The Press WEDNESDAY, DECEMBER 15, 1954 Capital Issues Committee

Press, Volume XC, Issue 27533, 15 December 1954, Page 12

The Press WEDNESDAY, DECEMBER 15, 1954 Capital Issues Committee

One of the first important tasks of the new Minister of Finance (Mr Watts) will be to examine the future of the Capital Issues Committee. Dissatisfaction with the operations of the committee has been expressed at various times during the committee’s existence, and criticism has increased recently. The tendency of the committee to override the views of directors and managements on such matters as the fixation of the proper premium on the issue of shares has been said to amount to unwarranted bureaucratic control of private enterprise. In his last annual address, the chairman of the Wellington Stock Exchange (Mr E. C. W. Nathan) mentioned this feature of the committee’s activities and argued that the committee’s demand for a premium on most issues actually restricted the spread of available capital. Recently, in | financial and business circles, decisions of the committee have been criticised as inconsistent; and examples have been given. Some businessmen have advocated the abolition of the committee, holding that interest rates on a free market would do better what the committee tries to do. At its conference at Hanmer last April, the Associated Chambers of Commerce did not go so far as to advocate abolition of the committee, but did urge that many issues should be removed from the reach of the committee by raising the minimum amount exempt from capital control issue from £lO,OOO to £25,000. When complaints were referred to Mr Watts recently, he said he would get the advice of members of the Capital Issues Committee and would then hope to be in a position to make some general statement on the rules which would govern its work. But Mr Watts has a duty to go much further. The Capital Issues Committee was set up in April, 1952, to deal with what the then Associate Minister of Finance (Mr Bowden) said was an “abnormal” increase in competition for inadequate investment moneys; competition had tended to force up the general level of interest yields. Mr Bowden said that the Government hoped that the committee would be a temporary body only; he realised, no doubt, that a Government committed to removal of controls and one favouring economic liberalism as a matter of principle was in an invidious position when turning to a form of control for which it fdund authority in Labour Party legislation. Mr Watts has a duty, therefore, to ask all interested parties—not merely the Capital Issues Committee—to join him in examining the continued need for this form of control; more persons than the members of the Capital Issues Committee are entitled to be satisfied that the committee is necessary and should continue its work.

The strong representation of officials on the Capital Issues Committee has led some to think that its prime function is to reserve for the Government a "priority share of the capital available for investment Colour is lent to this theory by the fact that the increase in the percentage of the gross national product devoted to investment in the last two financial years (since the committee has been operating) has gone to the central government and local authorities. Of a percentage of 20 of the gross national product devoted to investment in 1952, 13

per cent, went to private investment and 7 per cent, to central government and local body investment.

In the last two years the volume of the gross national product has risen substantially,’ and of this greater volume, private ‘ investment has received 13 per cent., and central government and local bodies 10 per cent There is every need for the investment programme to be

balanced between private and government and local body requirements. But an ill-balance that favoured, government investment at the expense of private investment would serve the nation badly in the long run, particularly when interest rates for private investment issues are controlled in order to favour government and local body issues at low rates of interest. Mr Watts should see that he has the benefit of careful and extensive studies before deciding whether an interference with the investment market that was introduced as a temporary measure to meet “ abnormal ” conditions is helpful or harmful in present conditions.