THE PRESS WEDNESDAY, JULY 9, 1980. Taxpayers’ money for Mosgiel

Press, 9 July 1980, Page 20

THE PRESS WEDNESDAY, JULY 9, 1980. Taxpayers’ money for Mosgiel

The use of a substantial amount of taxpayers’ money to support an uncertain industrial enterprise can only be justified when there is a clear prospect of benefit to the nation. The Government appears to have applied this principle to the Alliance proposals to take over part of Mosgiel, and the proposal has been found wanting. In particular, the Prime Minister said on Monday that the Alliance proposal did not include projections of a strong growth in exports. Government plans for the reconstruction of the industry sought “a growing export-oriented woollen textiles sector.” In the national interest increased exports should be a prime consideration. New Zealand appears to have surplus capacity in some sectors of the woollen industry. If New Zealand’s oldest manufacturing industry is to continue on something like its present scale, exports will have to be increased.

Behind the talk of “restructuring” and “rationalisation” in the industry lies a simple fact of business life. Any changes in the industry must be in the direction of producing goods to meet demand at prices that consumers, in New Zealand or elsewhere, are prepared to pay. Otherwise, shuffling plants between owners, and providing public funds to support ailing firms, will be no more than expensive temporary measures to preserve jobs and, perhaps, to produce goods which cannot be sold profitably’.

The Government, while showing a sensible concern for the use it makes of funds available to assist the fabrics and clothing industry, cannot afford to be too parsimonious in its attitude to Mosgiel. The Alliance offer would have preserved at least half of the jobs of the company’s employees. If the entire Mosgiel workforce becomes unemployed it will cost more than $2 million a year to pay them unemployment benefits. By no means all would remain unemployed for that time, but other unemployment could be expected among those who at present supply the firm with goods and services. Maintaining jobs at any price is not to be countenanced, but retaining as many jobs as possible, rather than paying people to be out of work, should also be a prime concern for the country as a whole. The Woollen Workers’ Union had talked of “national industrial action” if the Government did not help Alliance in its scheme to take over a large part of Mosgiel. The union has so far had the sense to refrain from any action while other proposals for Mosgiel are possible. If the union wants to act in the best interests of its members, it will refrain from any action. Jobs in a company which cannot pay its debts will not be preserved by industrial action in other companies. Indeed, the plight of the industry as a whole would be worsened.

A prospect remains that some of Mosgiel’s plants will remain in operation in an attempt to trade the company out of

its difficulties. That might be the best outcome of all, although a way would still have to be found to meet the most pressing creditors if assets are retained. Jobs would still be lost, but some assistance should be available from the State, in line with the Prime Minister’s Budget statement last week, to help retrain people for other jobs — always assuming, of course, that other jobs can be found.

The hard fact remains that Mosgiel’s group of factories cannot all stay in operation. The company has more machinery than it has been able to to use profitably; it has had insufficient money coming in to pay its production costs and its debts. Apportioning blame for the misfortune will not help Mosgiel now, although the experience might help to avoid similar difficulties in other companies. Mosgiel’s management appears to have been too optimistic about demand for the company’s products, and thus to have borrowed too much to pay for plant which, however modern it may be, has not been fully used to meet the demands of consumers.

A statement is expected today from the Mosgiel receivers on how much longer the firm can remain open. Earlier deadlines have come and gone, but the company cannot continue to operate indefinitely. Mosgiel’s creditors, shareholders, and staff all have an interest in finding a buyer for as much of the company as possible, as fast as possible. Once factories are closed their value declines, though machinery in them may be valuable to others in the trade. Job prospects fade away. While taxpayers cannot be expected to subsidise a firm’s operations without limit, generous financial help will be better than unemployment for hundreds of people if the help is linked to a plan to keep as much as possible of Mosgiel’s plant efficiently in production and paying its way. '

If it could be shown that Mosgiel’s output is superfluous to New Zealand’s needs, either for the home or export market, the argument for support from taxpayers would disappear. Government loans or grants would be better directed at entirely different industries to create jobs. Subsidies for Mosgiel would merely put other jobs in other parts of the woollen industry at risk. In fact, at the right prices, the market can absorb the Mosgiel output and more efficient running of Mosgiel’s machines might be all that is needed to get the price right. The prerequisite for this efficiency is sufficient cash to keep the business going. The Government should not create for itself a precedent in bolstering an inefficient industry that has had many decades to get on the right track. Given the right manning, right management, and sufficient capital, the best parts of Mosgiel might even be an example to the rest of the industry. The Government should help to save what can best be saved.