The Role of Banks in Economic Development: The Economics of Industrial Resurgence

233 Pages·1987·57.227 MB·English

by  George T. Edwards (auth.)

THE ROLE OF BANKS IN ECONOMIC
DEVELOPMENT
Also by George T. Edwards
HOW ECONOMIC GROWTH AND INFLATION HAPPEN
FINANCING INDUSTRIAL INVESTMENT
(with John C. Carrington)
REVERSING ECONOMIC DECLINE
(with John C. Carrington)
The Role of Banks in
Econoinic
Development
The Economics of Industrial Resurgence
George T. Edwards
Foreword by
Harold Lever
©George T. Edwards 1987
Foreword © Harold Lever 1987
All rights reserved. No reproduction, copy or transmission
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civil claims for damages.
First published 1987
Published by
THE MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
British Library Cataloguing in Publication Data
The role of banks in economic development.
1. Economic development
I. Edwards, George T.
339.5 HD82
ISBN 978-1-349-08629-0 ISBN 978-1-349-08627-6 (eBook)
DOI 10.1007/978-1-349-08627-6
This book is dedicated to those who look not only in books for theories,
but who search reality itself for meaning.
'fransferred to digital printing 1999
Contents
~~ru~ ~
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Acknowledgements x
Foreword by Harold Lever x1
1 Introduction, Purpose and Summary of this Book 1
1.1 Introduction 1
1.2 Purpose of this book 2
1.3 A summary of the argument 3
1.4 Limitations 11
2 A Review of Some Foundation Reading for the New
Economics 12
2.1 Introduction and purpose 12
2.2 John Maynard Keynes: 'A Programme of Expansion'
(April 1929) 15
2.3 Ben R. Cant: 'Britain's Economic Problems in
International Historical Perspective' (1972) 20
2.4 Professor Glyn Davies: 'Gearing Increased Savings
to Greater Industrial Investment: Institutions,
Instruments and Attitudes' (1977) 30
2.5 Dr Yao-Su Hu: 'National Attitudes and the Financing
of Industry' (1975) 38
2.6 Michael Madden: 'A Preferential Financing System
for UK Industry' (1977) 48
2.7 Will Hutton: 'The Decline of BL' (1986) 54
2.8 Conclusions 59
3 Extended Outline of the New Economics of Investment
Credit 62
3.1 Business confidence, liquidity and the demand for
fu~ ~
3.2 The interaction between loan terms and project
profitability 66
3.3 Virtuous and vicious economic cycles 76
3.4 A brief statement of the ideas, basic principles and
procedures of investment-credit economics 81
v
vi Contents
4 Procedures for Producing Economic Resurgence 91
4.1 Introduction 91
4.2 How French bank nationalisation produced economic
resurgence 92
4.3 How private bank-industry German planning
produced productive industry 97
4.4 How Japan breeds champions 100
4.5 How faint hearts and weak heads produce continual
British economic decline 104
4.6 How America won the production war 110
4.7 Common factors in cases of economic resurgence 114
5 Some Criticisms of Investment Credit Economics 118
5.1 Introduction 118
5.2 Comments on 'The Banks and Industry: some recent
developments', Banking Information Service Paper,
July 1981 121
5.3 Comments on 'Bank Lending and Industrial
Investment: A Response to Recent Criticism' by
Dimitri Vittas and Roger Brown, Public Affairs
Department of the Committee of London Clearing
Banks, 1982 126
5.4 Comments on 'The British Capital Market and the
Economy' by Professor Harold Rose, Economic
Adviser, Barclays Bank, 1976 156
5.5 Brief comments on 'Do We Invest Too Much?' by
Christopher Johnson, Economic Adviser, Lloyds
Bank, 1980 165
5.6 Summary and conclusions 168
6 The Economic Failure of English-speaking Nations, the
Prospects and the Real Solutions 174
6.1 Economic stupidity as a way of life 174
6.2 Prospects for future change 180
6.3 Real solutions to economic decline 183
6.4 The impeccable decline of Britain 190
Appendix: An Essay on Socio-economic Dynamics 196
Notes and References (including Appendices to Chapters 3
and 5) 207
Index 218
List of Tables
3.1 View A of an investment project (undiscounted cash-
flows) 70
3.2 View B of an investment project (discounted cash-
flows) 70
3.3 Profitability index (per cent) (equal to project NPV/
total discounted cash input) 71
3.4 Internal rates of return (IRRs) (per cent) 72
3.5 Calculation of IRRs by extended yield method 72
3.6 Profitability index for various projects and loan terms
(at 10 per cent discount factor) 74
3.7 Profitability index for various projects and loan terms
(at 5 per cent discount factor) 75
3.8 A menu of company possibilities on a scale of plus or
minus (1 to 10) 80
3.9 Components of Japanese money supply growth 84
3.10 Economic Markers of investment credit and Anglo-
Saxon economies 88
4.1 Some indicators of US growth, 1938-48 111
4.2 Essential factors for industrial resurgence 117
5.1 UK Gross Domestic Product, 1976-80 122
5.2 UK industrial and commercial bank borrowing, as
percentages of GDP, 1976-80 123
5.3 Industrial instalment lending and leasing in UK, as
percentages of GDP, 1976-80 123
5.4 LCB export lending, 1977-80 124
5.5 Outstanding LCB advances to UK residents, as
percentages of GDP 124
5.6 Bank lending to industry in four countries, as
percentages of GDP 133
5.7 Lending to industry, as percentages of GDP, 1975 134
5.8 Total lending in Japan, as percentages of GDP, 1980 136
5.9 Net lending to non-financial corporations, as
percentages of GDP 140
5.10 Original maturity of bank lending to industry, 1980 141
5.11 France - credit market funds raised by non-financial
enterprises 142
vii
viii List of Tables
5.12 Germany - credit market funds raised by non-financial
enterprises 142
5.13 United Kingdom - credit market funds raised by non-
financial enterprises 143
5.14 UK lending to non-personal borrowers 144
5.15 Net lending to non-financial corporations 147
5.16 Cash-flow costs of bank borrowing to UK industry 149
A.1 Savings of Japanese corporate business, in billions of
yen 210
A.2 Savings of Japanese corporate business, as percentages
of GDP 211
A.3 Corporate business borrowings, in billions of yen and
percentages of GDP 211
A.4 Loans to persons and non-corporate business 211
A.5 Total Japanese housing loans 212
A.6 Total consumer credit 212
A.7 Loans to unincorporated businesses, as percentages of
GDP 212
A.8 Total lending to Japanese enterprises (excluding Nls),
as percentages of GDP 213
A.9 Total lending to Japanese enterprises 213
A.lO Total borrowing in the Japanese economy, as
percentages of GDP 214
List of Figures
3.1 Cash-flow costs and project returns 68
3.2 The virtuous cycle 77
3.3 The vicious cycle 78
ix