FISCAL POLICY

Evening Post, Volume CVII, Issue 149, 28 June 1929, Page 15

FISCAL POLICY

BASIS OF TARIFFS

"INFANT, INDUSTRY" ANALOGY

ADDRESS TO FAKMEKS

An interesting address oa tariff mattors was given; to .delegates to the annual conference'.of-..the Boyal Agricultural Society on Wednesday by Professor B. E.-Mui-phy. There was'a full attendance", .presided'pvey by Mr. W. Perry. (Manawatuj.Professor Murphy said that tbo tariff issue was of a highly contentious nature, and cpnld-not .bo, resolved on a basis of "devising,a policy in the general interests of the people as a whole.'' Like most problems ill democratic politics, it 'vould be: decided on the basis of a sectional struggle among the interests affected in^ different ways by the imposition.of a tariff. In the tarifi question the interests of farmers were opposed to those of industrial labour and manufacturers. It seemed difficult to see on what basis a policy mutually acceptable could tie founded. He did not propose to, enter upon an academic discussion of the relative - merits of free trade and protection. New Zealand already had a considerable tariff, which could not be scrapped. The tariff was originally imposed for revenue purposes, but created incidental protection under whichcertain industries grew up. The present New Zealand tariff was described by the 1027 Tariff Commission as having three.main objectives, (a) tho collection of revenue, (b) protection of local industries,' farming, and manufacturing, (c) granting- of Empire preference. Those objectives were presumably,stated in what the Commission considered their order of importance. It was from that point that discussion of a policy should start, with a consideration of the status quo as a basis. In the speaker's opinion the pi-oper policy for the farmers was to demand that ho further protection be granted tc industries in New Zealand, whether primary or secondary, and that the existing protection, while allowed to stand, should bo subject to close and continuous investigation, with a view to ascertaining periodically in the case of each protected industry (a) that the protection was still needed;-that a tariff was the best way of giving protection; that the protection granted was not excessive; that th 3 protection granted was not unreasonably injurious to other interests; that the industry was suitable to New Zealand conditions; and that the industry was efficiently managed. Professor Murphy' said' he based that policy on tho following main grounds. The only argument for protection to manufacturing industry that could oeriously bo put forward in New Zealand, or that was in fact put forward, was the famous "infant industry" analogy because tho demand for-a tariff that 'would equalise costs of production as between ;us and our competitors," if it meant-anything at allj boiled down to the protection of infant industries. That argument for protection was quite valid, but subject to limitations that so seriously curtailed its applicability to New Zealand conditions that it was a weak buttress for the protectionist case. Protectionists, byHhe way, were dropping the ugly word "protection" and employing ia its place "safeguarding," but it was the old demand in a now dress. The infant industry argument ran as folloAYs:, Protection was essential for the birth," infant nurture," and growth of industries which would prove suitable to the conditions of a country establishing, industrialism, if they could get a fair start. The economic conditions might bo such that once such an industry had surmounted the initial difficulties of getting started and developing its production and selling organisation it.:.could.'hold its own in competition, whereas if 'not assisted af birth it .would be: killed}in the initial stages by competition of overseas riv- '? ls#-^' If established Ullder a protective tariff it would in duo time grow to lusty mdustrial manhood, bo able to dispense with protection, and be such a source of economic strength to tho country as to repay the cost to the community incurred in the initial stages of protection. That argument candidly admitted that protection was a burden on tlio community; indeed, that fact could not bo contested, but it was held to be a. temporary burden that would be wiped out by industrial development Applied in practice, it would bo seen that it was difficult to'point to any industries that came under that category as far as New Zealand was concerned! Who could look into the future and identify such industries? Who could say whether an industry was a health? inraiit or a permanent retardate? What body will decide this? Ultimately Par'l?,m|n> aJ, d.ao tribunal could be worse acted foT the purpose. SECONDARY INDTJBTBIES. ' There were few manufacturing industries, m New Zealand that were suitable to the conditions of tho oountry, which was adapted for. primary but not secondary industries', continued Professor Murphy. There was no hope of an export trade iv manufactured commodities, and the population of the country was less than that of a moderate-sized city of tho Old World. The market was too small to allow of mass production or reach the point of maximum.' efficiency in manufacture. It was not that our manufactures were inefficient, having regard to their size, -but efficiency was a matter of size, sizoMependG-d on output, output depended ion markets,

and Now Zealand had not a largo enough local market. A tariff would not create now industries. Industries could bo created only by labour and capital, and a tariff could divert these- from ono channel to another, but could not. call them into being. The very fact pf diversion implied loss, because we were artificially moving, by tariff legislation, labour and capital from where it would naturally settle if let alone to where the law by giving a bounty at the expense of the non-protected interests in the community, caused capital artificially to go. It was_ true that industries from outsido might be induced to settle inside the tariff walls. That, however, would not help local manufacturers. It would only build up new competition against them in the local market, and in any case it was brought about only at the cost of a .higher price level resulting troin the tariff, and was a burden which we could avoid if we employed our energies to tho best advantage and bought our supplies of manufactured goods from abroad. "Making work" was no valid argument. If that were so earthquakes would be a blessing, since they made plenty of work. Our aim should be to concentrate our resources where they .would produce most wealth and barter our surplus for tho surplus of other countries similarly engaged. Our main Customer, Britain., did that, and it %vould he mutually advantageous. • ■• ■ ; Protection raised thfe -cost Of living,' and while conferring a bounty on the. protected interests did so at tho expense of flic general community. Manu-' facture-i-s offered a guarantee that they' would not raise prices as a lesult of the tariff. Such a guarantee was absurd. XV man or boay of man coiild predict or guarantee the future price level, which depended on factors they could not eon-' trol. Protection ivas morally •certain to' make prices higher than they would be in tho absence of a tariff. * A DANGEROUS DREAM. New Zealand could not be self-sup-porting, nor could Britain. The- present relations by which we interchanged primary products for manufactured goods were the cheapest, safest, and surest. Industrial independence was a; dream, and a dangerous dream for a country situated as New Zealand is. It was open to questioVi whether a policy of preference to Britain and protection to home industry could bo effectively pursued in conjunction. If we shut Britain out, or nearly so, in favour of local industry through a protective tariff, what was the value of the preference and what inducement did we give her to keep on taking our products? Farmers, if they accepted that general view, should remember that it applied as much to themselves as to manufacturers. If they demanded, tariff on wheat and fruit, how could they resist the demand for tariffs on boots or flat irons. It would pay farmers to call a halt to protection of all kiuds. In tho main they were the principal non-pro-tected section of tho community, and boro tho weight of tho tariff duties; they also had most to lose by any step that imperilled tho British market for our oxports. Free Trade within the Empire was an unrealisablo dream, because the Dominions needed the tariff duties for revenue, and had gone too far with protection to'reeede, but the process should not be allowed to go further, and interests at present protected should bo kept under review and made to justify tho: measure of protection granted, which should be withdrawn unless it could be shown to remain necessary. It was open to question whether such assistance should bo given through the tariff or in tho form of bounties such as guaranteed interest. That would prevent more protection than was necessary being granted to any., firm. .".Some firms might need it, :soind dld'.-nbtr Indiscriminate" protection by maintaining the weakest business in existence was simply giving an inducement to inefficiency. Bounties had objectionable features of their own, but appljed in tho form, of a minimum guaranteed return, subject to inspection for efficiency, they were less costly and less objectionable than tariffs, and would also havo tho effect of letting the community sco what protection costs. Professor Murphy was thanked for his address. . , .