LOWER COSTS.

Auckland Star, Volume LXII, Issue 127, 1 June 1931, Page 8

LOWER COSTS.

TO RELIEVE PRODUCERS "PASS ON THE BENEFITS." JUDGE'S ADVICE TO TRADERS "LOWEST POSSIBLE PRICES." "I have come to the conclusion, after weighing all the considerations involved, that a reduction of 10 per cent in all rates of remuneration fixed' by awards and industrial agreements will give relief to producers and consumers by lowering the costs of production and distribution, and will not inflict undue hardship on the workers. A smaller reduction would not give the necessary relief, and it might .not be possible to pass it pn,' said his Honor in a memorandum attached to the General Order, which is made in accordance with provisions oi the Finance Act, 1931. The. employers applied for a reduction ihWages and salaries of 20 per cent, and the workers' representatives opposed any reduction. "I do not think that I am exceeding my duty in urging all manufacturers and traders" to, pass on to their customers the benefits of reduced costs,' adds his Honor. "By so doing, turnovei and net profits will be increased, and the standard of living and the purchasing power of the maintained. I manufacturers and traders seek to-retaii

the benefit of reduced wages costs as a set-off against past losses, the adoption of such, a policy will in the long run. certainly react "to their detriment. It is by giving consumers the commodities and services they require at the lowest possible prices that their own interests will be best conserved. Living Standard Not Reduced. "I do not wish it to be thought that I consider it necessary to bring about a perrdanent reduction of the standard of living of the people of New Zealand, even though I am unable to accept the cost of living statistics as the sole basis of wages adjustment," states his Honor. "When the disturbing concomitants of deflation have passed away, and the levels of wages and prices have adjusted themselves, the standard of living should not necessarily be any lower than it has been in the past. It is probable that an adjustment of prices and wages to meet world conditions will give an impetus to industry, where at present there is a distinct hesitation to make any forward move. Thus purchasing power and real wages, as distinguished from nominal or money wages, will tend to increase. Once the necessity for an adjustment becomes apparent, temporising and failure to realise the needs of the situation are far more likely to have a lasting' prejudicial effect on the standard of living of the community than is the adoption of prompt and efficient measures designed to bring about a speedy economic readjustment. "It may be desirable to point out that inflation is to some extent inevitable. By inflation, I do not means a deliberate dilution of the currency by means of manipulation of the note issue, but the creation of an artificial purchas-

ing power, and the enlargement of credits that form the basis of the currency." "Award Not a Contract." After reviewing at length the adjustments which have been made to wages from time to time since before the World War of 1914, his Honor proceeds to analyse the evidence submitted to the Court during the hearing of the application by the employers for reduced wages. A preliminary issue that was argued at some length, h e said, was that the Finance Act, in that it empowered the Court to adjust the rates of remuneration prescribed by awards and industrial agreements, involved a repudiation of contracts. It was perfectly clear, however, that an award or an industrial agreement was not <i contract, but merely a document setting out the minirnam terms and conditions upon which a contract of service might 'be entered into.

Referring to the points stressed by the employers' advocate, Mr. T. 0. Bisiop, relative to the falling off in the national income and the position of the primary pridioor, his Honor said that in two years the oxporcs of the Dominion had dropped in value by ovei £17,500,000. The total of exports anc imports was under £78,000,000 for tin year just ended, while it averaged ovei foc.iha ten ,year& from 1921

to a greater extent than most countries on her external trade, and the volume of that trade was, apart from special circumstances, an index of her prosperity. An important factor to be considered in conjunction with the movement of exports and imports was the interest charges on the national and local body debt payable outside the Dominion. A sum of about £8,000,000 a year was required for this purpose. Overseas borrowing must of necessity be severely curtailed, and the country must face thpayment of interest charges on its externally domiciled debt out of a greatly diminished national income. The figures quoted were eloquent, and no comment was required to increase their impressiveness. ■ World-Wide Deflation. The whole world was suffering from the depression. There was little room for doubting that it had entered upon a period of general deflation, and a reversion to a permanently lower level of prices. If, as he believed, that was so, it was necessary to consider all possible means for easing the painful process, and for getting over its effects as quickly as possible. It was impossible to evade it, and palliatives were futile. The sooner the adjustment was over, the sooner would the country return to normal conditions of prosperity, and the sooner would itf industries be able to absorb a large percentage of those no\v out of employment. With a general reduction of the national income must come a genera! readjustment of the distribution of thai income. Wages were, in the ultimate analysis, paid out of the proceeds oi

productior., and the proceeds of production were barely two-thirds of what they were a year or two ago. The capital losses on representative industrial and commercial stocks during the past 18 months had been from 20 to 50 per cent. In consequence, it was difficult to attract capital to commercial enterprises, and the difficulty would continue until a readjustment was effected, or, at all events, was in sight. His Honor said that while he believed that, in the public interest, it was desirable that industry should pay the highest possible wages, he realised that there was a general tendency to overlook the significance of the important word "possible." He did not believe, however, that what Henry Ford could do in the way of raising wages in a period of temporary depression in the motor building trade, could be done in a general way in a primary producing country, in a time of world-wide deflation. If Wages were artifically maintained at an economically impossible level, unemployment and the competition of imported commodities with our. manufactures would increase, fresh capital for the development oi industries would not be forthcoming primary production would fall back, and the principal source of the Dominion's national income would become still further deflated. If mal-adjustment existed as a result of changed world conditions it must be corrected before we coulc expect to get back to a sound basis: and no sophistry could" disguise the truth of that proposition. Position of the Farmer. Replying to the workers'. advocates contention that a reduction in wage* would not materially assist the primary producer, but would detrimentally affec

internal trade by diminishing purchasing power, his Honor said it was true that the wages and conditions of ordinary farm labour wre not regulated by the awards of the Court. The farmer, however, was indirectly affected by conditions obtaining at freezing works, dairy and cheese factories, and by the wages cost of transport and distribution. As°a consumer, he was also indirectly affected by labour costs in all his purchases. His income was actually less than it was in 1914, but he had to pay 50 per cent more for everything he bought. It was also argued by the workers' advocates that the farmers' principal burden was excessive land values and high interest rates. The excessive land values had, however, been very largely written down in recent years. Interest rates remained high.

though the evidence submitted showed that in many cases mortgagees wera meeting their mortgagors in a spirit of fairness, and adjusting mortgage debts as to both principal and interest. Neither Parliament nor the Court could control interest rates. So far as the second point of the argument was concerned, his Honor said that a reduction of money wages to an economically justifiable standard stimulated consumption, and, in its turn production, and provided a greater purchasing power for the community ir general. The reduction in award wages necessitated by the depression of 1921 | 22, were followed within two. years bj -an-increaee of 7345 in the namber o:

workers employed in manufacturing industries, and an increase of £596,065 in the amount paid in wages. Purchasing Power of Wages. Touching on the position of, the bondholder, his Honor said that while the workers' advocates did not suggest the adoption of a policy of repudiation in their case, it was difficult to see how the position of the bond-holder could be assailed without repudiation, wholly or in part, the bond. He agreed that the cost of living was relevant to the issue, although under the Finance Act it was not to be regarded as the dominant consideration in adjusting rates of remuneration. It was true that award rates of wages lagged behind the rising cost of living during the period 1914 to 1920, but. the award rates were.generally regarded as the minima, and most workers received considerably higher rates. Since 1927 the average purchasing power of wages had exceeded the relative level of 1914, and was today substantially in advance of it. Yet during the past two years there had been a drastic contradiction in capital values and profits. It was impossible to keep wages any longer at an uneconomic level. His Honor quoted authorities in answer to the suggestion that the banking institutions were in some way responsible for the depression, and added: "The recent announcement that tlie Bank of England rate had been reduced to 2$ per cent is regarded by economists as a" hopeful sign. A reduction in the bank rate is an indication that money is becoming easier, and in the course of a few. months the reduction may be reflected in greater financial facilities being available to trade and industry, with a corresponding enhancement of the prices of our primary products. It is idle to hope for a recovery to the price levels of a few years ago, but an improvement to a standard approximately 25 per cent above that of 1909-1913 is not beyond the bounds of reasonable expectation. Whatever the new level may be, however, costs generally must adjust themselves to if, and normal conditions of prosperity will return. "Reduction in Costs Imperative." "I am convinced that it is economic-

ally impossible to maintain money wages at their present level. The substantial reduction in the national income, and the generally lower level of world prices, call imperatively for a reduction of all costs, including wages. The only question is the amount by which the rates of remuneration should be reduced. The employers' advocate asked that a reduction of 20 per cent should be made. It must be borne in mind, however, that award wages are in the majority of cases regarded as minimum rates, and thatin normal times very many workers receive wages in excess of award rates. This •margin has been cut down during the past year or eighteen months, so that a considerable number of workers in employment have already had to face some percentage of reduction of earnings. "The economic and financial conditions 1 affecting trade and industry, taken alone doubtless justify a reduction of 15 or 2( : per cent in award rates, if we assume > that those rates are representative of the • actual levels of wages now and eighteer

months ago; but I think that an allowance should be made for the admitted, though unascertained, drop that has already taken place. A reduction of award rates by 20 per cent would inflict a sericrtis hardship on those workers whose rates have already been reduced to award levels, and more especially because such a reduction would involve a considerable reduction in the standard of living below that indicated by. the cost of living statistics. I have also to consider the position of those workers who are paying off the purchase money of their homes. Though not all the houses were bought at the peak of prices, hous. ing costs are fixed charges, and represent the largest single item of,domestic expenditure. In my opinion, it is undesirable that thrift should be discouraged, and I think that a reduction of 20 ? or even 15, per cent would tend to proeluce that effect."