PLACE OF THE STATE

Evening Post, Volume CVII, Issue 100, 2 May 1929, Page 8

PLACE OF THE STATE

IN ECONOMIC SPHERES

CLAIMS OF INDIVIDUAL

SOCIAL EXPEDIENCY

ike encroachments of the State iuto economic activities was discussed by Professor B. E. Murphy, Professor of Economics at Victoria University College, at the annual meeting of the "Wellington Branch of the Australian and New Zealand Economic Society last night. What are the appropriate activities of the State and the local authorities?" asked the speaker. "For many years, partly through an inherited bias from our pioneers, who were not the '.■sturdy, independent Eelf-helping people' they are sometimes represented to be, "and partly through the reinforcing effect of the controls considered necessary during the 1014----18 war, the State has been pushing its way further and further into the domain for merly regarded as the appropriate sphere of private enterprise, and lias 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 tbe growing power of the Socialist Party bas propounded a policy of further and further increase of State functions with a view to ultimate complete Socialisation. This has led to an extreme position being taken up by advocates on both sides, between which the thinker must steer in the light of principles which it is his duty to lay down. THE SILENT PARTNER. "It is quite plain that the State must in 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 <md enforcement of contracts, laying down standards and units of measurement, currency, and banking regulation, patent and copyright law, education, research, commercial intelligence, and Consular services, are all of great value to industry, also statistics. "The 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, so as to prevent competition from sinking to the plane of the least scrupulous competitor. Unless this is done competition will in the short run sink to'the lowest level with great detriment to the future interests of the community. LONG TIME INVESTMENTS. "(b) To undertake long time investment such as afforestation, prevention of erosion, and other enterprises tliat 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. Time perspective is longer in the State, which is deemed to be everlasting, than with Iho individual who perishes. Iloro two important matters for further research crop up:— ' (a) Exactly what enterprises come within this category. (a) For how far ahead is it prudent for the State to invest. There is a limit beyond which provision for the future becomes wasteful. If invention proceeds in the future as rapidly as in the past, obviously many works will become effete. Canals and hydro-electric schemes may be superseded, wood may "(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. The problem for consideration hero is how far the State should go in setting standards, and what degree of monopoly it should give to qualified practitioners. CONTROL OF INDUSTRY. "As regards the regulative functions, the main topic <f debate is wlithcr (ho protective functions and conlrfil peucrally have or have not gone 100 far. Business men complain bitterly about the unduly hampering effects of over minute anil sometimes inconsistent regulation by various inspectors, and the volume of our industrial legislation, and its minuteness, arc very great for an industrially undeveloped country. His contended thut many regulations are of little safety value, that they add to coslk, lessen profits, reduce employment, and prevent enterprise and installation of new plant, the operation of which is hampered py excessive regulation by inspectors of factories, and so on. Awards of the Court of Arbitration are contended to reduce elasticity, and by similarly hampering business raisi; costs of production and prevent industrial expansion, causing employers to reduce their labour bill to the minimum. Control of industry in general through the Board of Trade Act, which goes v long way, and through various export control boards, makes serious inroads on freedom of enterprise, the extent of which requires investigation. It would not bo easy to settle thiß by quantitative data, oven if such data could be got, but tho matter requires skilled investigation. "Tho main controversy arises over the originative or constructive function!) of the State. The regulative functions arc comparatively minor and call for little beyond routine faculty in their execution. It is otherwiso when politically constituted bodies, formed originally for different purpoiieii, enter the business world of private enterprise as entrepreneurs themselves. The problem is should the State go into industry, commerce, or finance aa a business unit? If so, on what terms and to what extent? In New Zealand the State has 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 bcllh land, it writes insurance. Every day it is asked to do more. Many of its undertakings, notably power provision and railway transport, arc important and oostly, and dillicult to operate. Local authorities are included here as within the definition of the iSt-alc, being part of it. "Is it possible to lay down a principle on which the Slate should or should not act? It is idlo to say that the State should operate public utilities. This begs the question, because what the people d ide to run thus ipsq facto becomes, by definij tion, a public utility. The question is not whether wo shall have State or private enterprise. We must have both, but whnt is the respective field of each? GROUND FOR DECISION. "The matter must be decided on broad grounds of social expediency. The State may intervene and operate an oconomic function whenever a distinct, balance of social gain over social loss can clearly be shown reasonably certain to ensue. IE a utility can bo provided at loss re;il cost by fhe State than by private enterprise it may be undertaken; if not;, it should be loft to private enterprise, and the burden of proof is strictly on those who advocate an alteration of the status quo in one direction or the other. The price at which the utlily is sold to the public h not the deciding factor. There is much misconception on this point. The true test is relative real cost. The terms on which the State sells the utility, whether to make a pro/it, or sell to cover cost, or below cost, or free of charge, is a matter of taxation; important enough, but not relevant directly to (his problem. If the State tends to use ilt# economic utilities as a fiscal instrument in an unjust argument against Slate enterprise, but justice in taxation is a matter of public opinion. The tests of the suitability of an undertaking for SJtato operation are maturity of the industry nnd actual or potential monopoly. Private enterprise relics for its justification on competition protecting the consumer. When competition breaks down this weighty justification is no longer available. When an industry is in the experimental stage, ur 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 Unit no longer requires lirat-filnMs executive ability, it becomes suitable for Slnte undertaking if that is desirable on social grounds, and it i.-j desirable when competition fulls into abeyance and is no longer available to protect the consumer.