WISE USE OF SAVINGS

Evening Post, Volume CXVIII, Issue 102, 27 October 1934, Page 8

WISE USE OF SAVINGS

The fringe of a wide subject'is touched by the Companies Promotion Commission in one of the appendices to its report. The Commission points out that its main report demonstrates the dangers which beset the investor, especially the small investor, because of the existence of companies whose financial schemes are unsound and whose promoters and directors are often unscrupulous or display an unduly imaginative optimism.

In addition to the need for restrictive and regulative measures to discourage and prevent undesirable practices (the Commission adds) there is tho need for positive measures to direct and encourage savings.

Among various aspects of this problem the Commission cites: "The direction of savings into commercially sound or socially desirable enterprises" and the establishment of a new type of investment company which would use, wilh full safeguards, the savings of the small investor. The Commission rightly regards this subject as outside its order of reference, and it goes no further than commending various proposals to the , Government for further investigation and giving strong support to the principle of combining public with private control. The question is indeed one worthy of all attention; but it has almost unlimited range. One of the prime difficulties in giving practical effect to reforms is suggested by the Commission's own phrasing when it refers to enterprises which are "commercially sound or socially desirable." Not all enterprises which are commercially sound are socially desirable, and many which are socially desirable are not, for the private investor, commercially sound.

At present this difficulty is overaome in a measure by Government action and taxation. The Government imposes taxes and applies part of the money thus obtained in socially desirable enterprises which the private investor cannot be expected to undertake at his own loss. But this Government intervention has not,' until lately, proceeded so far as to direct the use of private capital. We say "until lately," for recent legislation has been marked by a new principle, depriving the private investor of the untrammelled control of his own funds. It has revealed the possible inequitable results of such intervention inasmuch as many small investors have been compelled to accept lower returns from their savings for the benefit of borrowers who have not always been prudent. We may heartily agree wilh the Commission that means to encourage savings are commendable. Also measures to direct savings to commercially sound or socially desirable enterprises are worth consideration. But for the latter purpose an authority is needed to determine social desirability free from any suspicion of bias. Otherwise we might have the investor directed (and even compelled) to provide capital for enterprises which should be the care of others, or of the whole community. A safer path to take towards encouragement of prudent investment is to lighten ihe burdens laid upon the societies whose record shows that they possess ihc confidence of the small investor,.