have been met, when additional economic effort administers not to basic human wants, but to the satisfaction of increasingly trivial ones, the question of the moral purpose of economic activity itself cannot so easily be dodged.

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This is not to suggest that the motives, the institutions, and above
all the moral core of capitalism will not continue to serve us well. Rather,
it highlights the probability that in the future, the question of *quality* will
come to have a higher degree of social importance than quantity; that the
meaningfulness of work will weigh more heavily in the scales than its monetary
rewards. It suggests, in a word, that with the substantial alleviation of the
solution of the problem of want, society will have an increasing motive to turn
its attention away from an absorption in economic affairs to social, cultural,
and spiritual pursuits. The real justification of our impending economic
achievement is not the mere creation of wealth for its own sake, but the
building of a society in which each individual, in a climate of plenty, may
realize to the full whatever capacities for self-expression he may possess.

## The Path Ahead

In the possibilities and the promise of a society of well-being -- and
in full cognizance of the problems which such a society may impose -- lies
the inspirational purpose of American economic and social policy over the next
twenty years. It is to these policy considerations which we now turn, for with
our goal in mind, we have a set of ultimate objectives which may be useful in
assessing the practical problems immediately before us.

Clearly the overriding necessity, if we are to achieve our final objec-
tive, is the continuation and encouragement of economic growth and this will
accordingly be the theme which runs through the following pages. At this first
juncture, however, it may help us to survey the problem at large, if we group

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the many issues facing us into an orderly array.

These are the broad categories of issues with which our economic and
social policies must cope:

1. <u>The problem of resources.</u>

Growth must concern itself with limitations as well as with objectives;
it is a matter of capacities as well as determination. Our economic growth
will therefore depend, in the final analysis, on the availability of men and
materials. We must assess the resources of the nation for each.

2. <u>The problem of motivation.</u>

Growth is also a response to stimulus; it is a matter of positive action,
rather than routine. Our economic growth will depend in part on the nature of
the stimuli which affect it, and on the environment in which it takes place.
We must pay due regard to this in our analysis.

3. <u>The problem of the role of government.</u>

In a complex industrial society, economic growth must be supported
and encouraged by government action. This is not to say that the growth
which takes place within industry should be made the subject of direct govern-
ment planning, but it cannot escape the influence of indirect government
planning. We must consider the ways in which necessary government activity
can best encourage growth, by providing an economic climate conducive to
enterprise and secure from the dangers of severe recession and inflation.

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4. The problem of social and economic distress.

Economic growth is not a uniform process, for a society is not a
uniform entity. And economic growth is not meaningful when measured only
in economic terms, for our society, as we have been at pains to point out,
is not merely an economic entity. Growth demands special attention to
those areas of our society -- social as well as economic -- in which progress
is slow or absent.

5. The problem of national priorities.

Economic growth over the next twenty years must take place in the
larger context of a turbulent and poor world itself desperately eager for
growth, and in a historical situation of unprecedented danger. The growth
potentials with which we have been and will be concerned, are those of our
total economic framework. But within the framework, no matter how success-
fully enlarged, we must still reconcile and accommodate claims which may
well exceed our total capacity. Thus we shall see that while growth will
make many things possible, it will not make all things possible, and part of
our task must be the assignment of priorities other than those provided by
the market place alone. How to divide the use of our increased wherewithal
between private and public wants, between civil and military needs, and
among competing social objectives is a critically important problem to which
we will return in the third section of this Report.

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This systematization of the issues before us is not intended to be
more than a conceptual guide to the multiplicity of questions with which we
shall be forced to deal. A cautionary word before we begin our closer analysis
may be useful. This is the essentially unitary nature of the problem before
us. We may be forced, for the purposes of clarity, to discuss "economic"
problems as distinct from "social" problems, or problems of fiscal policy as
distinct from those of, say, agriculture. In reality no such hard and fast
dividing line exists. A social problem has economic results; an economic
action will make its impact felt on social matters in turn. The problems of
cotton and wheat impinge on our monetary mechanism, just as a tax revision
may eventually make itself felt in slum clearance. There is a unity to social
and economic concerns which is all-important for their understanding and
which inhibits dogmatic or overly-precise prediction. In looking at the
future it is wise to have this chastening sense of the inevitable incomplete-
ness of any diagnosis.

## The Problem of Resources

### 1. Materials

A major element in the strength of a nation's economy is its stock of,
or its access to, the raw materials from which it must fashion its output. For
the most part the United States is happily gifted in this regard. We have been
abundantly endowed by nature in respect to the most important raw materials:

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agricultural land, basic minerals, sources of power. To state a broad generality, there is no prospect that our overall desired rate of advance of about three to four percent a year should be significantly hindered by the lack of any single major resource -- land, minerals, or most important of all, energy.

This generally reassuring statement derives in part from the dynamic nature of the contemporary resource problem. As one writer concludes: *

"The time must inevitably come when ores as such no longer exist and machine civilization, if it survives, will feed on the leanest of substances -- the rocks which make up the surface of our planet, the waters of the seas, and the gases of the atmosphere . . .

"One hundred tons of igneous rock contain, in addition to other useful elements, eight tons of aluminum, five tons of iron, 1,200 pounds of titanium, 180 pounds of manganese, 70 pounds of chromium, 40 pounds of nickel, 30 pounds of vanadium, 20 pounds of copper, 10 pounds of tungsten, and four pounds of lead. Given adequate supplies of energy these elements could be extracted from the rock, and it appears likely that the rock itself contains the requisite amount of energy in the form of uranium and thorium."

These hopeful generalities must however, be immediately qualified.

They serve a useful purpose in redressing the gloom which sometimes obscures the resource issue, but they must not be taken as a glib dismissal of the problem. We are only at the threshhold of a technology of such powers as those described, and in the immediate future we shall depend directly on ores and

*Paper IV-13, quoted in Lindsay, F.A., Planning for Non-Renewable Resources, page 4. (Italics added).

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conventional resources. Many of these, particularly in their top qualities, are dwindling fast: an example is the probable exhaustion of iron ore containing 50% iron within two decades. These impending stringencies -- and iron ore is only one of many -- will compel us to turn to ever less economic domestic sources of raw material.

In fact this reduces the "resource" issue from that of sheer physical availability to a series of related technical, social and economic problems. It enjoins the need for heightened research into substitute materials and better extraction and utilization methods. It makes imperative a sound policy of conservation. It highlights the need for a steady flow of critical materials from abroad. And not least it emphasizes the importance of the capital expenditures which will be necessary to use secondary resources efficiently. Thus the investment problem, to which our report will shortly turn, is itself directly connected with the resource issue.

Within the 20 year range of our immediate interest however, two major resource items call for special attention. One of them is oil. Our basic dilemma in oil is well known: if we rely on domestic supply, we risk an early exhaustion of oil reserves; whereas if we turn to foreign sources, we may run some risk of discouraging the domestic exploration for new oil fields. The problem is an exceedingly complex one, and rendered no simpler by its inevitable entanglement with the delicate political situation of the Near East and by the fact that we do not have a fully reliable estimate of the total available supply of oil at home.

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The extremes of current estimates of oil supply -- including natural gas -- are widely variant, from alarmist projections that would cover our needs only for another few decades to optimistic projections that give us an "indefinite" future availability. Two facts are of importance in this geological guessing game. One is that oil shale exists in gigantic quantities. This insures us an ample *physical* supply of petroleum, provided that we can bring down the present uneconomical cost of extracting the oil, and we urge increased experimentation along these lines. The second important fact is that more adequate recovery and control methods could add at least 10 to 20 percent to our domestic resources without the need to discover another oil field. Hence a solution to the oil resource problem rests partly with the further development of oil technology, partly with public control, and partly with the turn of international events. Pending clarification of the political situation and development of a still more efficient oil technology, we recommend the husbanding of domestic resources as most clearly in the national interest. We suggest the abolition of oil import quotas as the best implementation of this policy by means of the natural pressures of a free market.

The second critical item for the next 20 years is that classical "free good" of economic texts, water. The magnitude of the water problem is indicated by the fact that already in 1953, 25 out of every 100 persons in the United States were restricted in their use of water for some period during the

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year because of supply failures or inadequacies. Yet by 1975 it is estimated
that the domestic demand for water will have **doubled** and the industrial demand
**trebled**.

A solution appears to be partly dependent on technology and partly upon
social action. The industrial use of water -- which accounts for 38% of the
total -- can be greatly economized: an instance in point being the fact that
modern steel mills need but one-quarter the amount of water per ton of steel
needed by those built 20 years ago. In agriculture as well more efficient
techniques can stretch water use. On Hawaiian sugar plantations, for
example, it has been found that overhead irrigation is four times as efficient
as standard irrigation through ground-troughs. In the arid regions of the west,
losses through evaporation account for as much as 50% of the total water im-
pounded in reservoirs. Active research is now under way to reduce this loss
by thin surface films of other liquids. And finally, there exists the heroic
possibility of distilling sea water for use along our coastal areas.

Perhaps of even greater **immediate** urgency than an improved water
technology, however, is the need for a unified water program, under the aegis
of a federal water resource agency. This agency should be charged with the
coordination of all federal water programs and with the supervision of flood
control, irrigation, stream pollution, navigation and other measures at the
state and local action. Since we must realistically anticipate an increase
of government expenditures for water control from their present level of
$1.5 billion to $2.5 billion by 1965, we strongly urge prompt action along
these lines.

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## 2. The Human Factor

It is quite possible that in the final analysis the size and quality of a nation's working force are more directly related to its economic growth than any other single factor: one might only instance the handicap to a nation such as India of a population which crushes and a level of skills which cripples its rate of advance.

Once again, to take an overall view, the human resource factor in America is propitious for growth. Its skills, versatility, industrial aptitudes are proverbial. Its morale, to which we turn in the next section for a closer examination, is on the whole excellent. Its numbers are increasing, itself both a stimulus for and a consequence of economic expansion. In fuller detail, however, the human resource problem needs considerable attention and this has been provided in the report of Subpanel V. Here we confine ourselves to a few immediate economic issues, relevant to growth.

By 1975 we shall, according to the current largest population estimates, have a total census of some 220,000,000. Our working force, however, will not have increased proportionately: due to the age-groupings of population there is even the prospect of a temporary immediate decline in the numbers between age 25 and 45. Hence for the next ten years, the pressing need seems to be the most efficient possible use of a tight, if not insufficient, resource. This leads us to recommend certain policies as currently necessary. However, we should like to emphasize that these are not only courses of expediency, but measures dictated by our underlying moral criteria of the maximization of individual opportunity,

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The first of these policies is the more fruitful use of older workers. Many workers who retire at age 65 do so involuntarily, and in view of the expected large increase in the proportion of our older population this represents a considerable wastage of skills and talents, not only for the nation but for the idle older worker himself. What are needed are not only appropriate changes in our public and private retirement provisions (to which we return in our later consideration of social insurance measures), but also the redesign of certain jobs to fit them profitably to the capacities of the older man or woman. Here is a task to which industrial research, including that of our labor unions, might profitably be turned.

Our second recommendation concerns the use of our largest pool of inefficiently employed labor: our Negro, Puerto Rican and Mexican ethnic groups and our excess farm labor. A problem of utilizing social minorities has deep roots in prejudice as well as an economic difficulties but it is also one instance of many, in which the utilization of our resources for the purposes of economic growth will also provide us with an opportunity to work towards desired social and moral objectives. The race problem in America will not, unfortunately, be disposed of by any simple reform but certainly we can contribute towards that end by undertaking the economic training which these groups desperately need if they are to become full-fledged economic citizens.

Much of this retraining and rehabilitation will require government support. But a substantial -- and in the end perhaps more enduring -- contribution can be made by private employers and labor unions. Many firms have

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already pioneered in the training and upgrading of underprivileged racial
groups; the record of many of our unions in this respect, however, leaves
much to be desired. If the availability of this labor supply is made more
generally known, and its acceptability strongly endorsed by labor and
management, we can expect the private use of "backward" labor to rise, with
corresponding indirect social benefits as well as direct economic ones. We
strongly endorse all efforts to this end.

A third recommendation for the improved use of our human resources
again mixes the economic and the social: it concerns the level of skills
which our work force brings to bear. It is now a commonly accepted idea
that one impact of automation will be to raise the general plateau of intelli-
gence needed to maintain, adjust, and administer an automated plant at the
factory floor level. This in turn will require a substantially increased
common level of electronic, electrical, and mechanical knowledge and this
degree of knowledge in its turn will require a far higher level of general
technical education than presently exists. We would view with dismay the
conversion of our educational system into a national electronic trade school,
but it is unquestionably the case that the educational problem, which is
dealt with fully by Subpanel V, here ties in directly with the rate of growth
which we can achieve.

There is as well another and yet more profound problem here to which
we can only allude. This is the problem of the incentives and values by
which a society of high living standards and high leisure preferences can

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attract its needed talents, adduce the necessary degree of dedication to work, encourage the willingness to undergo long and arduous training for delayed rewards. We note that this is also a problem to which Subpanel V has given consideration, but we cannot refrain from mentioning its connection with economic growth in our present context.

This brief survey of the problem of resources, human and material, highlights an essential consideration for all economic prognosis and planning -- statistical analysis is not in itself enough. The quantities of things and people which are available to an economic system mean little unless they are seen in a context of action. All economic facts are dynamic; they presume an underlying impetus, a framework of drives and restraints. Thus the state of American resources which we have found to be, all things considered, a healthy one, is at best a permissive factor in the growth of the nation. An abundance of raw materials and a large supply of willing and intelligent men and women will not automatically combine to create economic progress.

Additional motivating factors must be present to act as a catalyst between the two and it is to these problems of motivation that we now turn.

## The Problem of Motivation

### 1. Economic Faith

It is one of the unexpected consequences of the recent study of the painful growth of underdeveloped countries that it has taught us much about the importance of factors responsible for our own growth. One of these contributing causes to growth is an attitude which we here call *economic faith*.

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It consists in a belief in a realizable future and a confidence in the economic system as a vehicle for arriving there; of a willingness to undertake tasks whose fruition may be beyond the life span of the individual and of a readiness to make sacrifices in the present for the sake of future return.

This matter of economic faith is indispensable for growth. Without it a people will have to be dragooned to work, or will refuse to evidence the drive or to exercise the self-discipline which a nation may demand. As examples of cases where growth is imperiled by a failure of such faith, we may cite the panic behavior of nations during periods of runaway inflation, the passivity of peoples in much of Africa, Asia, and Latin America; the resistance of peoples in satellite countries.

America is fortunate in the possession of a magnificent economic faith but it is not without problems in this area too. Particularly at the lower echelon of tasks, on the great assembly lines there is evidence of dissatisfaction not with the monetary rewards of work, but with its content. A number of recent studies have brought to light the fact that what most workers resent about their jobs is not its pay, but its repetitiveness, its dullness, its lack of creativity. Men eagerly compete for the job of utility man on a car-assembly line, not for its trivial differential in wage rates, but for the relative richness of its variety of assignments.

This is a problem which peculiarly touches the economic system at its moral center, posing the dilemma between the efficiency of mass production methods and the spiritual impoverishment which mass production can

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impose on its human agents. As far back as the 1920s, when the now-famous experiments with workers' morale were made at the Western Electric Company, it has been known that productivity was importantly associated with the sense of personal *participation* felt by the worker in his task. This has been frequently re-confirmed by industrial psychologists, but as yet all too few serious efforts have been made to apply this knowledge to life. We strongly urge that the matter be made a subject of far wider and more pressing labor-management concern.

Particularly as we grow wealthier the purely economic "rewards" of work will fail to command their former all-important status. If the capitalist-- or more truly the *industrialist* system or production (for this is a problem which every successful mass production society must eventually face)-- is to continue to inspire economic faith among all its working members, it will need to pay far more attention than before to its work content as well as to its work rewards. It is a hopeful note that in a growing economy the task of coping with dissatisfaction is greatly facilitated by the burgeoning of a new job opportunities of higher inherent skill and interest.

## 2. *Incentives*

But the problem of motivation is not limited to the repetitive jobs of society; as a factor bearing on growth, it also touches us at the top echelons. Here it shows itself as a certain "security-mindedness", as the executive conformity recently talked about as an attribute of "The Organization Man", as an increased stress on "equilibrium" rather than on creativity.

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In part this is a question to which we must look for governmental
remedies, particularly from improvements in the tax structure, and this will
be one of our concerns in the subsequent section. But the problem is not
entirely one of monetary incentives. It is also one of the diseases of bureauc-
racy, an illness from which large organizations in business or labor are not
more immune than those in government. Insofar as business firms themselves
foster the "safe" personality, exercise a benevolent paternalism rather than
encouraging an independence of executive leadership, they are themselves
contributing to the problem of a decline in the entrepreneurial spirit. A return
to the rugged, and often capricious and authoritarian individualism of the 19th
century executive is hardly our desire. Yet it is important that management
become aware of its own unused potential. Again, we note that many forward-
looking businesses have begun to explore this problem. Executive decentraliza-
tion, a higher level of personal responsibility, rewards in prestige as in money
income, can do much to refresh the independence of spirit which is a mainstay
of a growing economy. We feel that the matter deserves the continued serious
attention of the business community.

These remarks about motivation, although necessarily cursory, seem to
us to touch an important aspect of a growing capitalism. In a very real sense
the purpose of an economy of growth is to provide economic morale, as much as
it is to benefit from it. A feeling of purposefulness, of dedication to one's work
and not least the enjoyment of the pleasures of work are among the highest
rewards which any economy can offer. Many factors will eventually contribute
to a high state of economic morale; once again we see here a junction of many

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social forces. Government welfare programs, enlightened labor union activities, management practices; these and many other policies all can serve to increase the motivation of the individual. Our purpose here is not to specify the means, but to stress the importance of this end as an active contributor to growth.

## The Problem of the Role of Government

### 1. The Climate of Government

To political historians, it may well seem that the great issue of the past three decades has been the gradual forging of a consensus on the role which government can legitimately occupy in a basically free enterprise society. In the heat of the great debate, during the 1930s and 1940s, both sides of this issue were badly misrepresented by the passions of the debaters. Those who wished to deny to government any positive role in the economic conduct of the nation's affairs tended to overlook the historic partnership between government and enterprise: a partnership beginning in early republican days when the government actively promoted the foreign trade interests of the young nation and sought to protect its infant industries; later evidenced in the halcyon railroad building era when the government provided both land and funds for the accomplishment of these herculean projects; and continuing down through the 1920s themselves in the guise of conservation, commercial stimulation and protection, currency regulation and a hundred other universally accepted government functions. The opponents of "government intervention" often talked of government as if it were a foreign body in the American economy, rather than an indispensable public element of that economy.

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Equally rashly, some proponents of all-out government planning failed to recognize the long-term trends of vitality, flexibility and invention which American business enterprise had revealed. They discounted the value to a free society of the fragmentation of economic power and decision-making which such private centers of economic activity insured. Dismayed by the terrible aspect of the depression, worried over the concentration of economic power into large private units, a few conspicuous advocates of the planned economy often proposed remedies for real shortcomings which portended an aggravation of the very problems they feared: for the concentration of big business they would have substituted the concentration of the big state; and for the lack of private investment initiative, the lethargy of a public bureaucracy.

It is one of the evidences of the pragmatism and adaptability of American capitalism that this rift of views is now virtually healed. There continues to be, and there will quite properly continue to be, divergencies of opinion about the exact line of demarcation which is best drawn between public and private economic responsibility, but the passions are now largely a thing of the past. The broad lines of a workable philosophy seem to have emerged and these seem worth stating here:

a. It is generally accepted that the government should not, except in those cases charged with the national interest or where private industry is clearly unequal to the task, own and administer the productive or distributive machinery of the economy.

[LC]

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b. It is likewise generally accepted that the government should, as the guardian of the general economic health of the nation, take positive steps to encourage economic growth, reverse any major recession or inflation, and strive to maintain a stable price level.

c. It is further agreed that the methods which the government must employ for this general purpose are, in normal times, indirect rather than direct; that the tools of fiscal and monetary policy are preferable to intervention into the private decision-making apparatus.

d. There also exists a consensus that the government may and often must undertake special projects for purposes which are beyond the scope of private enterprise. Not only the economics of defense, but the economics of distress, is considered to be a government function.

Within this broad working agreement there is more than an "acceptable" division of state and private economic power. The aim of this philosophy is the creation of a climate conducive to growth, on the one hand, by the establishment of a degree of confidence which enables business to undertake longer-run planning than would be possible in a totally unsupported economy, and on the other hand, by creating an economic atmosphere in which private risk-taking and expansion, by its very presence, will minimize the necessary

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economic activities of the state. One need hardly point out that this is an
ideal which may not always, or perhaps ever, be quite achieved. Yet it
seems to offer a framework for the economic administration of a highly complex
society in which freedom and responsibility are made as compatible as their
opposite natures permit.

What follows is a discussion of some of the opportunities and problems
for growth connected with the exercise of government power in this context.

2. What Should the Government Spend for Growth?

One important way in which the government may contribute to growth
is by the direct provision of public assets and services. Such government
action contributes to expansion in two ways. It can be an active employment-
creating factor, pouring in purchasing power and thus giving rise to an indirect
stimulus for private expansion. And equally important, it can be a sustaining
factor, filling in the gaps left by the advancing private sector, consolidating
and solidifying the gains already won.

In either event, the problems it poses are twofold: how much we should
spend, and on what we should spend it.

The question of how much we should spend depends importantly on two
factors. One is the economic vitality of the private investment sector. When
business is actively seeking funds and resources for expansion, government
expenditure is apt to be an interference in the normal growth process, creating
artificial market strains and pushing the economy towards inflation. When, on

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the other hand, private investment is laggard, the case for government expenditure is greater -- not only because it can help the economy resume its forward march, but also because the disruption of the market price structure is minimized.

The other factor is the relative importance of the public and private program. A public program for slum clearance may be more conducive to growth -- or simply more commensurate with our moral goals -- than a private program for elaborate office buildings. There are no hard and fixed valve judgments by which such choices are made. They depend on the political and social climate, on the wisdom of our elected government officials, and thus in effect on the valve judgments of our nation.

The premise on which our report is based is that business investment will generally be buoyant and expansive over the twenty year span ahead. Although a continuous high flow of private capital can never be assured beyond doubt in a free market system, we believe that two factors will tend to maintain a high level of capital expenditure. One is the increasingly important role of systematic research into new products, which comes very close to assuring us of a steady stream of new investment opportunities. The other is our present pattern of income-distribution with the high-consumption tendencies of its rapidly growing middle-income market -- a pattern which creates an environment exceptionally favorable to private business growth. Thus, while we recognize that a recession may temporarily change our premises, we begin

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with the assumption that government spending will not be primarily dictated
by the need to make up for a seriously laggard rate of private investment.
This imposes two criteria on government expenditures. First, they should be
designed to encourage and support private growth, rather than as a substitute
for it. Second, they must be tightly budgeted, vigorously carried out, and
generally justifiable, by longer-term considerations than their immediate
economic boosting effect.

It is impossible to avoid the conclusion that even minimal federal
state and local expenditures over the next twenty years are slated to increase
substantially. Private investment must be backed up by public investment in
assets needed to support economic growth. Recently we have been falling
behind in the provision of these public facilities. Indeed, per capita expendi-
tures on public works are now only some eight per cent above the level of the
1930s, whereas a continuation of their trend of expansion in the 20s and 30s
would indicate that they might well be almost double their current rate today.

The case for increasing our investment in many forms of public works
is very great indeed. River and harbor development, parks and playgrounds,
rural electrification and flood control -- all these public assets add in one
way or another to our growth. But rather than undertaking a review, item by
item, of our needed public assets, we shall illustrate the issue with mention
of but three of the more pressing needs. The first of these is the critical
necessity for highways, particularly in view of the expected doubling of our

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automobile population by 1970. This is clearly a government responsibility, and its annual expenditures on roads are now scheduled to rise from $5-1/2 billion last year to $10 billion in 1960. Many transportation engineers believe that this will be considerably short of the necessary amount -- pointing out that it does not even begin to cover the need for parking facilities in our congested cities.

A second area for immediate stepping-up of public assets is the expansion of our public school plant. As we have already seen in discussing our human resources, the provision of facilities for educating our citizenry is manifestly a matter of direct concern for growth, and equally patently a public rather than private undertaking. Despite a doubling of expenditures on school buildings since 1950, many education experts feel that our current public expenditures of $2.7 billion should rise to at least $4 billion by 1965. Subpanel V covers this problem in greater detail, but we wish to stress its importance here.

A third area of concern is our hospital shortage -- a matter the importance of which is discussed at greater length in a later section on social welfare. Here we may note that the need for expenditures on hospitals should rise from an annual total of about $0.3 billions today to $0.9 billions by 1965.

If we take these "hard-core" items of public assets, adding to them the needed water supply expenditures discussed earlier, we see a projected

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rise of government expenditure for 1965 as follows:

<table><thead><tr><th></th><th>1957</th><th>1965</th></tr><tr><th></th><th colspan="2">billions of dollars</th></tr></thead><tbody><tr><td>Roads</td><td>5.6</td><td>10.0</td></tr><tr><td>Schools</td><td>2.7</td><td>4.0</td></tr><tr><td>Hospitals</td><td>0.3</td><td>0.9</td></tr><tr><td>Water Supply</td><td>1.5</td><td>2.5</td></tr></tbody></table>

To these minimally required public assets we must now add the far larger claims of general welfare items, of the defense establishment, and of our international aid programs. We postpone to the final section a detailed consideration of many of these figures, but must note now that a conservative estimate for gross government expenditure -- federal, state and local -- for 1965 is $125 billions, compared with $110 billions today.

The point is clear. Under any realistic assumptions we must anticipate, and indeed urge, a considerable increase in government expenditures over the next decade.

But the very fact that overall government expenditures will and in fact should increase to keep pace with the needs of an expanding economy, emphasizes the necessity for efficiency in government spending and for winnowing from the budget items which are not conducive to growth. It makes government economy not merely a matter of financial orthodoxy or an excuse of eliminating unwanted programs, but the only policy which will enable us to carry out the expanded programs we need.