STATE OR PRIVATE ENTERPRISE?

Dominion, Volume 22, Issue 184, 2 May 1929, Page 12

STATE OR PRIVATE ENTERPRISE?

BOTH DECLARED TO BE ESSENTIAL FIELD OF EACH DEFINED LECTURE BY PROFESSOR MURPHY “Is it possible to lay down a principle on which the State should or should not act? The question is not whether we shall hav. State or private enterprise. We must have both, but what is the respective field of each?” So said Profess s B. E. Murphy, professor of economics, in a lecture at the annual meeting of the ■Wellington branch of the Economic Society of ustralia and New Zealand at Victoria College last evening. “New Zealand, like other countries at the present time,” declared Professor Murphy, “bristles with economic problems unsolved or partly solved, matters of serious public moment on which there is urgent need of exact numerical and statistical data to confirm or disprove or otherwise throw light on the conclusions and impressions of the deductive economist and critic. Until such data are available, our major economic problems will continue to be the storm centre of inexact controversy propounding theories for public acceptance in an atmosphere alien from scientific dispassionateness, and tinged heavily with emotional and political prepossessions according to the social ideals and political affiliations of the controversialists concerned. It is the task of the critical economist to lay bare such problems and indicate the kind of data required for a solution, and where those data should be sought.” To illustrate his theme Professor Murphy dealt with the functions and activities appropriate to the State, including the local authorities, in New Zealand at the present time. 1 The State, he said has been pushing its way further and further into the domain formerly regarded as the appropriate sphere of private enterprise, and has never receded except to a small degree and with reluctance, until there has grown up among the business class a sentiment decidedly hostile to the further intervention of the State and calling for steps in the other direction. Against this the growing power of the Socialist Party has propounded a policy of further and further increase of State functions with a view to ultimate complete socialisation.

“It is quite plain that the State must iu any case play an important part in economic life, and that it is a silent partner in all business. It provides the conditions of security and uniformity without which business could not be carried on. State activity in the form of a commercial law code and enforcement of contracts, laying down standards and units of measurement, currency and banking regulations, patent and copyright law, education, research, commercial, intelligence and consular services, are all of great value to industry, also statistics. Tlie State’s Functions.

“Tlie State also has regulative functions that rouse comparatively little controversy. It is admittedly its duty: (a) To standardise the plane of competition by prescribing minimum standards of quality of goods, hours of work, sanitary and working conditions, and possibly wages; (b) To undertake long-time investment, such as afforestation, prevention of erosion and other enterprises that are of great value to the community, but which would not attract private capital, as a rule, because the return is too distant, or too small, or too uncertain. (Here two important matters for further research work crop up; Exactly what enterprises come within this category. For how far ahead is it prudent for tlie State to invest), (c) To protect persons under disability, such as infants and the mentally and physically infirm; (d) To certify the qualifications of some classes of experts, in the public interests, such as doctors, lawyers, chemists, teachers, plumbers, and so on. “As regards the regulative functions the main topic of debate is whether the protective functions and control generally have or have not gone too far. Awards of the Court of Arbitration are contended to reduce elasticity, and by similarly hampering business, raise costs of production and prevent industrial expansion, causing employers to reduce their labour bill to the minimum. Control of industry in general, through tlie Board of Trade Act, which goes a long way, and through various export control boards, makes serious inroads on freedom of enterprise, tlie extent of which requires investigation Should the State Engage in Business? The main controversy arises over the originative or constructive functions of the State. The regulative functions are comparatively minor anil call for little beyond routine faculty in their execution. It is otherwise when politically constituted bodies formed originally for different purposes enter the business world of private enterprise as entrepreneurs themselves. The problem is should tlie State go into industry, commerce or finance as a business unit? If so, on what terms and to what extent? In New Zealand the State lias gone far in this direction. It sells oysters, coal, milk, trees, electric equipment, power, water, light, transport and communication. It provides legal and medical and dental services, it partly owns a bank, it lends money, it buys and sells land, it writes insurance. Every day it is asked to do more. Local authorities are included here as within the definition of the State, being part ot it. _ . Real Cost the True Test. “The price at which the utility is sold to the public is not the deciding factor. There is much misconception on Ibis point. The true test is relative real cost. The terms on which tlie State sells the utility, whether to make a profit, or sell to cover cost, or below cost, or free of charge, is a matter of taxation, important enough, but not relevant directly to this problem. I the State tends to use its economic utilities as a fiscal instrument in au unjust manner, then that, as far as it goes, is an argument against State enterprise, but justice in taxation is a matter of public opinion. The tests of the suitability of an undertaking for State operation are maturity of the in dustr.v and actual or potential mono poly. Private enterprise relies for its justification on competition protecting the consumer. When competition breaks down this weighty justification is no longer available. When an industry in’ the experimental stage, or its methods, markets and routine are not stabilised, it is preferably left to private enterprise, as the State should not undertake business speculations,

but when it is standardised, and reduced to a routine that no longer requires first class executive ability, it becomes suitable for State undertaking if that is desirable on social grounds, and it is desirable when competition falls into abeyance and is no longer available to protect the consumer. The presumption in a non-socialist society is always against further extension of State functions. “State industries should cover costs in the full sense. These costs are: (a) Operating expenses, (b) interest on capital, (c) repairs and maintenance, (d) reserve to cover fluctuations, (e) reserve equivalent to their proportion of rates and taxes, (f) provision for extension of service, (g) provision for value of ser. vices furnished free or under cost by other departments of State, (h) an allow-, ance for the damage they inflict on private industry, (i) provision for the privileged position in competition of a State undertaking, e.g., exemption from Labour laws, privileges in collecting accounts, privileged position in litigation. “Test of indirect social return should now be abandoned, and further utilities should not be undertaken except on a business basis, that is, unless they can cover full costs. Efficient Audit Desirable. “An efficiency audit is very desirable in a State having many public functions. This would be difficult to secure. “The better alternative seems to be to keep the business men and the politicians in different spheres, and let them balance each other. With State industry the business man, now an official, is more powerful than ever, because he has the State with him and not against him. The future seems to indicate that the best policy is private enterprise subject, to social control by regulative commission. Hostility and destructive competition between public and private utilities are to be deprecated. In any case purely trading and commercial functions are unsuitable avenues of State activity Natural monopolies are the only line where success seems promising. Rigid accounting would show that almost all State undertakings of a purely industrial character are run at a loss, but this does not apply to financial services.” Diversity of Opinion. Mr. M. J. Forde stated that Professor Murphy had described himself as an old-fashioned economist, and he agreed with him, as he was not old-fashioned but out of date. Professor Murphy had not only taken the State to task, he had taken the politicians to task. What Professor Murphy had said that night would undoubtedly please the 1928 Comm Mr 6 H I. Forde did not see that Professor' Murphy had sided with the 1928 Committee. He would like the professor to tell them how they could get away from the political control which he' had deprecated. Mr. T. D. Hall said he could not a«ree with Professor Murphy’s sweeping assertion that no State enterprises had proved a success. Professor Murphy: I never said that, I said “No State enterprises of an industrial character.” . Mr. Hall said the subject carried by Professor Murphy was very deep indeed, but he could not by any means agree with all he said. Mr. C. M. Banks contended that the Government should not engage in any activities which could be conducted by private enterprise. The State was interfering far too much in business now. Commercial firms were so hedged round by regulations that they did not know which way to turn. Personally he would welcome Socialism, as its advent would mean that he would not have to work nearly as hard as he had to now. Mr. M. Fraser said that there were degrees of accuracy running through statistics. Professor Murphy had complained of the lack of statistics, which was something new to the speaker, as he had oftener \ heard complaints regarding the multiplicity of statistics. He did not think the State in this country had entered into many industrial enterprises. A voice: What about State oysters? Mr. Fraser: The State does not trade in oysters: it only safeguards the oyster beds. Continuing, Mr. Fraser said that Professor Murphy’s charges of wholesale political interference in Government enterprises had not been borne out by proofs. “This is such a thorny subject, professor,” said Mr. Fraser, “that we could argue it for a long time and still agree to differ.” A hearty vote of thanks was passed to Professor Murphy for his informative lecture, on the motion of the chairman, Mr. M. Fraser.