THE PRESS WEDNESDAY, JULY 23, 1980. Climate for investment

Press, 23 July 1980, Page 24

THE PRESS WEDNESDAY, JULY 23, 1980. Climate for investment

For successive months the value of retail sales has been running well ahead of the level of monthly sales a year ago. When adjustments have been made for price increases it is possible to see that the volume of sales has also ; been ahead of the volume of goods sold in 1979. This is one of the indications of how expenditure on consumer goods has been growing, not necessarily in spite of inflation, but perhaps because of it. The readiness to save money and to defer major purchases is not strong when prices can be seen to be rising at an almost unabated pace and when even high interest rates on savings do hot match the rate of inflation when tax on interest has to be paid. Such a trend may augur well for the retail trade and for the industries that supply it, especially when-all the major economic signs point to recession in some degree. It is not, however, good news for a country in which essential industrial change requires more emphasis on investment. It does not augur well for employment or for efforts to promote economic growth and industries that will reduce New Zealand’s dependence on imported oil. Investment depends on accumulating money that is not spent on consumption; this means domestic savings that are accumulated in the banking system, through insurance companies, super; muation schemes, building societies, and other investment channels. It also means the use of other people’s savings made in other countries and the retained profits of companies in New Zealand. Recently the New Zealand Planning Council produced a report on “Investment Issues.” This report is critical of the amount of investment in this country in recent years; it finds fault * with the directions in which investment has been going: it questions the efficiency with which the money has been applied, the costly delays in construction, and the insufficiency of investment ■in the private sector, particularly in machinery.-. y For ■ a long time .the Planning Council has been hammering: away at what it considers to be an excess of regulation'and control, at what it feels ■ has been too much protection from imports, and at the undue discouragement of foreign investment. One of the contributors to the report, asserts that New Zealand derives benefit from foreign investment and that one. of the greatest inhibitions to this investment is the range of bureaucratic controls on both foreign and domestic investment. Such controls delay and discourage local enterprise, making the investment projects more expensive in the ■ long run;. they positively deter the foreign investor. Probably even more important is the lack of clear policies to reduce inflation.. For so 'long as foreign investors can see the value of the New Zealand dollar declining they , will be unwilling to see their investment put at such risk. Unhappily, the very measures that are. most likely to restrict inflation will be measures that aire 'highly likely to increase unemployment. In the light of this there is good sense in the council’s conclusion.. It argues for a better climate for investment and less regulation; it argues against fixing targets, forcing investment into particular channels, and against providing still more specific incentives to-invest.' The council is opposed to abrupt change; it favours “clearer indications” of change towards a more flexible, competitive economy. If such a policy can be translated into action—and the council is not really very precise or helpful on pre-

scriptions for action —new investment . would almost certainly take care of much of the employment problems that would arise from counter-inflationary measures. When the council is reasonably specific on the changes it would like to see, it is charting a course through turbulent political waters. The council enjoys the luxury of not having to be politically practicable. It does not seem to note, for example, the agonies of the transition from direct tax on income, to indirect tax on expenditure that it would so much like to see. Its case for getting rid of the double taxation on.distributed company profits is economically sound in the context of a discussion on more investment; such a case does not fit at all well into practical politics when the council is pressing at the same time for less reliance on the payer of personal income tax and would also like greater restriction of Government deficits. The kind of shake-up in investment that the council would like to see is exemplified in its thoughts on transport. These wpuld mean a vigorous challenge to the railways from road transport and an acknowledgement that the taxpayers must face the costs of railway services that are justified socially, but not commercially. The theory is fine. The practice is painful and unpopular. Such changes are even more unpopular when the economy appears to be moving downwards. The point has been made by the president of the New Zealand Manufacturers’ Federation, Mr L. H. Stevens. He seems to believe that the manufacturing sector has been singled out for “restructuring by officialdom” and holds that the governmental system should also be subjected to restructuring investigations. Government departments may not always be models of efficiency, but Mr Stevens must have overlooked the very considerable changes that have been made in the structure of Government departments in the last decade or so, and the quite severe budgetary restraints on expenditure in recent years. Nevertheless, he is in accord with the Planning Council when he says that his federation is opposed 7to hasty moves to reorganise industry and is opposed to Government intervention. Manufacturers should not overlook the main theme of the council’s report: it is hot for Government direction and intervention; it is for less of both. Attention to the latest Budget would show the Government’s inclinations on this. It seems strikingly in line with what the Planning Council recommends. Unfortunately, “restructuring” is a concept that is getting a bad name at present. This is because so far its workings have been largely negative. The plans for retraining workers mean very little until it is known what they are to be retrained for. The idea is not ■ ‘ likely to be redeemed in the public • mind until some industrial advances and innovations can be scored. Given that new industries must come and some old ones must go or decline, the theories on restructuring will’succeed in practice only when the timing of changes is calculated to minimise the disruption of change. To this extent the Government will have to manage the changes neatly. If it does not, popular opposition to change will impose delays and restraints which are just as effective as Government regulation and control: A public that observes and respects the need for restructuring and its merits is important in creating a climate for investment—just as important as adjusting financial controls and other regulations. The public, in part, is also the source of the investment.