THE PRESS MONDAY, NOVEMBER 16, 1981. Trading in Fairyland

Press, 16 November 1981, Page 20

THE PRESS MONDAY, NOVEMBER 16, 1981. Trading in Fairyland

For decades the curse upon the Social Credit League has been its financial policies. For this General Election, as never before, the league has soft-pedalled its financial theories and amplified its message on other topics. Many of its other ideas are good, though generally it shares them with one, or both, of the other parties.

In the past the central theories of the league on finance have been, such nonsense, or so elusive or imprecise,- that they have been rubbished or ignored. Some have defied analysis. None of the policies of importance to the Social Credit theories have been shown to work, and the more they have been explained by dedicated leaguers, the more bamboozled the electors have become. The leaders of the league, invariably nice people, and presumably dedicated and acting with conviction, smile, talk on, and reassure their listeners that all will be well in their hands. Just as invariably, the public listens, as bemused as ever.

The only policy item that seriously distinguishes the league from the proposals of other parties is the league’s financial policy; this, whatever it means, is Social Credit. This is the one selection of policy to which the league expects its candidates to be fully committed. It is therefore the main policy jtem, about .which the electorate should care most.

Borrowing, lending, taxation are all part of this highly centralised and bureaucratic scheme, offered by a patty that declares itself to be a supporter of free enterprise, competition, and individuality. The policy on overseas exchange and trade is one of the details of Social Credit that deserves special attention, and is as muddle-headed and dangerous as the rest.

The policy on overseas exchange has all the charm of so much Social Credit magic amd a compensating lack of good sense. Social Credit’s Credit Authority (like the present Reserve Bank) would purchase the Overseas exchange earned by New Zealanders. The price at which it would be bought — the exchange rate — would “give security and a fair income to farmers and other exporters.”

The theory seems unexceptionable. The assumption is that no matter what prices and production costs might be in New Zealand, no matter how uncompetitive an export industry might become, it would be cushioned against the market in the real world outside if the terms of trade ran against New Zealand. If this were all that were entailed in the league’s policy on overseas exchange, it could be called a devaluation in the event of rising costs in New Zealand. Under Social Credit’s plan, however, almost any cost of production could be entertained without regard for the prices obtained for exports in terms of overseas currencies. The league is not proposing a simple devaluation to ensure what it considers to be “fair” incomes for New Zealand exporters.

Such a policy would be matched by a kind of revaluation of New Zealand currency for the needs of importers: “The cost of buying exchange for purchasing

essential raw materials and capital equipment will be decreased to offset increases in overseas prices,” says the manifesto. Apparently forgetting that our exports are paid for in overseas currencies — sterling, yen, United States and Australian dollars — and that the supply of these currencies is fixed by our capacity to export or borrow abroad, Social Credit proposes somehow to pay more in overseas currency for higher-priced imports and, in effect, subsidise the New Zealand importer by way of a revaluation of their money. By such financial magic, the oil crisis would have had no effect on New Zealand, for certainly fuel could be regarded as an essential; this country could have all the oil and other imports it wanted at no extra cost to New Zealanders at home. The real cost in overseas exchange would have meant nothing here. Farmers, the meat industry, and the processors of dairy produce would not have had to worry about the threat to markets overseas because, whatever the earnings of their produce abroad, their incomes in New Zealand currency would be secure. This is a dangerous illusion.

Exporters to New Zealand from other parts of the world would have been delighted: the New Zealand economy would have been subsidising their own higher costs. The trouble with this detachment from reality would be that New Zealand would steadily run out of overseas, exchange. In different circumstances, the league would presumably adjust its ideas on buying foreign exchange earnings expensively and selling them cheaply. What would it do when exporters’ incomes are more than what it considers to be “fair”? If import prices fell, what would the league do about the price of foreign exchange?

Pretending that the real state of markets does not exist is not quite the policy of Social Credit. The league would raise the price of some things, such as luxury imports and overseas travel, to conserve overseas exchange. At the same time it supports import licensing to protect “all sections of industry” where required.

On the one hand it wants to subsidise importers through a special price for foreign exchange; on the other, it would set up a board to license imports. On the one hand the league promises a gradual reduction in tariffs to promote trade; on the other it talks of a higher charge for overseas exchange for some imports and travel, which is, in effect, a tariff. Like so much ,of its policy, the separated pieces of Social Credit’s financial policy look good. They simply do not fit together. Even if it were a workable policy in the real world, and even if this country could be indifferent to what is going on in the markets of the rest of the world and isolate itself against all harmful trends, Social Credit’s financial schemes amount to a grand, super-bureaucratic system.

So much for a policy that declares itself to be against increasing bureaucracy and centralism. No other party, except perhaps the Socialist Unity Party, offers so much of both. . .