RISING COSTS MIGHT DELAY RECOVERY

Dominion, Volume 30, Issue 259, 29 July 1937, Page 2

RISING COSTS MIGHT DELAY RECOVERY

Sheep-owners’ Problems INCREASED INCOME GIVES TEMPORARY RELIEF Remarking that the fortunate increase in primary producers’ income in the last year had enable,] the country to meet the extra charges which had beet) imposed on industry since the present administration took office, Mr. 11. I). Acliiml, president, expressed the fear, in speaking at the annual meeting of the New Zealand Shoepowners' Federation, in WcUlugtcn yesterday, that the rising costs would bring difficulties in tliolr train and that the cold wind of depression might blow utopian theories away. Rising costs might delay recovery. The enormous inerettse in money received into New Zealand on account of exi>orts during the year, compared with the average since 1930-31, had made it possible to meet for the year, at least, the extra charges imposed on all industry, and particularly those producing for export, resulting from the alteration.of policy under the present Governnient, lie said. . When it was proposed lo revert to. the. 1931 wages schedule the .federal ion’s executive had pointed out the’ inability of certain classes of sheep country to continue production at 1931 levels of costs, with the average for wool realising only 50 per cent, of the average figure over the pre-slump period, but it was not successful in obbaining any concession under that head, and the industry had had to meet the increased costs under the law, both with regard to labour and taxation. How long it would continue to do so would appear to depend on how long lbs income from the sale of exports approximated to its present level. Risk in Optimistic Spending. . “It has been the experience of almost every country in recent years that the freezing winds of economic depression will blow utopian theories and laws to ribbons; and during such periods, Mie necessary adjustments in order to maintain a measure of social equilibrium have had willy-nilly to be made on a basis calculated to meet the altered conditions,” said Mr. Acland. “We in New Zealand have had to do this during the slump period, and it is to be hoped that the present policy of opt’hnistie spending, which has only been made possible by the almost sensational rise in overseas prices received for our exports, will not be unduly prolonged; if it should be, there would appear to be grave risk of our being faced with a repetition of our experience during the years of the slump, when the present. spending boom in England, due to the huge capital expenditure for rearmament, breaks, as it would appear it must certainly do at no distant date." “I should like to stress the point that increased spending power does not necessarily mean increased purchasing power. Tlipre is a great difference between them, as I have repeatedly pointed out; when wholesale prices have to be raised to meet increased costs imposed on industry by Government edict, or court awards, or other causes, the increased spending power represented in the raised wages .to the workers receiving them,' is almost always accompanied-, in (he long run. by reduced purcllits’ng power due to the increase, in retail prices to the consumer being in almost every cake greater than the individual extra money wage paid, so that when the wage earner ceases to be a seller of his labour, and becomes a consumer of the product of that la. ■‘bour, he in many cases will fail to balance out in real wealth purchased (that is, commodities and other requirements) against the increase in money wage he has received.” In. creased spending power might!) not necessarily always mean increased purchasing power, due in most cases to the impossibility of charging a suffieiciontly small fraction in currency on a retail basis to exactly balance the increased factory cost in bulk. “All could support the Government in its aim to increase purchasing power provided the facts of the case were not lost sight of, the principles of which were that ‘an increase of purchasing power cannot be created by shortening working hours and paying increased wages for less work done,” and “that ■statute law and regulation of industry by Government edict may alter the distribution of the existing wealth. within a country, but nowhere has it been shown possible to create wealth by these means.’ ’’ Consumer Dictates ITices. The Chief Judge of the Federal Arbitration Court, when adjusting the baeic wage, stated that ‘'before ft higher wage could be granted it would have to be fully proved that industry could afford to pay.” What could industry afford to pay? If people were sure, for example, that during the next ten years wool would average 18(1: a lb., wheat 5/- a bushel and other primary products realise proportionate prices, then they could safely and substantially increase the basic wage. Any substantial increase in the basic wage resulted in increased costs to the primary producers, which iu turn discouraged primary production. “During the depression years the primary industries, assisted by the commonsense of Governments and courts and other organisations, managed to get costs down and down,” Mr. Aclaud said. “This in turn greatly helped the primary industries to weather the financial aml economic storm. If now, in the first fine rapture of a breath of prosperity, we reverse the movement, and hit up •■•osts. then we inevitably slow down the return of general prosperity. It is easy for certain people to affirm that a high basic wage means a bigger demand and better prices for our primary producers, and to talk about the home market being the best market. The truth is, of course, that with our great'primary products the local price is determined by the export price. If we had a population of 23,000,000, we could view, these matters differently. Meantime, it is well to keep in mind that it is impossible for even the secondary industries to be prosperous unless and until the primary industries are making reasonable profits. And so the warning is: Go slow on increasing the costs.” After all. the consumer was the person to pay in the long run, ami all wages or other returns depended upon what the consumer was willing to and could pay for the product of industry. New Zealand’s domestic market was of minor importance as compared with that overseas. Danger of National Schism. “It would appear that the greatest care .will be necessary in the currying out of the Government’s policy of redistribution to prevent detrimental effects to. tliat class of the community in whose interests the redistribution is being made. Under existing conditions there npnrars to be a danger that this may be the ultimate result, as tlie natural tendency will be toward the creation of two separate New Zcalands —a town New Zealand ami a country New Zealand—the first starving the second by virtue of the dis-equilibrium as between returns tor services rendered in (ho one. ease, as against those in the other. I liis dilfeicnee has undoubtedly been accentuated under recent legislation, and Um re-

imposition of tlie land tax has added still further to the difficulties of the farmer producing for export. “In short, in a country such ah ours, whose exports are almost exclusively primary products, it will be apparent that if carried past the balancing point o equity, the policy of lighter work and shorter hours in towns can be made possible as a continuing policy only by harder work and longer hours on the land Primary production cannot be successfully carried on under town factory rules, and tlie costs of production of produce from the farm cannot be passed on to the overseas consumer, as can be done with goods sold on'the domestic markets. Primary producers for export from New Zealand have a good case for special consideration under these circumstances." It would appear that the most that could be done toward securing to exporters of primary produce sufficient to cover costs of production within New Zealand, while fit the same time ensuring a sufficient profit to the farmer to enable him to live in comfort and continue production was that which the Government had already done for the dairy industry, that was, the pooling of the product for marketing purposes, and the fixing of a price ■ based on an average taken over a period of year's of prices naid for the particular product overseas. If more than that was attempted in tlie interests of any one branch of farming production it must be obvious that any price paid above that received overseas must be found by the general taxpayer. Pursuit of Rising Costs. .. “The suggestion is being made that, as costs of production within New Zealand increase, so the price to the exporting dairy-farmer shall also be increased, the object being to establish security of profit to the particular group of producers for export," said Mr. Acland. “This objective will, I am afraid, be unattainable as a continuing policy, without undue hardship on those sections of production whose product would be required to make up the difference between profit and loss to the individual section of farmers guaranteed security of profit by this method The natural result of any attempt to give a preferential treatment to any section of industry would be demands by other sections for similar treatment, and when our national balancesheet was drawn up it would be found that the position of the Dominion as a whole would be that we had been following a circle, chasing rising internal costs with an increasing subsidy required within New Zealand on our surplus production for export.” “I feel convinced that any undertaking by the Government to guarantee to any eectiou of export producers security of a return for its product higher than that which is justified by the prices jeceived on its world market is not possible without injustice being inflicted on some other form of production from which a direct subsidy might be taken or on the general taxpayer in New Zealand, who would be required to foot the bill in the interests of the particular product receiving the subsidy. There is also a very grave danger that the British farmer might deeply resent any suggestion of a subsidised surplus product being dumped on the British market. Better to Reduce Costs, “To my mind, a more equitable approach would be to reduce the costs of production by way of reduced charges, interest, land values, taxation, etc., to the point justified by the average return for the particular product over a reasonable period of years. There is a need for care in expenditure during boom periods, and a need for corporate and individual reserves to be set aside during periods of prosperity so that, should slump conditions have to be mot, industry generally may be enabled to carry on business with the least possible disturbance and hardship to those immediately concerned and also to the community in general. If taxation is taken to the limit of ability to pay in boom periods, it will not be possible to meet periods of slackness and provide means adequately to face business responsibilities when prices fall.” The total revenue from taxation for the last financial year, £31,164.302, showed a striking increase "over the previous year, the increase being over five and a half millions, while the taxation receipts a head of population had risen from £l6/5/6 in 1936 to £l9/14/10 a head for the year ended March 31 last. Those figures should give cause for serious thought by all sections of the community. There was an increased receipt on account of land tax, as compared wltji last year, of £589,000, and it was hoped that the Government would be able to see its way to relieve landholders generally with respect to kind tax, the basis for and the incidence of which bad long been recognised as being unfair, being a direct lux on one class of capital. "Efforts at price fixing, efforts at wage fixing and tlie substitution of Government edict for business judgment in tlie day-to-day conduct of our economic and bu-i--ness life appear to be .he order of the day. Can it last?” he asked. Mr. Acland urged the federation to divorce itself entirely from any question of party politics, so that i ' times be free to approach whatever Government was in office ano n

criticise legislation affecting the industry without regard to any party political issue.