A POLICY SUGGESTED

Evening Post, Volume CXIV, Issue 11, 13 July 1932, Page 8

A POLICY SUGGESTED

TOWARD WORLD RECOVERY

PRICES AND TARIFFS

"Different people will apply different tests as to whether or not the Ottawa Conference is a success," remarked Dr. H. Belshaw, professor of economics at the Auckland University College, in an interview with the •'Auckland :Star." "Personally, I am concerned mainly with the extent to which Ottawa will be able to formulate and put inipVffect "a policy which will facilitate international co-operation towards world recovery, and promote action ■ within the Empire which will make a positive movement towards economic improvement in Great Britain and the Dominions, without prejudicing the chances of world co-opera-tion. "By these tests, the conference is likely to fail if the Dominions concern themselves in the main with bargaining in a spirit of self-interest. I should say,- however, that I firmly believe that our own official delegates, at least, are. approaching the Conference in no narrow spirit of national self-interest, but with the realisation that the return to Imperial and world prosperity demands a great deal more than bargaining about preferences and quotas. CONDITIONS REQUIRED TOR ; RECOVERY. •"The main, conditions necessary to world economic recovery appear to me to be the following:—(1) An increase in. world prices to somewhere about the level of 1928, and a greater degree of stability around that level than has occurred in the past; (2) a substantial reduction in world tariffs; (3) a substantial scaling down of reparations and war debts; (4) a reduction of expenditure on armaments; (5) economy in,the use of gold, and the avoidance of the maldistribution which has characterised the past three or four years; (6) the removal of causes of international friction. It is impossible in a short statement to discuss these adequately, and I shall confine myself mainly to brief comments on the first "two. "In my opinion, the two main conditions necessary to an early and. substantial rise in prices are a long period of low short-term money rates in the main money markets of the world, and the renewal of international lending on a large scale. Eventually a policy of low rates might be expected to lead to credit expansion; lower long-term rates, productive expansion, and rising prices; but it seems to me that something more is required to set the movement in train quickly and rapidly. Attempts in Great; Britain and the United States to infuse new and cheap credit into the system do not appear to have been conspicuously successful up to the present. The main reason appears to be that manufacturers and traders are reluctant to borrow because of the shrinkage of their markets, which prevents expansion on a profitable basis. The quickest way to initiate an upward movement in demand is to promote public borrowing on an international scale, thus reviving overseas buying. Even if cheap credit is effective in causing prices to rise, its influence will be strongly reinforced by international lending. EFPECTS OF LOAN. "I suggest that the British Empire could make a substantial contribution by floating a large Empire reconstruction loan of, say, £100,000,000 for expenditure in the overseas Dominions for broadly specified purposes. If Great Britain were prepared to participate for internal reconstruction—in directions suggested, for example in the Liberal Industrial Eeport—the total could be increased and the effects substantially reinforced. A successful flotation might also encourage similar attempts with regard to Central Europe. "Whether or not the loan should be floated entiroly in London or distributed over several centres is a matter for discussion. "As I see it, the effects would bo to encourage a more or less proportionate increase in the demand for goods in the markets of, the lending countries —this tends to follow even if tho money is spent internally in the borrowing countries—and encourage manufacturers

and traders .to borrow to produce the new goods demanded. The tendency would then be to set prices moving upwards. When.once the movement was initiated it might be expected to gather way provided that other factors hampering confidence were removed. "The main difficulty is one of security. I suggest that this might bo overcome in one or both of the following ways: (1) Each of the Dominions might agree to guarantee the repayment of interest and prinpieal to an amount somewhat more than its quota, and Great Britain might also guarantee a portion gf the loan. Thus, the total guarantee for £100,000,000 might be as much as £125,000,000 or £150,000,000. (2) Each of the borrowing countries, might agree to give the repayment of interest and principal precedence over existing loans. UNORTHODOX MEASURES. "Both these suggestions are novel as regards Imperial financial relations, but they are offered in an attempt to find a way out of a desperate crisis, which requires unorthodox measures. The second suggestion is open to the serious objection that it might depreciate the value of existing securities, and a mutual guarantee may be found sufficient without such a provision. If it is found to be necessary a prior lien can be justified on the grounds that the proposal materially reduces the very real risk of repudiation. It should be stressed that the above proposal is not inconsistent with a normal policy of tapering off borrowing. ' 'In addition to the above suggestions the Dominions should urge strongly the importance of maintaining a sterling oxchange policy which will at least prevent sterling from appreciating in terms of gold unless gold prices rise substantially, and should each endeavour to promote cheaper and easier credit in their own countries. As a subsequent measure to assist in financial co-operation within the Empire and economise in the use of gold, it is desirable that central banks should be established in such countries as Australia, New Zealand, and Canada, on the basis of gold or exchange held in London. ATTACK ON WORLD TARIFFS. "The political problems involved in a wise tariff policy are even greater than those raised by the above proposals, and I am not optimistic that my views in this connection will find very widespread support. It appears to be universally accepted, even in countries which have been raising tariffs and imposing other hindrances to international trade, that world tariffs are one of the most potent. causes of our present troubles. So I suggest that the British Empire should declare its willingness to co-operate in tariff reductions. In support of this declaration, the Dominions should not press for additional preferences and for quotas in the British market, but should (a) agree to give additional preference to British goods by the reduction of additional tariffs on such goods, and not by increasing tariffs against foreign goods; and (b) declare their willingness to support a common Empire policy giving preference throughout the Empire to such foreign countries as will reduce their tariff on goods of Empire origin. In this way the Empire might be used as the spear-point of an attack on world tariffs. It is clear that, in: view of the vested interests behind the tariff walls in Empire countries, there is a limit to the extent to which tariffs can be Teduced in the immediate futuro; but even a 5 per cent, reduction, would be not without effect and is worth trying. "The practical difficulties involved in the above proposals may be very great, especially insofar as they relate to tariff policy, but they appear to me to offer more prospect-of~ a substantial improvement in economic' conditions than bargaining for preferences and quotas in the British market, and giving more preference to British goods by imposing additional tariff on the foroigner." •