Economic Program and Recent Financial Policies in Belgium

While the immediate prospects for the Belgian economy appear rather favorable, there is a growing realization that integration into the European Economic Community (EEC) will pose the need for marked structural changes and adaptation over the next few years.1


While the immediate prospects for the Belgian economy appear rather favorable, there is a growing realization that integration into the European Economic Community (EEC) will pose the need for marked structural changes and adaptation over the next few years.1

While the immediate prospects for the Belgian economy appear rather favorable, there is a growing realization that integration into the European Economic Community (EEC) will pose the need for marked structural changes and adaptation over the next few years.1

Section I of this paper discusses the development of the economy since 1950. It draws attention to the slight growth in the active population and small opportunities for shifts from agriculture as factors in the slower growth of total gross national product (GNP) and over-all output per head than in the other EEC countries, and points out the similarity of the Belgian and U.K. situation in these respects. Output per worker in manufacturing is also found to have increased less rapidly in these two countries; this is associated with a relatively low level of business investment, apparently connected with relatively lower borrowing by businesses. The vulnerability of the Belgian economy to cyclical fluctuations is suggested as a factor tending to reduce both the level of business investment and its productivity as indicated by the increment in GNP. The basic stimulus for increases in output in the 1950’s was provided by the rapid but unstable growth of Belgian exports (see Table 6, p. 26). To achieve a faster rate of growth, it will be necessary to maintain an adequate expansion of exports and a satisfactory level of domestic demand without marked fluctuations, and to ensure a sufficient volume, and a desirable composition, of private investment.

Two important official documents bearing on these questions are discussed in the next two sections. Section II describes the scope and main features of the Program for Economic Expansion for 1962-65.2 Section III outlines the principal recommendations of the Government Commission on the Problems of Financing Economic Expansion3 and describes recent major reforms in monetary and fiscal fields.

Section IV attempts to assess the prospects for the fulfillment of the Economic Program. It suggests that the factors which have tended to inhibit private investment in the past are not likely to disappear by 1965. Not too much should be hoped for from the recent financial measures in themselves, although the existence of a more flexible monetary system, the development of a broader market in industrial shares, and more favorable tax treatment of productive investments could be of importance in permitting higher investment demands to be unconstrained by financial rigidities. Good immediate prospects for profitable expansion of exports could provide the additional stimulus for investment, but this favorable situation is not certain to be realized. Since 1960 almost the entire growth of Belgian exports has occurred in trade with other Common Market (EEC) countries. It would be optimistic to assume that trade within the Common Market will continue to grow as rapidly as in the last few years, but Belgium could benefit substantially from a higher rate of growth in the United States and the United Kingdom. It does not appear that the cyclical vulnerability of Belgian exports can be greatly reduced in the short run even if the changes in their structure called for in the Economic Program (Table 14, p. 54 below) are achieved. For Belgium, the benefits of participation in the Common Market are particularly dependent on the maintenance of high demand within the area. Provided that this continues, and the favorable competitive position of Belgian exports is maintained, the further integration of the Common Market economies may provide circumstances favoring a high level of private investment in Belgium.

I. Development of the Belgian Economy Since 1950

The comparatively slow rate of growth of the Belgian economy since 1950, relative to that of other Common Market countries, has occasioned concern in recent years. During the later 1950’s, Belgian real GNP rose by less than 2½ per cent per annum—only about 40 per cent as fast as that of the Federal Republic of Germany and Italy, and about 60 per cent as fast as that of France and the Netherlands. The rate of expansion was, however, about the same as that of the United Kingdom and the United States (Table 1).

Table 1.

Selected Countries, Real Gross National Product (GNP): Average Annual Rates of Growth, Actual or Projected1

(In per cent)

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Source: Organization for Economic Cooperation and Development, Policies for Economic Growth, November 1962, pp. 16 and 28, for first two columns, and all figures for Italy, the United Kingdom, and the United States. Other figures for France, from the report to the European Economic Community of an independent group headed by M. Pierre Uri, as reported in Le Monde, November 18, 1962; for the Netherlands, from the Industrial Policy Memorandum presented to Parliament in May 1963; and for Belgium, from the Economic Program for 1962-65.

The figures show the percentage increases which, when compounded from year to year, yield the total change in GNP which actually occurred (or which is projected to occur) from the first year to the last year shown in each column heading.

Among the European countries covered, the divergence in the rate of growth of GNP per head during these periods was rather less marked than that in the growth of total GNP. In the United States, however, population grew more rapidly than in Europe, with the result, shown below, that the difference between the United States and the continental European countries was more marked in growth of output per head than in growth of total output. The approximate annual growth in GNP per head was as follows:

The desire to foster a higher rate of expansion led the Government to establish in 1959 the Programing Office, which proposed as a target the achievement of an annual growth rate of 3.9 per cent for the period 1959-65. This rate of growth is roughly the same as that proposed for the United Kingdom by the National Economic Development Council for 1961-66. Considerably faster rates of growth have been projected for Italy and France, and somewhat faster rates for Germany and the Netherlands.

The relatively slow growth of Belgian and British output in recent years is partly a reflection of the comparatively slight growth in population and hence in total employment in those countries. The influence of demographic factors in restricting the growth of the Belgian economy is only fully apparent when it is realized that between 1950 and 1960 there was virtually no increase in the population aged 15-64, who comprise the bulk both of the active labor force and of the purchasing public. In effect, the whole increase in population between 1950 and 1960 arose from an increase of nearly 20 per cent in dependent children, and a rise of one seventh in persons past the normal age of retirement (Table 2).

Table 2.

Belgium: Changes in Population from 1950 to 1960

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Source: Economic Program for 1962-65, Table 78.

While total employment was rising by about 1¼ per cent or more per annum in Germany, Italy, and the Netherlands between 1955 and 1960, there was virtually no increase in Belgium, and a rise of only about 0.3 per cent per annum in the United Kingdom (Table 3). As recorded, total employment in France also increased comparatively little, but the possibilities of increasing output through reducing under-utilization of manpower in sectors such as agriculture and self-employed trades were very much greater than in Belgium or the United Kingdom.

Table 3.

Selected Countries, Employment and Productivity: Average Annual Rates of Growth, Actual or Projected1

(In per cent)

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Sources: Organization for Economic Cooperation and Development (OECD), Policies for Economic Growth (November 1962), pp. 16 and 28. Netherlands projections for 1960-70 from OECD, Manpower Statistics, 1950-60; Belgian projections from Economic Program for 1962-65.

The figures show the percentage increases which, when compounded from year to year, yield the total change which actually occurred (or which is projected to occur) from the first year to the last year shown in each column heading.

Average output per head also rose considerably less fast in Belgium and the United Kingdom than in the other EEC countries shown in Table 3. Over-all productivity per head rose by less than 2½ per cent per annum in Belgium and the United Kingdom, compared with increases of 3½-4½ per cent per annum in Germany, Italy, and France, and of 2.8 per cent per annum in the Netherlands. This was partly a reflection of the comparatively low level of employment in agriculture, and consequently much smaller scope for reducing employment and for increasing average output per head both within agriculture and to the extent that workers shift to more productive sectors than agriculture. In 1955, agriculture accounted for less than 5 per cent of total civilian employment in the United Kingdom, and less than 10 per cent in Belgium, compared with nearly 19 per cent in Germany, 27 per cent in France, and 38 per cent in Italy. In the Netherlands, the percentage was slightly higher than in Belgium (Table 4). Another factor which has probably tended to slow down the estimated growth of output per head in Belgium and the United Kingdom, compared with that of the other countries mentioned, is the much larger portion of their active population employed in service occupations. These sectors have shown only slight increases in productivity, which may be due in part to the difficulty of measuring output there.

Table 4.

Selected Countries: Relative Importance of Agriculture, Industry, and Services in Total Civilian Employment, 1955

(In per cent)

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Source: Organization for Economic Cooperation and Development, Manpower Statistics, 1950-60.

Including forestry and fishing.

Mining and quarrying, manufacturing, construction, electricity, gas and water supply.

Partly estimated.

However, even apart from these important structural differences, the fact remains that in manufacturing itself in recent years average productivity per worker has risen only about two thirds as fast in Belgium (and the United Kingdom) as in the other EEC countries. Table 1 of the Economic Program for 1962-65 shows that between 1957 and 1961 average hourly productivity in Belgium and in the United Kingdom rose by about 14 per cent, compared with increases of 20-22 per cent in Germany, France, and Italy, and of 27 per cent in the Netherlands.

An important factor in this connection appears to have been the relatively low investment by business enterprises in Belgium and the United Kingdom, associated partly with relatively smaller business saving and partly with lower borrowing (Table 5).

Table 5.

Selected Countries: Investment, Saving, and Borrowing of Public and Private Enterprises, 1950-59

(In per cent of gross domestic product)

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Source: Bruce R. Williams, International Report on Factors in Investment Behavior (Organization for Economic Cooperation and Development, 1962), p. III 6.

The percentage share of gross business investment in gross domestic product in France was more similar to that in the Netherlands and Germany during the later 1950’s than over the decade as a whole.

The greater vulnerability of the Belgian economy has been an important influence tending to reduce both the level of business investment since 1950 and its productivity as indicated by the increment in gross national output.4 While all the other Common Market countries either increased or maintained their industrial production in every year after 1950,5 industrial output in Belgium fell by more than 5 per cent both between 1951 and 1952 and between 1957 and 1958. Industrial investment also was cut back more sharply in Belgium at these times than at any time after 1950 in the other Common Market countries or in the United Kingdom.

The basic stimulus for increases in national production during the 1950’s was provided by the rapid growth of Belgian exports, which represent more than one third of total output. Thus, when the volume of exports was rising by about 10 per cent per annum from 1952 to 1956, and from 1959 to 1961, total fixed investment rose by about 7-8 per cent per annum, and a growth rate of about 4 per cent per annum in the national product was achieved. When the growth of exports slackened or faltered after 1950 and after 1956, fixed investment remained stationary or declined; and the growth in GNP averaged only a little more than 1 per cent per annum from 1956 to 1959 and less than 2½ per cent from 1950 to 1952. Table 6 suggests that during the 1950’s changes in gross public fixed investment tended to reinforce, rather than to lessen, the impact of exogenous demand changes, but that a marked increase in public consumption was a contracyclical factor in 1951 and 1952.

Table 6.

Belgium, Supply and Use of Real Resources: Annual Growth During Various Periods Since 1950, and Projected for 1962-63 and 1961-651

(Average annual changes, in per cent)

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Source: Based on national income estimates, at 1953 prices, of the National Institute of Statistics for the years 1953-62, and on estimates of Département d’Economie Appliquée de l’Université Libre de Bruxelles for earlier years (i.e., for first column, and for rates of increase from 1952-53 included in second column). Forecasts for 1963 are taken from the Economic Budget for 1963, published in National Bank of Belgium, Bulletin d’Information et de Documentation, November 1962. Projections for 1965 are derived from the Economic Program for 1962-65, Table 4.

The figures show the percentage changes which, when compounded from year to year, yield the total change in GNP which actually occurred (or which is projected to occur) from the first year to the last year shown in each column heading.


After 1959, the rapid expansion of exports was renewed and GNP rose by somewhat more than the 4 per cent per annum called for in the Economic Program. However, in 1962, the expansion in private fixed investment apparently ceased,6 and the growth in total GNP was maintained by a faster rise in private and public consumption than was provided for in the Program. Since 1959, changes in gross public fixed investment have tended to offset changes in the rate of private fixed investment.

The recent trends revealed in Table 6 indicate that the major difficulties in achieving a faster growth rate in the future are likely to be the problems (1) of maintaining an adequate rate of export expansion and a satisfactory level of effective demand in general without the marked fluctuations of the past, and (2) of ensuring an adequate level and desirable composition of private investment. In the concluding section of this paper, these questions are discussed in the light of the proposals of the Economic Program and of recent financial policies, which are described below.

II. Program for Economic Expansion, 1962—65

The Economic Program represents essentially a model of the desirable development of the economy, indicating the objectives which it should be possible to realize, given the available resources of manpower. It is not, properly speaking, a plan, since it contains almost no indication of the methods to be followed and measures to be taken to assure the achievement of the proposed objectives. The Program was approved by the Senate in June 1963, but it is not yet clear what legislation will be needed or proposed to secure the achievement of the objectives set forth in it.

It has been strongly emphasized that the concept of programing would not deprive the managements of private enterprises of any power or responsibility. Government policy would have to operate through the forces of the market and seek to encourage psychological and technical conditions conducive to expansion. However, this general philosophy would not rule out public intervention in key sectors in order to promote or strengthen industrial initiative.

It is also stressed that the program is to be regarded less as a forecast than as a system of interdependent and mutually consistent targets. A series of basic equilibria has to be considered; employment opportunities should correspond to the full employment of the labor force; investment to be undertaken must be matched by a sufficient level of national saving; consumption has to rise in line with the increasing output of those sections which depend on demands for consumption; exports must suffice to pay for purchases abroad, which will increase more rapidly than national income.

Excessive attention should not be concentrated upon particular target figures. The realization of the Program is bound to be strongly influenced by events outside the scope of national policy, a fact which imposes the need for great flexibility in implementation of the Program and requires a continuing review of the broad objectives proposed. Nor should the projections made in the program be taken to imply that it will be possible to secure continuous full employment. The great dependence of Belgian industry upon exports makes it difficult for the public authorities to eliminate fluctuations in business employment. A higher growth rate could, however, help to reduce fluctuations and enable a higher level of employment to be regularly maintained.

The methods used by the Programing Office were inspired by both the Netherlands and the French plans. Like the Netherlands plan, the Belgian Program is based on an analysis of prospective trends. The Programing Office has also followed the system, applied by the French Commissariat du Plan, of associating representatives of the various sectors of the economy in the work of establishing the target objectives. However, a major difference between French and Belgian conditions, which makes it more difficult to implement any government-sponsored economic program, is the much more limited scale of the publicly owned sector in Belgium than in France. (The railways, national airlines, and water distribution are the only publicly owned industrial enterprises in Belgium.) Thus, the substantive work of programing really lies in the establishment of regular contacts and discussions between representatives of government, industrialists, and trade unions, preparatory to the adoption of the various targets. A key factor for the success of this type of program is the attitude of employers and labor toward the objectives proposed and the measures necessary for their realization. Their attitude may be influenced by their degree of participation in the preparation of the Program.

The majority of estimates for expansion in different sectors were discussed first with the industrial federations concerned, and then in joint sessions of industrialists and trade unionists. The aim of these discussions was to verify the accuracy of forecasts of various trends (e.g., of prospective technical developments), to promote understanding of the objectives, and to determine the conditions under which they could be achieved. However, the procedure for such discussions did not prove entirely satisfactory. In particular, the trade unions stated that it was difficult for them to reach an opinion on various targets, since certain data were not made available to them and only a short time was provided for their comments. As far as the unions are concerned, the Program remains largely an abstract and theoretical conception, and their interest is likely to be aroused only when more definite decisions are needed. The Program has been approved by the National Committee for Economic Expansion, a representative body established in 1960. But it is not clear whether either industrialists or the trade unions feel committed to supporting the program as a result of this approval.

Principal objectives of the Program

The 4 per cent annual increase in GNP called for in the Program represents a not unoptimistic estimate of the growth rate which may be feasible with full employment, when account is taken of the fact that total employment is expected to rise by only about 0.5 per cent per annum, even if active steps are taken to encourage greater employment of women and older workers and immigration of foreign workers.

Since there is now no considerable unemployment even in depressed areas such as the Borinage, the prospects of increasing employment in expanding industries must depend on shifting manpower from agriculture and slower growing industries, on successfully encouraging immigration, and on increasing the number of women at work7 (Table 7). The recruitment of foreign workers is becoming increasingly difficult, and it may prove hard to achieve the high degree of labor mobility called for in the Program. The linguistic barrier between the French-and Flemish-speaking sections of the country constitutes a serious impediment to mobility, and up to the present, the main movement of population from depressed areas has been toward Brussels (which is officially established as a bilingual area); however, most of the increase in employment in this area has been in services, not in industry.

Table 7.

Belgium, Development of Employment: 1957, 1960, and Projected for 1965 and 1970

(Annual averages or changes, in thousands)

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Source: Economic Program for 1962-65, Table 2.

Also includes the effect of actual changes in the proportion of men in various age groups available for employment.

Estimated by assuming that the proportions of various age groups available for employment remain unchanged.

The greater part of this change had been realized by the end of 1962.

There is a need to reduce employment in certain service occupations and to expedite the training of skilled workers for industry if the growth rates envisaged in the Program are to be achieved. Shortages of maintenance engineers have already been felt as a bottleneck hindering expansion in several industries.

Higher output would have to be achieved predominantly by increased productivity. Over-all, labor productivity would have to rise by about 3½ per cent per annum, compared with about 2% per cent during the 1950’s. Since productivity is expected to increase comparatively little in services, this average implies increases of 4-5 per cent per annum in most major manufacturing sectors and in agriculture, and of 7-8 per cent per annum in chemicals, petroleum refining, and electricity generating. The achievement of these increases in productivity must clearly depend on a large-scale rationalization and re-equipment of Belgian industry, increasingly effective management, and, not least important, the maintenance of a high degree of utilization of capacity.

A high level of private investment in productive capital is not only a necessary condition for the achievement of the productivity goals; it is also vital for the maintenance of a satisfactory balance of payments in the long run, especially under the new conditions created by the coming into operation of the Common Market. A rapid expansion of exports is a basic condition for the successful realization of the Program. Accelerated economic expansion will give rise to a rapid growth of imports, especially of finished products and semimanufactures which have hitherto been subject to protective duties. Greater specialization in manufacturing resulting from the gradual integration of European industries will also tend to increase reciprocal international movements of only slightly differentiated products. The volume of imports is expected to rise by more than one third between 1961 and 1965, an increase of 7.7 per cent per annum, or almost twice that in GNP. Exports must rise sufficiently to avoid a deficit in the current balance (which could compromise the achievement of the desired rate of growth) and should also provide a surplus for net exports of capital and transfers by the public sector to countries in the process of development. To do this, and if the estimated growth in imports were not exceeded, the volume of exports would also need to rise by 7.7 per cent per annum over the next few years.

Belgian industrialists are faced with a major task of reorganization, modernization, and diversification in specific industrial sectors in order (1) to meet the increased competition which is likely to be encountered in the Belgian market from goods and services supplied by other EEC countries; (2) to overcome the inadequate scale of many enterprises hitherto selling in the very restricted Belgian home market, so as to enable them to compete with large foreign concerns in the integrated European market; and (3) to ensure that Belgium keeps up with other EEC countries in the general development of new products and processes in such dynamic fields as mechanical and electrical engineering, electronics, petrochemicals, plastics, and synthetic textiles.

In sum, the realization of the Program requires that a further marked increase in private investment and a sharp rise in supporting public investments in the infrastructure (notably ports and waterways and inland transport) be financed without creating inflationary pressures.

It is estimated that productive investment in private and publicly owned enterprises should rise by more than one third between 1961 and 1965 (compared with an increase of 23 per cent from 1957 to 1961) and that public investment, which accounted for less than 12 per cent of total gross investment in 1961, should increase by about 50 per cent. Total gross fixed investment would, however, have to increase less (by 27 per cent), as residential construction should not rise much above its present level.

This investment effort would necessitate a further rise in gross saving from just under 20 per cent of GNP in 1961 (compared with 18.1 per cent in 1959) to 21.5 per cent in 1965. It is suggested that the increase might be achieved in three directions (Table 8): by increased provisions for depreciation of industral capital, reflecting both the expansion of capital stock and more favorable tax provisions; by the elimination of the net dissaving represented by the current deficit of the public sector, which amounted to BF 5.5 million in 1961; and by a rise in personal savings from about 8 per cent of net disposable income in 1959 and 1961 to 8.8 per cent in 1965.

Table 8.

Belgium, Capital Accounts: Actual, 1959 and 1961, and Programed, 1965

(In billions of Belgian francs at current prices)

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Source: Economic Program for 1962-65, Table 123.

Including unincorporated companies.

Estimate by author.

Despite the rise in the proportion of income to be saved, and the reduction in the share of consumption in gross national product, both public and private consumption would rise more rapidly from 1961 to 1965 than from 1957 to 1961 (Table 9). The total real wage bill is forecast to rise by just under 20.5 per cent; average real wages are shown as rising by 14.6 per cent (hourly earnings for similar work going up by 13 per cent). The average income of self-employed persons would rise slightly less. It is pointed out that, in the past, money wages and salaries have scarcely increased during recessions, but have tended to rise rapidly as full employment was approached. The maintenance of a high level of employment requires that increases in productivity should be reflected in an orderly rise in incomes and the standard of living. Retail prices are assumed to rise by less than 4 per cent from 1961 to 1965.

Table 9.

Belgium, Real Expenditure: Distribution, 1957, 1961, and 1965, and Growth, 1957 to 1961 and 1961 to 1965

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Source: Economic Program for 1962-65, Table 4.

After estimating the potential level of final expenditures in 1965, a second stage of the programing work consisted of estimating the level of activity called for in major sectors to meet the expected growth in demand for consumption, investment, exports, and intermediate products not entering into final demand.8

In estimating domestic demands for Belgian output, separate estimates were prepared of the expected changes, between 1959 and 1965, in the value at constant prices of sales to private consumers of domestic goods and imports for each of the major sectors. These indicate that, while sales of Belgian goods might increase by about 19 per cent by 1965, demand for imported goods would rise by more than 75 per cent. Imports of agricultural foodstuffs are shown as increasing to more than double those in 1959, and imports of processed foodstuffs as almost doubling. Consumer purchases of imported durable goods are also expected to almost double. As a result of greater reliance on imports, direct sales of Belgian agricultural products to consumers are expected to be somewhat lower in 1965 than in 1959.

Table 10 shows the percentage increases in output above the 1961 actual levels that will be needed to meet the estimated total requirements for production by major sectors in 1965. It indicates that the acceleration in the growth of GNP, when compared with the period from 1957 to 1961, is expected to reflect a faster expansion of manufacturing output, and a quite marked expansion in the output of the fuel and power and agricultural sectors, both of which declined from 1957 to 1961, reflecting the reduction in coal output and a poor harvest in 1961. By 1965, the expansion of petroleum refining and of gas and electric power production is expected to more than offset a slight further reduction in coal production.

Table 10.

Belgium, Production: Value Added, 1961, Actual Changes, 1957 to 1961, and Projected Changes, 1961 to 1965

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Source: Economic Program for 1962-65, Table 5.

Taxes in 1957 and 1965 have been calculated at 1961 rates.

The Federation of Coal Mine Owners has criticized the estimates for coal production, which are based on consumption at about the level of 1961 (7 per cent below 1962), substantially higher imports than in recent years, and lower exports (as future European coal prices are expected to be such that most Belgian producers will have to be subsidized). The Federation has suggested that consumption might be 1-2 million tons higher than suggested in the Program, and that net imports could be nearly 2 million tons less than the 5.4 million tons suggested. The authors of the Program consider it unlikely that the output suggested by the Federation could be achieved. Departures of foreign miners after a few years entail a heavy labor turnover, and the recent results of renewed recruitment of foreign workers have not been very satisfactory. Output per manshift in Belgian mines remains below that in other EEC countries, and the former rapid improvements in productivity have now slowed down. Although the output called for in the Program would require the employment of about 20,000 fewer workers than in 1962, reduced employment of foreign workers would account for only a small part of this decline.

The marked acceleration in the growth of manufacturing is foreseen mainly for sectors supplying investment goods, especially the machinery and equipment industries, which are required to increase more than twice as fast as from 1957 to 1961. The output of basic metals is also to increase much more rapidly than in the earlier period, largely as a result of heavy investment already completed or under way (Table 11). The recent rapid growth of the motor vehicle and chemical industries would also be accelerated. Comparatively slight increases are foreseen for consumer goods industries, such as textiles and food processing.

Table 11.

Belgium, Output and Exports of Particular Industries: Actual Changes, 1957 to 1961, and Projected Changes, 1961 to 1965

(In per cent)

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Source: Information in various tables and text of Economic Program for 1962-65, pp. 26-96.

Component industries in the broad group of metal fabricating industries, the total output of which is projected to increase by 30 per cent from 1961 to 1965, compared with 19 per cent from 1957 to 1961.

Within this grouping, the output of nonelectrical machinery rose by 40 per cent, and that of electrical machinery by 8 per cent, while the output of railway and shipping equipment declined by 1 per cent.

The expansion from 1957 to 1961 was limited by strikes, and the growth projected from 1961 to 1965 is consequently inflated.

The output of cotton textiles declined by 2 per cent and of jute goods by 10 per cent.

Steel production in Belgium has been maintained at rather more than 7 million tons during the last three years, about 1½ million tons above the slump year 1958. Capacity also increased by about 1½ million tons over the period. The average utilization of capacity declined from 93 per cent in 1961 to 85 per cent in 1962, and fell still further in the early months of 1963. The continued investment foreseen would increase steel capacity by more than 40 per cent (to exceed 11 million tons) by 1965, compared with a 32 per cent expansion foreseen for the whole European Coal and Steel Community (ECSC). The Program calls for the tonnage of exports to rise by about 20 per cent above that in 1962, but points out that it may be difficult to achieve this target. As a study by the ECSC has concluded that by 1965 ECSC exports to nonmember countries may hardly exceed the 1959 level, any further large expansion in Belgian steel exports would seem to entail a further rapid growth in exports to the Common Market countries. From 1959 to 1961 Belgian exports to nonmember countries failed to increase, and the 10 per cent rise in the total tonnage of exports was due wholly to a 30 per cent expansion in exports to EEC countries. Between 1959 and 1961 Belgium failed to maintain its share in the total exports to the Community in each of the main categories except thin sheets, but this was partly because Belgian steel exports in 1961 were curtailed by strikes. The target for steel exports implies about the same percentage growth in the three years from 1962 to 1965 as was achieved in the five years from 1957 to 1962. This may be considered somewhat optimistic in view of the great increases in steel capacity which have been taking place in other EEC countries and the possibility that the over-all rate of investment in these countries may tend to slow down in the coming decade. A very considerable effort aimed at altering the types of products offered and an intensive sales drive will be needed if Belgium is to expand its steel exports more rapidly than neighboring countries.

The machinery sector accounts for a smaller share of industry in Belgium than in the other EEC countries, the United States, or the United Kingdom. Some observers have associated a lower rate of innovation in other Belgian industries with the relatively slight development of the machinery sector and with the low level of expenditure on industrial research, much of which is normally undertaken by this sector. Since 1951, the metal fabricating industries as a group have expanded much less rapidly than those in other EEC countries.9

While Belgian enterprises supplied more than 80 per cent of all basic metal manufactures, constructional steel, and railway material sold in the country in 1961, they supplied one third or less of the nonelectrical machinery, motor vehicles and parts, and household equipment, and about 60 per cent of the electrical equipment.10 The total value of sales by producers in the three basic sectors mentioned above remained one third greater than that of producers in the more highly finished sectors in 1961. However, production of nonelectrical machinery and motor vehicles rose nearly twice as fast as the output of semifinished metal products between 1957 and 1961 (Table 11). There was no increase in the output of railway and shipping equipment in this period. The output of the electrical equipment industry, which had expanded very rapidly between 1950 and 1957, rose by only 8 per cent from 1957 to 1961.

Since 1959, the metal fabricating sector has made significant progress toward adapting itself to the new conditions of the Common Market and increasing its technical efficiency. Efforts to reorganize enterprises and orient production toward more highly finished goods with a higher unit value have most frequently taken the form of fusions to exploit agreements with foreign firms or to utilize foreign patents under license. In addition, many foreign firms have established plants in Belgium. The authors of the Program envisage the development of a certain number of specialized enterprises capable of exporting on a large scale. A start has been made in this direction, but it has not yet progressed very far, and a number of enterprises are faced with acute problems of rationalization. Imports of metal products are expected to rise by well over 80 per cent from 1959 to 1965, as a result of increasing specialization within the Common Market. This implies that firms which are unable to compete in price or in the technical quality of their products will be subject to increasing difficulties.

The Economic Program emphasizes the need for continuous application of new techniques if the metal fabricating industries are to expand in new directions, and underlines the special importance to this sector of increased official support to scientific research. It also points out the need for firms to organize themselves to meet growing demands from less industrialized countries seeking to purchase complete manufacturing installations in comprehensive transactions, and draws attention to the need to improve medium-term and long-term export credit facilities.

The volume of productive investments in each sector required for fulfillment of the target increases in output was established on the basis of the increase in capacity required and the gross marginal capital/output ratios calculated from recent data. Originally, the Bureau of Economic Programing had increased the capital coefficients for 1965 above those of the recent past, to allow for the need to create new industrial complexes in place of the modernization and cost-reducing investments recently undertaken. However, with regard for the comparatively short period covered by the Program, the coefficients have since been reduced to about the same level as in the recent past. In most cases, the estimates have been adjusted to take account of the views of the representatives of the industry concerned. The estimates for productive investment (Table 12) imply a considerable shift away from the steel, nonferrous metal, construction, and building materials sectors (where investment rose much more rapidly from 1957 to 1961 than is projected from 1961 to 1965) in favor of the electricity, petroleum refining, food processing, and transportation sectors (where investment increased little, if at all, between 1957 and 1961) and the metal fabricating industries (where investment rose much less rapidly from 1957 to 1961 than is called for during the next four years).

Table 12.

Belgium, Productive Investments: Actual Increases in Volume, 1957 to 1961, and Projected Increases, 1961 to 1965

(In per cent)

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Source: Economic Program for 1962-65, Table 94. The figures for metal fabricating and construction seem to have been transposed in Table 94 as printed.

The Economic Program draws attention to the problems arising from the small size of the typical Belgian concern11 in many industries. A recent case study of investment in Belgium found this to be a serious obstacle to the introduction of modern production methods, since investment in up-to-date equipment often entailed a complete change in the nature of the operations of the business, by enormously increasing the scale of output and of the sales effort required and/or narrowing the range or greatly changing the quality of the product.12 Fears about adjustment to new techniques or of early obsolescence were found to have impeded such investments.

There was also evidence of such a shortage of technicians in older industries that firms were often unable to adopt new processes. In addition, an unwillingness to employ sufficient qualified personnel at different levels, both in engineering and commercial staffs, was judged to be one of the main shortcomings of small and family concerns. The Economic Program stresses that the growing specialization of manufacturing plants and the need to face competition in a broader market will tend to raise the minimum technically efficient scale of operation in various industries. It states the Government’s intention to take steps to make it easier for concerns wishing to exploit new inventions or processes to finance expansion to the optimum scale of operation.13 In other sectors, where the advantages of scale are realized at the industry rather than at the enterprise level, the need is to promote the rationalization and standardization of production by agreements providing for cooperation between small-scale concerns and by specialization, so as to enable them to take their place in modern, mass production industry.

The high level of investment called for in the Economic Program requires the application of financial policies calculated to encourage a high rate of business and private saving. The need to expand the scale of business operations, and for amalgamations to this end, will increase the need for external financing and will intensify the importance of strengthening the capital market. The Program therefore calls upon the Government to implement certain recommendations of the De voghel Commission and exhorts the monetary authorities to maintain sufficient liquidity within the economy.14

III. Recommendations of De Voghel Commission, and Recent Monetary and Fiscal Reforms

The recommendations made by the De Voghel Commission in March 1962 fall under five main headings: (1) improving the finances of the public sector, (2) lowering interest rates and easing cover requirements for banks, (3) lessening the existing hindrances to the effective participation of banks and other financial intermediaries in financing industrial investment, (4) making it easier for small and medium-sized businesses to finance expansion, and (5) strengthening the capital markets, particularly the market for industrial shares.

Public finances

The Commission concluded that, while it could not be said that the borrowing by the public sector had deprived industry of funds, the financial difficulties of the Government had provoked an upward movement of interest rates and, by providing the financial sector with a steady demand for funds at profitable rates with little risk, had diverted attention away from the financing of enterprise investment. The Commission considered that an improvement in the finances of the public sector would, in the context of the longer-term policies, contribute to an increase in the national rate of saving,15 lessen the upward pressures on interest rates, and enable the Government to pursue more flexible anticyclical policies.

The elimination of the deficit on the ordinary budget called for in the Economic Program16 was achieved in 1962, and the Government intended for the future to maintain a balanced budget for current transactions and to borrow at a rate of not more than BF 12 billion a year for capital expenditures. But, largely as a result of the severe winter, the Treasury deficit in the first six months of 1963 totaled more than BF 15 billion, compared with BF 10 billion in the same period of 1962.17 Renewed heavy borrowing by the Treasury caused strong upward pressure on interest rates, and this was reinforced by a decline in the public’s willingness to take up government securities, which were subject to increased taxation under the fiscal reforms. This situation forced the Treasury to meet its needs predominantly by short-term borrowing from abroad and from the monetary institutions.18 Thus, the financing of the Treasury deficit became the principal factor in the continued growth in the money supply, while the foreign transactions of the private sector and banks had virtually ceased to be an expansionary factor by the early part of 1963.

The improvement in the budgetary position during 1961 and 1962 was principally a reflection of rising activity and incomes and of increases in indirect taxes, particularly the raising of turnover taxes from 5 per cent to 6 per cent under the loi unique of February 1961. When proposals for fiscal reform were first discussed, it was hoped that changes in the direct tax system would increase the total of government revenue and raise the ratio of government revenue to national income, which remains lower in Belgium than in neighboring countries. But the changes in direct taxation actually adopted are not expected to produce any marked increase in revenue. (The changes in company taxation went into effect in 1963.19 The new taxes on personal income will be implemented in 1964.20) It is especially difficult to assess the possible impact on revenues of alterations in the rates of personal income tax, because a global tax is replacing several schedules for different types of income. Little information is available concerning income distribution, since such data are usually derived from global tax returns.

The most striking effects of the fiscal reforms during 1963 were the reduction in public subscriptions to government securities and to the issues of public credit institutions, and the decline in time deposits with the banks,21 which reflected the fact that interest on such holdings, which had in practice generally been tax exempt, now became subject to a uniform deduction of 15 per cent, withheld at the source against the tax liability to be determined in relation to total income. The counterpart of these changes was a marked increase in the liquidity of the economy. During the first four months of 1963, the total money supply was nearly 11 per cent (and the fiduciary issue was nearly 10 per cent) higher than in the same period of 1962, while the value of industrial production at current prices had risen by little more than 4 per cent. The public’s increased preference for holding savings in a liquid form seems to have been in part inspired by speculation that the reduction in returns resulting from the 15 per cent withholding would eventually be offset by rising interest rates. It is not unlikely that increased efforts at tax evasion, both through increasing the proportion of transactions settled in cash, and through increased investment in foreign securities held in neighboring countries,22 also contributed to swell the demand for cash.

Interest rates and cover requirements for banks

The Commission considered that, although it might be argued that a policy of high rates of interest could stimulate savings, such a policy was likely to limit certain types of investment which it was desirable to encourage. It therefore recommended a policy of lowering interest rates to the fullest extent possible without creating the risk of a capital outflow, and of easing the cover requirements under which banks were obliged to hold certain amounts of government securities.

Under the monetary reform introduced on January 1, 1962, the banks were no longer required to increase their holdings of public securities as deposits increased, and a new weapon of monetary control—the power to impose variable reserve requirements—was placed at the disposal of the authorities. Until further notice, the commercial banks were required to maintain their portfolio of Tranche A Treasury certificates unchanged and to keep the total amount of cash reserves, call money loans, and public securities at 65 per cent of their average short-term liabilities in 1961. These requirements, in turn, were lifted by the Banking Commission as from January 1, 1963.23

Monetary policy in 1962 was aimed at permitting a freer determination of interest rates and enhancing the supply of funds for medium and long-term purposes, with the object of lowering the cost of borrowing. The suppression of the cover requirement meant that the Fonds des Rentes24 was no longer obliged to issue sufficient certificates to permit the banks to meet that requirement; this enabled it to terminate the issue of its certificates on tap at a fixed rate, and to force down interest rates by reducing the outstanding amount of its certificates.25 Total liquid assets in the hands of the public rose more rapidly than in preceding years, and the rapid rise in bank deposits and easing of cover requirements enabled the banks to expand their credits to the private sector, while at the same time reducing their discounts. A rapid growth in credit to the private sector, based on increasing resort to rediscounting with the National Bank, continued in the first half of 1963. At the end of June 1963, credits to the private sector, totaling BF 81.2 billion, were 24 per cent higher than a year earlier. Credits to the public sector had risen by less than 8 per cent, to BF 97.8 billion.

The reduction in government borrowing was an important factor in bringing about a decline in interest rates during 1962. The average yield of long-term (10-20 year) government bonds, for example, declined from 5.5 per cent in December 1961 to 5.0 per cent in December 1962. A further fall, to 4.64 per cent, in February 1963 seems to have reflected a temporary effect of the fiscal reform, which made securities issued before the reform more attractive than new issues. Thereafter, the yield rose almost continuously to 5.25 per cent in September 1963.26 The official discount rate, which had been reduced to 3.50 per cent in December 1962, was increased to 4.0 per cent in July and to 4.25 per cent in October 1963, as a response to rising interest rates both in Belgium and in the other EEC countries. At the same time, the especially favorable rediscount rates for export, and certain other, transactions were raised considerably more than the basic rate, in an attempt to curb the growth of credit other than that required to meet normal current business needs.

The conjuncture of a marked degree of liquidity in the private sector with relatively high and rising interest rates, which has arisen as a consequence of the problem of financing the Treasury deficit, poses a difficult situation for the monetary authorities. The potential danger of the present level of inactive balances also cannot be overlooked. Furthermore, as in other European countries, the effectiveness of monetary policies in general, including such weapons as the variable reserve requirement, has been weakened by the commercial banks’ increasingly easy access to foreign funds, through the Euro-dollar market and other channels. Since the Treasury borrows on the foreign exchange market when it is unable to satisfy its requirements by long-term borrowing, short-term accommodation from the domestic market, or within the limit set on borrowing from the National Bank, the prospect of a continuing budget deficit imposes severe restraints on effective domestic monetary control.

Role of financial institutions in financing industrial investment

The Commission considered that the regulations governing the operations of financial institutions had not always developed as required by changes in the economic and financial situation. In some cases, regulations had been maintained because they gave priority to particular forms of financing or because they permitted financial intermediaries to pursue risk-free investment policies. Certain demands for capital were not being satisfied, as was instanced by the abandonment of some investment schemes even without attempts to raise funds, owing to the lack of appropriate means of financing. On the other hand, there was a risk that less productive forms of investment were being encouraged by a superfluity of funds in certain sections of the capital market.

The basic statutes governing the operations of financial institutions in Belgium date from 1934 and 1935; they were designed to protect the interests of savers and to circumscribe the power of major financial groups following the depression of the 1930’s. The Commission found that the regulation forbidding incorporated banks to hold shares in nonbanking organizations, with the sole exception of shares for sale to the public which may be held for not more than six months, was too restrictive. The six-month limit increased the risks and reduced the possible profits to be made from the issue of shares, and had limited this activity of the banks. The Commission proposed to extend the six-month limit to three years, and perhaps even longer.

The Commission also made three other related suggestions: (1) that banks play a larger role in financing industrial investment by means of medium-term credits, (2) that banks be permitted to invest part of their resources in shares, and (3) that banks and other financial intermediaries provide resources for industrial investment through the acquisition of bonds issued by specialized financial institutions, such as semipublic institutions furnishing credit to industry.

At present, private savings banks, mortgage institutions, and insurance companies are obliged to invest a large proportion of their funds in public securities. The Commission suggested changes in the maximum and minimum investment coefficients prescribed for such institutions, so as to enable them to play a larger role in financing economic expansion by taking up industrial bonds and shares. Insurance companies, for example, would be permitted to hold up to 20 per cent (instead of 15 per cent) of their investments in the form of shares in Belgian companies.

The Commission advised the Government to revive the Conseil Supérieur des Finances, which was set up in 1936 to unite the various consultative bodies advising the Minister of Finance but which has not met since the war. Its functions should be modified so as to make it a forum where representatives of the Government and of private and public financial institutions could meet to formulate recommendations, particularly concerning the financial implications of the Economic Program and the financial measures necessary for its realization. It also recommended that the membership of the Conseil des Institutions Publiques de Crédit (the body set up in 1937 to coordinate the activities of public credit institutions) should be broadened and its responsibilities more precisely defined, and that the Banking Commission should be given general responsibility for coordinating the regulations governing all private financial institutions.

The Commission recognized that the separation of banks from financial holding companies, provided for in the 1934-35 banking legislation, was not always effective in practice. The banks were prevented from acquiring interests in industrial or commercial enterprises, but industrial concerns could acquire, and in a number of cases actually had acquired, control of a bank. Thus, several banks were integral parts of financial and industrial complexes. Among the possible results of this situation was the risk that certain concerns and industries might be unduly favored by easier access to credit; similarly, certain banks might benefit from a quasi-monopoly position, making it easier for them to gain deposits and to supply particular needs for credit or financial services. In the view of the Commission, the best solution might be to give the governing boards of the banks concerned constitutional independence from the shareholders, and to take steps to control the powers of the holding companies under the law governing their operations.

Financing expansion of small businesses

Many witnesses before the Commission commented on the limited access of small-scale businesses to credit facilities. Some of the measures just discussed may contribute toward lessening this problem. Other measures to this end include more favorable provisions concerning depreciation allowances and capital gains taxes, the subsidization of interest charges under a law passed in 1959, and especially the establishment, in 1962, of the Société Nationale d’Investissement. This body is intended to facilitate the expansion of existing firms, or the setting up of new concerns, by subscribing to the capital of incorporated companies under conditions that preclude the possibility of the existing owners losing control of the enterprise.

A powerful temporary stimulus to increased investment has been provided in recent years by the modification of the capital gains taxes under the 1959 law. This provided that only one fifth of capital gains realized during the years 1959-63 on buildings and equipment or on shares held by the enterprise for more than five years would be subject to the progressive tax on business earnings, provided that an equivalent sum was spent on productive investment in Belgium or the overseas territories. Another temporary tax change, with the objective of encouraging investment, was the provision of the July 1959 law that 30 per cent of the cost of investment over and above replacements (i.e., investissement complémentaire) undertaken between 1959 and 1962 may be deducted from taxable income in installments over three successive years.

As recommended by the Commission, the tax reform law passed in November 1962 permits enterprises to choose depreciation allowances calculated either as a fixed percentage of the value of the asset each year or on the diminishing balance method, which allows a larger proportion of the value of the asset to be written off early in its life.

The Commission recognized that the 1959 legislation providing for subsidized credits and credit guarantees had had important effects in stimulating investment, in particular by family businesses and foreign investors. But it pointed out that these measures were open to objection owing to the difficulty of selecting appropriate criteria so as to avoid distorting investment. If the duration of the law were to be prolonged, the Commission felt that the criteria for granting such credits and guarantees should be more precisely defined. Credits should be granted primarily in the light of the objectives of the Economic Program.

Development of the capital market

While the Commission emphasized that self-financing was an indispensable process in the expansion of smaller concerns, and concluded that, in general, self-financing should not be deliberately discouraged, it pointed out certain dangers of excessive reliance on this form of financing. It could give rise to insufficient diversification of investment if businessmen tended to limit investment to their existing field. By keeping down dividends, reliance on self-financing could reduce the attractiveness and hinder the development of the share market. There was also a risk that self-financing might lead to less economic use of resources, insofar as the potential returns tended to be studied less carefully in the case of investments involving the use of the firm’s own resources than in cases where a new liability was to be undertaken.

One of the main aims of the November 1962 tax reforms is to foster the development of a wider market in risk capital by reducing the fiscal discrimination against incomes from shares in industrial and commercial enterprises. This involves reducing the differences in tax rates, which in the past have favored undistributed as against distributed profits and income from interest as against profits—in particular by eliminating the special tax privileges accorded to income from public securities.27 A reduction of the discrimination favoring earnings of financial institutions as against those of industrial and commercial concerns may lessen another influence which has tended to limit the direct flow of savings toward productive investment.28

IV. Prospects for Fulfillment of the Economic Program

Both the De Voghel Report and the Economic Program have contributed much to the discussion of the problems facing the Belgian economy. But it is too early to assess whether the policies which have been, or may be, implemented as a result of these studies will be adequate to encourage the diversification of the economy called for in the Program, so as to enable an adequate rate of export expansion and a satisfactory level of over-all effective demand to be maintained without the marked fluctuations of the past. The two greatest obstacles to achieving the objectives of the Economic Program may be that the incentives for private investment in Belgium will not prove strong enough to bring about the desired increase in total private investment, and that too large a share of productive investment will continue to take place in traditional basic industries and too little in newer, more dynamic, sectors.

The existence of a more flexible monetary system, the development of a broader market in industrial shares, and more favorable tax treatment for productive investment could be of great importance in permitting a more dynamic attitude toward investment to be unconstrained by financial rigidities. But, while the changes in the system of depreciation allowances may encourage increased expenditures on plant and equipment, the effectiveness of the measures taken to increase the facilities for the external financing of investment must depend on the willingness of entrepreneurs to make use of such facilities. The possibility, which the De Voghel Commission itself recognized could not be dismissed,29 that the level of industrial investment in the past was not primarily determined by financial constraints, makes it questionable how far the financial policies proposed by the De Voghel Commission, even if successfully pursued, can provide a complete solution. Recent experience suggests that the problem of securing adequate fiscal receipts remains unsolved, and that, as a consequence, the financing of the public sector continues to hamper effective and flexible operation of the monetary system. The development of the capital market is essentially a long-term matter. While the Economic Program was approved by the Senate in June 1963, it is still not yet clear what additional legislation, if any, will be proposed to secure the fulfillment of the objectives set forth.

Successive explanations have been advanced for the comparatively low level of industrial investment in Belgium since the war. At first the high costs of obtaining capital were blamed. Attention then shifted to high labor costs as a factor which limited the profitability of Belgian concerns (Belgian wage rates rose sharply in relation to those of other Western European countries during and immediately after the war); this, it was alleged, served to encourage investment aimed at increasing productivity rather than expanding total capacity.30 It was often remarked that there had been no large-scale needs for reconstruction in Belgium after the war, such as had provided the occasion for modernization of plant capacity and a powerful stimulus to industrial initiative in many European countries; the attainment of a high standard of living in the immediate postwar period also resulted in a less dynamic growth of demand than was occurring in neighboring countries. More recently, the slower growth of population than in neighboring countries has been emphasized as the most important single explanation of the comparatively slow growth of the economy, and the difficulties of expanding industrial employment as a major factor limiting industrial investment. It is now also recognized that the Congo attracted a substantial volume of private capital and entrepreneurial initiative during the 1950’s, when prospects for investment in Belgian industry did not appear very promising. The flow of private capital and manpower to the Congo is now greatly reduced, and the impact of the loss of markets there is said to have had an important effect in intensifying the search for new outlets and increasing business initiative generally.

The three basic factors tending to inhibit productive investment in Belgium during the 1950’s seem to have been (1) the slow growth of home demand and the slight expansion of the labor force, (2) cyclical fluctuations arising from the unstable growth of exports, and (3) certain features of the socioeconomic structure of Belgian industry, some of which have been hinted at in the preceding section.

The case study of investment behavior referred to earlier31 emphasized the importance of the slow growth in demand for many products, and of cyclical fluctuations, in restricting the rate of productive investment. This suggested that the majority of concerns carried out replacement and modernization simultaneously with expansion of capacity, with the primary emphasis on expansion; although the firms concerned were conscious of the need to reduce costs, there were few examples of purely cost-reducing investments. Investment decisions were found to be highly sensitive to short-term fluctuations in demand, especially in the case of small firms, few of which had done much to establish the longer-run trend of demand for their products. Even in basic industrial sectors, such as metal working, nonferrous metals, and chemicals, firms apparently decided to invest only when they could anticipate the use of new equipment to its full capacity.32

The view that the level of industrial investment was not primarily determined by financial constraints is also confirmed by the study. The primary limits on the scale of investment were found to be either the desire to remain independent of outside capital or failure to look forward sufficiently to keep equipment up to date and/or to build up sufficient reserves for modernization.

The desire to rely on internal funds creates a tendency to cut conceptions of desirable investment rates down to the level of available internal resources even though a higher rate of growth could be financed and managed.… Growth in size of firm, together with amalgamations often brought about with the Common Market in view, frequently caused self-financing to be insufficient. But the desire to be financially independent was often abandoned only as an absolutely last resort.33

None of the three basic factors inhibiting productive investment seems likely to disappear by 1965—or even to be greatly reduced, although the further integration of the economies of the six countries into a Common Market may have important effects in this direction.

The achievement of such faster and more stable growth in total effective demand during the 1960’s than during the 1950’s as to provide a greater stimulus to private investment in Belgium depends on the maintenance of a steady and marked expansion of exports. There may be a need for increased public investment in the social infrastructure, and for higher current expenditures on education and other services. But the possibilities of stimulating the economy by raising public investment are limited by the smallness of the public sector. Supporting over-all demand by financing current public expenditures by public dissaving—as in the recent past—hardly commends itself when the problem is to raise the rate of productive investment. There seems no reason to expect a considerably faster growth of private consumption and fall in the savings ratio unless there is a rapid rise in wage rates and real wages34 which could compromise the growth of exports and of investment in export industries. In general, any measures to raise the level of internal demand unaccompanied by a commensurate increase in exports would be likely swiftly to spill over into a deficit on current account of the balance of payments, which could hinder the achievement of a higher growth rate. However, if investment prospects in Belgium appear less promising than those elsewhere, because demand for the major Belgian industries, in the domestic market and for export, seems likely to expand comparatively slowly or to be highly unstable, the tendency may arise for heavy exports of capital, domestic investment falling below the rate of domestic saving. Alternatively, a high proportion of domestic saving may continue to be invested in less productive forms of investment, such as residential construction.

Prospects for achieving the desired growth of exports

Provided that demand in the Common Market countries is well maintained, the best hope of achieving the high rates of investment called for in particular industries appears to lie in maintaining and exploiting, by a vigorous export drive, Belgium’s now comparatively favorable competitive position.35 Good immediate prospects for profitable export expansion, in particular to take advantage of new openings created by the lowering of tariff barriers within the Common Market, could provide the additional stimulus for investment, not only in existing lines of production but also in new fields, such as recently developed specialized branches of engineering and chemicals. Such prospects could also facilitate the diversification of Belgian industry by encouraging continuation of the trend for concerns outside the Common Market to establish branches, or to enter into arrangements for the manufacture of their products, in Belgium.

However, this favorable situation is by no means certain to be realized. Clearly, it depends on the maintenance of Belgium’s favorable competitive position, implying that wage costs and prices should not rise faster than in competing centers. But the high degree of stability of Belgian wages and prices up to 1961 was associated with not inconsiderable unemployment over most of the period. It is not certain that wages will continue to rise so moderately if full employment is maintained over a number of years. Recent experience suggests otherwise. Moreover, even a comparatively slight easing of the pressure of demand in Western Europe could result in a marked stiffening of competition in sectors where capacity has recently been increased, and rule out the stimulus for greater investment in Belgium. Since 1960, almost the entire growth in Belgian exports has occurred in trade with the other Common Market countries (Table 13).36 The value of Belgian exports to these countries rose by about one third from 1960 to 1962, while exports to all other areas scarcely increased. However, despite favorable cyclical factors during this period, Belgium did not succeed in increasing its share of intra-Common Market trade: its exports to other Common Market countries rose almost in line with their imports from each other (i.e., about two and a half times as fast as their purchases from other industrial countries).

Table 13.

Belgium-Luxembourg: Growth of Exports, 1960 to 1962

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Source: Organization for Economic Cooperation and Development, Over-All Trade by Countries, April 1963.

France, Germany, Italy, Netherlands.

United States and countries in the European Free Trade Association.

The Economic Program calls for a somewhat lower rate of export expansion than has been achieved over the last four years. However, it would be optimistic to assume that trade within the Common Market will continue to grow as rapidly as over the last few years.37Even if the growth in demand should be maintained by a faster rise in consumption offsetting a slowing down in investment, it would be optimistic to expect that Belgian exports (with their heavy component of metals and semimanufactures) would continue to increase in line with total trade within the Common Market. On the other hand, Belgium could benefit substantially from a higher rate of investment and economic growth in the United States and the United Kingdom, which, together with the other countries of the European Free Trade Association, take about one fourth of its exports.

Changes in the structure of exports

While the Economic Program calls for some striking shifts in the composition of Belgian exports, it is not to be hoped that their vulnerability to cyclical variations can be greatly reduced over a period as short as four years. As Table 14 shows, the export targets imply that the share of the traditional basic industries (coal, steel, and nonferrous metals) in exports would be reduced from about 31.5 per cent of the total in 1957 to about 27 per cent in 1965. Most of the countervailing increase would occur in more highly manufactured and specialized engineering and petrochemical products. The share of consumer goods industries would remain at rather more than one third of the total.38 When the fact is taken into account that exports of industrial plant, intermediate chemical products, and building materials are also vulnerable to cyclical fluctuations, it can probably only be assumed that the share of “vulnerable” exports will be reduced from about 45 per cent of the total value of exports in 1957 to about 40 per cent in 1965 (at 1961 prices). As Table 14 shows, a considerably greater reduction in the share of the basic sectors, and increase in the share of chemical and engineering products, than actually occurred from 1957 to 1961 is called for from 1961 to 1965.

Table 14.

Belgium: Changes in the Structure of Merchandise Exports

(per cent of total at constant prices)

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Sources: Economic Program for 1962-65, Table 89, and Table 11 of this paper.

Prospects for private investment

It is most difficult to assess how far the attitude of industrialists toward investment in Belgium may be favorably affected by the important reforms in the financial structure already carried out or under way, by the institution of a system of national economic planning, and by the further development of the Common Market.

The coming into operation of the Common Market has recently been a powerful factor in encouraging Belgian managements to modernize their enterprises and expand capacity. Access to a wider market is of great significance to a relatively small country like Belgium. It is valuable that an Economic Program has been drawn up at this time to point out the possibilities of sustained growth and economic diversification within the Common Market. The existence of targets proposed by the Government and studied and accepted by the various industrial associations may exert an important influence on the investment planning of industrialists.

The study on investment decisions referred to earlier39 suggests that the Common Market arrangements may produce marked changes in conceptions concerning desirable investment rates and the rate of external financing. A difference in this respect was remarked between the rate of investment in competitive industrial sectors, such as paper and electrical machinery, where firms were conscious of a need to capture or to keep a share of the market, and other sectors where investment tended to be determined primarily by the growth of demand. However, increasing pressures did not always have a stimulating effect. Faced with growing problems of maintaining their competitiveness, small firms did not always explore the full range of financing available to them.

For Belgium, the benefits of participation in the Common Market are particularly dependent on the continuance of high economic activity and demand within the Market area. Unless these conditions hold, Belgium’s participation in the Common Market is unlikely to stimulate a higher rate of private investment; it may even cause the rate to be reduced. But provided that demand continues high in Western Europe, Belgium enters the crucial initial years of the formation of an integrated European market with the advantages of a favorable competitive position, and with the benefits of recent measures to improve the fiscal and monetary system. These factors may enable its industrialists to seize the opportunity to modify the industrial structure of the country by expanding those sectors in which modern technology is producing the greatest advantages so as to reduce the dependence on the traditional basic industries whose long-run prospects for growth seem less promising.

Le programme économique et les politiques financières récentes de la Belgique


La Section I est consacrée à l’examen du développement de l’économie belge depuis 1950. Elle souligne l’importance de la faible augmentation de la population active et l’effet de la proportion relativement réduite de cette population active dans le secteur agricole comme causes du fait que le produit national brut (PNB) et le rendement global par habitant ont progressé moins rapidement en Belgique que dans les autres pays du Marché Commun. L’auteur note l’analogie qui existe à cet égard entre la situation de la Belgique et celle du Royaume-Uni. Dans les industries manufacturières, la productivité de la main-d’oeuvre a elle aussi augmenté plus lentement dans ces deux pays; ce fait est lié au niveau relativement faible des investissements et des emprunts des sociétés industrielles. Un autre élément qui a contribué á réduire á la fois le niveau des investissements et leur productivité—telle qu’elle se refléte dans l’accroissement du PNB—est la vulnérabilité de l’économie belge aux fluctuations cycliques. Dans les années 1950-60, les augmentations de rendement ont été amenées surtout par la progression rapide mais instable des exportations.

Pour relever le taux de croissance, il faudra accroître les exportations, maintenir la demande intérieure á un niveau satisfaisant, en évitant les fluctuations, et encourager un volume suffisant des investissements privés et une répartition convenable de ceux-ci. La Section II décrit le Programme Economique du gouvernement pour les années 1962-65; la Section III examine les recommandations de la Commission chargée des problémes de financement de Texpansion économique et passe en revue les importantes réformes monétaires et fiscales récemment adoptées.

Dans la Section IV, l’auteur cherche à évaluer les perspectives de réalisation du programme économique. Les possibilités actuelles favorables à un accroissement avantageux des exportations pourraient encourager Texpansion recherchée des investissements privés, mais il n’est pas certain que ces espoirs se réalisent. Depuis 1960, l’augmentation des exportations belges a porté presque entièrement sur les pays du Marché Commun. Il serait imprudent de tenir pour acquis que les échanges commerciaux entre la Belgique et ses partenaires de la CEE continueront à se développer aussi rapidement qu’au cours des récentes années, mais les exportations belges pourraient bénéficier considérablement d’un relévement de Tactivité des Etats-Unis et du Royaume-Uni.

El programa económico y las políticas financieras recientes de Bélgica


La Sección I de este artículo trata del desarrollo de la economía belga a partir de 1950. Pone de relieve la importancia que tienen el ligero aumento de la población activa y el efecto surtido por la proporción relativamente reducida de la población dedicada a la agricultura, como causantes del hecho de que el producto nacional bruto (PNB) así como el rendimiento global por habitante hayan aumentado menos rápidamente en Bélgica que en los demás países del Mercado Común, y señala la analogía existente entre la situación de Bélgica y la del Reino Unido en cuanto a estos aspectos. También halla que el rendimiento individual del trabajador industrial ha aumentado a un ritmo menor en esos dos países, circunstancia que está vinculada al nivel relativamente bajo de las inversiones en empresas de negocios, el cual aparentemente tiene en sí relación con la menor demanda de crédito por parte de las empresas. Otro factor que ha propendido a reducir tanto el nivel de las inversiones así como su productividad, según puede colegirse por el incremento del PNB, ha sido la susceptibilidad de la economía belga a las fluctuaciones cíclicas. El incentivo primordial para el aumento de la producción durante la década a partir de 1950 provino del rápido aunque inestable aumento de las exportaciones.

Para lograr una tasa de crecimiento más acelerada será preciso aumentar las exportaciones, mantener la demanda interna a un nivel adecuado, evitando las fluctuaciones, y estimular la obtención de un volumen suficiente y una conformación adecuada de las inversiones privadas. La Sección II describe el Programa Económico gubernamental para el periodo 1962-1965; la Sección III versa sobre las recomendaciones formuladas por la Comisión encargada de los Problemas del Financiamiento de la Expansión Económica así como sobre las importantes reformas monetarias y fiscales recientemente adoptadas.

La Sección IV ensaya hacer un cálculo de las probabilidades de realización del Programa Económico. La existencia de favorables oportunidades inmediatas para alcanzar una expansión provechosa de las exportaciones podría ofrecer el estímulo que la inversión privada requiere, pero no existe seguridad de que esa situación se produzca. A partir de 1960 casi la totalidad del aumento de las exportaciones de Bélgica ha sido en su comercio con los países del Mercado Común. Sería pecar de optimista suponer que el intercambio comercial con dichos países habrá de seguir aumentando con igual celeridad que en los años recientes; sin embargo, las exportaciones de Bélgica podrían verse considerablemente favorecidas por una expansión en Estados Unidos y en el Reino Unido.


Miss Romanis, economist in the Special Studies Division, is a graduate of Cambridge University. She was formerly on the staff of the Oxford University Institute of Statistics; the Programmes and Plans Division, Ministry of Production, London; the Economic Directorate, Organization for European Economic Cooperation, Paris; and the Economic Survey Division, United Nations, New York. She has published several articles on economic subjects.


The present paper describes developments in the Belgian economy up to October 1963.


Sénat de Belgique, 1962-63 session, Projet de loi portant approbation du premier programme d’expansion économique (December 13, 1962); hereafter referred to as the Economic Program for 1962-65.


Commission gouvernementale pour l’étude des problèmes de financement de l’expansion économique, Rapport, March 31, 1962 (Brussels). Generally referred to as the De Voghel Commission Report, after its chairman.


A recently published study by A. Lamfalussy (The United Kingdom and the Six, London, 1963) lays stress on the fact that even more striking than the difference between the ratios of total gross fixed investment to GNP in the United Kingdom and Belgium, on the one hand, and in the remaining EEC countries as a group, on the other, was the much higher marginal gross capital/output ratio in the United Kingdom and Belgium than in the other EEC countries. However, in Belgium this high capital/output ratio seems to have been strongly influenced by cyclical factors affecting the ratio during the period that he chose, the ratio being considerably lower in preceding and subsequent periods. (The figures used by Lamfalussy relate gross fixed capital formation during 1955-59 to the increase in gross domestic product from 1955 to 1960.) It is clear that the marginal gross capital/output ratio in Belgium during the later 1950’s was also inflated by the large proportion of total fixed investment devoted to residential construction (houses being a long-lived asset have a high cost relative to their annual output). It is noteworthy that during this period, the capital/output ratio in Belgium as defined was not dissimilar from that in the Netherlands.


With the sole exception of France, where industrial production fell very slightly from 1951 to 1952.


The expansion in gross private fixed investment had slowed down to 3.7 per cent from 1960 to 1961, after a very sharp increase of 12.7 per cent from 1959 to 1960.


In 1960 the proportion of all women aged 15-64 gainfully occupied was 48 per cent in the United Kingdom, 45 per cent in France, and 42 per cent in Germany, but only 36 per cent in Belgium, and less in the Netherlands and Italy. Thus, it seems clear that the latter three countries still possessed potential reserves of women workers.


A simple input-output matrix distinguishing the relations between 21 sectors in 1959 served as the starting point for estimating output by broad sectors in 1965, with modifications to take account of the most probable developments of industrial technique, changes in sources of supply, or in forms of energy consumed. A more complex matrix distinguishing 69 sectors, also for the year 1959, has recently been drawn up by experts of each of the EEC countries.


The average annual increases in the output of metal working industries in various countries, as given in the Economic Program for 1962-65, Table 29, were as follows:

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Ibid., Table 31.


According to a study by the Twentsche Bank cited in Cahiers Economiques, October 1961, p. 505, both the proportion of industrial establishments employing less than 50 persons and the proportion of total industrial employment provided by plants employing less than 100 persons are higher in Belgium than in other industrial countries. According to the Economic Program, 50 per cent of all establishments in the metal fabricating industry, and more than 90 per cent of construction firms, employed less than 20 workers in 1959. Establishments employing more than 100 workers accounted for less than 15 per cent of all concerns in metal fabricating and 1 per cent of those in construction.


The Decisive Factors in Investment Decisions by Professor M. Woitrin of the University of Louvain, summarized in Bruce R. Williams, International Report on Factors in Investment Behavior (Organization for Economic Cooperation and Development, 1962).


See pages 45-48 below.


Economic Program for 1962-65, p. 200.


The Commission recognized the possibility that, in the past, substantial borrowing by the public authorities might not have deprived private industry of funds but might have absorbed savings which otherwise would not have been utilized. Nevertheless, it concluded (Commission Report, p. 22) that by borrowing to support consumption the Government and the local authorities had reduced national savings by a corresponding amount—which, of course, would only be true if the sums borrowed would otherwise have been utilized for consumption or investment—so that the national income would not have been significantly lower. It is implicitly assumed both here and in the Economic Program that, in the future, effective investment demands will be at least equal to savings becoming available for investment.


See above, page 32.


Agence Economique et Financière (Brussels), July 14, 1963.


The Treasury’s short-term debt in foreign currencies (including foreign currency borrowing from Belgian banks), which had been reduced from BF 22 billion at the end of December 1961 to BF 11.9 billion in November 1962, had once again risen to BF 17 billion at the end of June 1963; short-term debt denominated in Belgian francs, which had declined by BF 8.7 billion in the second half of 1962, rose by about BF 11 billion during the first half of 1963 (Banque Nationale de Belgique, Bulletin d’Information et de Documentation, June 1963, p. 564).


Changes in company taxation are discussed below (pp. 47 and 48).


The existing five taxes (four on different types of income and one on total income) are being replaced by a single progressive tax with an exemption that varies from BF 25,000 ($500) for taxpayers without dependents to BF 60,000 ($1,200) for taxpayers with four dependents, with an increase of BF 30,000 for each dependent beyond the fourth. The tax will be progressive up to 55 per cent for the tranche of income exceeding BF 5.0 million, but the total will never exceed 50 per cent of taxable income.


Time deposits, which had risen by nearly 15 per cent between December 1961 and June 1962, declined by nearly 9 per cent between September 1962 and September 1963 (Kredietbank, Weekly Bulletin, September 28, 1963).


Since an important element in this investment seems to have been an increase in security holdings in Luxembourg, the balance of payments figures for Belgium-Luxembourg combined may understate its importance. As recorded there, the negative balance of transactions in securities increased sharply from BF 0.8 billion in the first half of 1962 to BF 1.4 billion in the second half and to BF 1.6 billion in the first quarter of 1963.


The Tranche A certificates, yielding 11516 per cent, are being converted by stages into a special nonmarketable loan yielding 3½ per cent. This rate remains well below ruling long-term rates, but the banks will have the option of subscribing to future long-term government issues by converting the new securities. During 1962, the banks modified the composition of their holdings by replacing certificates of the Fonds des Rentes mainly by longer-term securities, thus contributing to ease long-term interest rates.


The Fonds des Rentes was established in 1945 to smooth the market for government bonds, using for the purpose money borrowed in the short-term market, or as a last resort from the National Bank. A series of measures taken since 1957 has enlarged the scope of its activities to include purchases and sales of short-term Treasury bills, with the object of providing an instrument for open market operations. In fact, it has been an important supporter of the bond market in recent years. Borrowing by the Fonds from the National Bank is included under the ceiling of BF 10 billion on Treasury borrowing from the Bank.


The effective rate declined from a peak of 4.75 per cent in July 1961 to 3.30 per cent in December 1962, but increased slightly in the first half of 1963.


Kredietbank, Weekly Bulletin, November 2, 1963.


The reforms introduced in November 1962 provide for a slight reduction in the rate of tax on distributed profits, and a rather more marked increase in taxes on undistributed profits, arising in part from the fact that the possibility of deducting from taxable income direct taxes paid during the year is to be abolished. The revised system tends to discriminate somewhat in favor of self-financing by smaller firms.

The basic rate of tax on corporate profits is 30 per cent; undistributed profits exceeding BF 5 million ($100,000) are subject to an additional levy of 5 per cent, and undistributed profits below BF 1 million are taxed at 25 per cent. Thus, for companies with large profits, the taxation on the part of profits exceeding BF 5 million will be increased from about 28.6-29.6 per cent in the former regime to 35 per cent in the new; and for small and medium-sized enterprises earning less than BF 5 million, the new 25-29 per cent tax rate compares with 23-25 per cent under the former regime. On the other hand, the fiscal reform will result in a reduction of the rate of taxation on dividends paid to private persons (whose total incomes do not exceed a certain level) from about 45-47 per cent in the former regime to 42.75 per cent in the new. Taxation on capital gains is reduced as the progressive tax on business earnings applied in the former system is replaced by a 15 per cent tax.

Under the new regime, all interest income (apart from interest on very small savings deposits) is subject to a uniform tax of 15 per cent. Formerly, the tax on private bonds was generally 11 per cent, but interest on public securities and interest at the rate of less than 2 per cent per annum on bank deposits were in practice tax exempt.


Taxes payable by private credit institutions (including banks) are substantially increased by the suppression of certain deductions from taxable income hitherto allowed. Public credit institutions which were formerly exempt from taxes now become subject to taxation.


Op. cit., p. 30.


See in particular the discussion of “defensive” investment in A. Lamfalussy, Investment and Growth in Mature Economies: The Case of Belgium (London, 1961).


See page 39 (fn. 12).


The inquiry did not cover any firms in the steel industry.


Williams, op. cit., Ch. IV, p. 13.


The more rapid growth in private consumption from 1961 to 1962 than in recent years or than forecast in the Economic Program (shown in Table 6, above) was associated with an increase of nearly 9 per cent in average gross hourly earnings during 1962.


Figures given by A. Lamfalussy in The United Kingdom and the Six (London, 1963), Tables 13 and 20, show that average unit labor costs, in dollars, in Belgian manufacturing industry remained unchanged from 1953 to 1960, whereas those of the United States, the United Kingdom, and other EEC countries (apart from France, which devalued considerably during the period) rose by about 10-25 per cent. Although wages have recently tended to rise more rapidly in Belgium, there has been further improvement in the position versus the major European countries (but not the United States) since 1960. Between 1960 and the latter part of 1962, average unit labor costs in Belgium probably increased by not more than 5 per cent, compared with increases of well over 10 per cent for the majority of other EEC countries and the United Kingdom, and of over 25 per cent for Germany.


Belgian exports and imports cannot feasibly be separated from those of Belgium-Luxembourg shown in Table 13.


The value of intra-EEC countries’ trade rose by 25 per cent from 1959 to 1960, by 16 per cent from 1960 to 1961, and by 14 per cent from 1961 to 1962.


The decline in the export share of basic industries would fall on coal and crude steel exports; nonferrous metals and semifinished products are expected to maintain their share in the value of merchandise exports (at constant prices), i.e., to rise by about 40 per cent in volume (Table 11, p. 36).

Considerable shifts have already taken place in the composition of exports of machineiy and transport equipment (for example, a decline in the export of railway equipment); a remarkable provision in this field is the sharp increase called for in exports of motor vehicles.

The maintenance of the share of consumer goods industries in exports appears to depend on a further rise in the share of food processing industries and diamonds, offsetting a further decline in the share of textiles (which reflects a continued reduction in the share of the cotton and jute industries).


See page 39 (fn. 12), above.

IMF Staff papers: Volume 11 No. 1
Author: International Monetary Fund. Research Dept.