STATE IN BUSINESS

Evening Post, Volume CVII, Issue 100, 2 May 1929, Page 12

STATE IN BUSINESS

THE iIAIN OBJECTIONS

POLITICAL INFLFUENCE

The main objections against further extension of State functions in industry were outlined by Professor B. E. Murphy in an address to the Wellington branch of the Australian and New Zealand Economic Society last night. There were general objections arising from the effect of excessive State action on the fibre of the- people, and the defective motivation that would ensue. Competitive industry, while wasteful in some respects, was a great incentive to energy and progress, and the loss by its withdrawal would probably be much greater than the wastes of competition. Competition keyed men up to a high pitch of performance and endeavour, and there seemed no alternative way of evoking the highest business qualities or weeding out ineflicients. "Parliament, politicians, and officials are selected for political qualifications, and amenable to political considerations," said the Professor. "Officials have not the mentality of the business man, arc not actuated by business motives, or amenable to business opinion,, nor do they suffer the nemesis of business failure. Political bodies are not constructed for business functions or trained for them. Political and economic -areas do not coincide. ELECTOEAL CONSIDERATIONS. "Electoral considerations will frustrate all attempts to introduce strict business methods, so th:it there tend to be swollen labour charges, reduction of prices for service' at tho bidding of popular clamour, failure to build up reserves. Industry cannot be managed successfully on lines of democratic politics, but State industry must necessarily be amenable to uninstructed popular opinion. When the State goes iuto business it incurs all the odium that attaches to tho private employer, and takes over all the embarrassments of private capitalism in addition to its own. "Public enterprises may disguise losses by drawing on the bottomless purse of tho State. White elephants belonging to the State are never killed, whereas in private industry they arc soon eliminated. COSTS THAT SHOULD BE COVERED. *'Stato industries should cover costs in the full sense. These costs are:— (;i) Operating expenses, (b) Interest on capital, (c) Repairs and maintenance. (d) Reserve to cover fluctuations. (c) Reserve equivalent to their proportion, of rates and taxes. (f) Provision for extension of service. (g) Provision for value of. services ! furnished free or under cost by other Departments of State. (h) An allowance for the damage they inflict on private industry. This, though not strictly a "cost," is part of what State industries cost the people. (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. "State undertakings are difficult to evaluate, owing to complicated accounting and valuation problems. It is hard to value State property, because much of it does not ordinarily come on _to tho market, and so has no price. It is hard to estimate the true- effect of duplication of services on the scientific value of various assets. What is tho effect of motor or boat competition on the value of the railways?

An efficiency audit is very desirable in a State having many public functions. This would be difficult to secure, ft would need to bo continuous, partly internal, as outsiders would easily be hoodwinked on somo points, and strong Ihc difficulty in the way of outsiders m getting detailed relevant data is

very great. On the other hand, it is not likely that any democratic Government would submit to a continuous review of its works and incidental policy by an independent and strong body, especially it' composed in whole- or part oi! its own servants.

"Tho better alternative seems to be to keep the business men and tho politicians in different spheres and let them balance oae-h <,ther. With State industry tlie business man, now an official is more powerful than ever, because'he has tho State with him and not against him. a lie future seems to indicate that tho best policy is private- enterprise- sub,ie»t to social control by regulative commission. Hostility and destructive competition between public and private utilities are to be deprecated. In any case purely trading ana commercial Junctions are unsuitable avenues of State activity. Natural monopolies are the only line where success seems promising Eigid 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."