Inflation Controlled, But How Firmly?

Press, Volume CI, Issue 29855, 22 June 1962, Page 10

Inflation Controlled, But How Firmly?

“Another bout of domestic “ inflation resulting in a " serious balance-of-pay-

“ ments situation has been “ brought under control ”, the Economic Survey boldly says. And it is indeed true that the Survey can report a marked improvement over the last year, with public and private expenditure now more nearly in balance with national income. New Zealand, however, still has to borrow overseas, and the Survey gives no assurance that borrowing will not be necessary again next year. How firm, then, is the control on domestic inflation? The authors of the Survey continue to place great faith in the control of bank credit (but rightly regard import control as a shortterm measure that in the long run would increase the damage done by inflation). The management of the domestic economy has also been assisted by the remarkable increase in immigration, most of it without Government assistance, which has both helped productivity and eased the shortage of labour, one of the principal causes of high demand. Demand has also been reduced by the slackening of housing and general building construction. Though they hardly hint at the possibility, the authors of the Survey appear to think that in the coming year the need will be less to relieve the pressure on over-committed resources than to ensure the full employment of resources. They do not even hint how the course should be varied, or

what change in direction will be heralded by Mr Lake’s unusually early Budget next week.

The Survey offers two broad principles to govern future action—that the market for goods should be competitive and that savings, preferably increased in volume, should be “chan- “ nelled more effectively to “ give a higher level of “ industrial investment ”. The Government is, of course, already doing something to support these principles—by its importing policy and by restricting its own capital programme to concentration on “ expan- “ Sion of the productive “ base of the economy ” and on education facilities. More than this is required for the achievement of an economic balance. To permit secondary industry to import more equipment is not necessarily to increase its efficiency. In some cases: more modern plant is obvi-l ously necessary; but it is I just as important to make economic use of the factory equipment already in the country. More factories should be working two shifts a day, and many factories should not attempt to produce so many different lines. Some form of rationalisation could reduce the cost of goods and the demand for overseas funds to buy new equipment. Before the Government commits itself too far in the organisation of investment for productive capacity, it should remember that primary industry, too, depends on capital to maintain and increase its output, on which all else depends.