Evening Post. MONDAY, JUNE 1, 1936. ADVANCES AT AUCTION

Evening Post, Volume CXXI, Issue 128, 1 June 1936, Page 8

Evening Post. MONDAY, JUNE 1, 1936. ADVANCES AT AUCTION

The danger of political pressure entering into State lending operations was raised by various Opposition speakers on the second reading of the State Advances Corporation Bill. It is not a new risk, but the Bill will make it greater. The Associated Chambers of Commerce in their memorandum to the Minister of Finance state that they feel it is a retrograde step "to revert to the old system under which it was possible for a borrower from the Government (who was not necessarily deserving) to make use of his local member of Parliament to approach the Minister for concessions." In the course of our interviews with your predecessor we gathered that this habit on the part of certain mortgagors to the State had become a grave embarrassment in that requests for the reversal of departmental decisions was a matter of daily occurrence. The Coalition Government, in our opinion, did not remove this danger. It established a system under which a much greater part of the Dominion's lending than formerly would be done by a Corporation on which the Government representatives were in a majority. This tended to mobilise the mortgagors of the country and to place them in a stronger position to exert pressure upon the principal lender. The Corporation plan would certainly check the power of the individual borrower, but it would increase the j power of borrowers in the mass. By reverting to direct Government control of the Corporation, but maintaining and even extending the Corporation's power of wholesale borrowing and lending, the present Government makes the mass borrowing pressure risk greater and reopens the door to pressure by the individual borrower. The Minister of Finance, in replying to the second reading debate, met the Opposition arguments in part. He admitted that political influence through members of Parliament to obtain improved terms would be very harmful, even if it had been done in the past. Nothing would so destroy State activities, particularly of this type. He could not see any justification for barring a member from seeing officials of the Corporation in regard to an application, but if he were going to use his influence to get special consideration for some person, he would have to be stopped, and told how far he could go. Any pressure of this kind was wrong, and Mr. Nash held that influence could be exercised just as much outside Parliament as it could in it. We doubt very much, however, if it is possible to permit members of Parliament to "see officials of the Corporation in regard to an application" and yet to prevent political influence being exercised. The assistance of members of Parliament may be of value to the Corporation and to applicants, but the line between assistance and influence is so vague that it will be surprising indeed if it is not overstepped frequently. It is not correct that pressure can be exercised just as much outside Parliament. The director of a private lending institution has no fear of the votes of rejected applicants for loans. Pressure in the form to which the Minister of Finance referred is, however, the lesser of the dangers which we fear. It is the mass pressure of mobilised mortgagors that may give far greater trouble. Mr. W. P. Morrell refers to this in his recent history of New Zealand. He gives die State Advances Office credit for conservatism in its lending operations. The State, he says, took the cream of the mortgage market. Yet he finds that "with the collapse of farming prices there came a demand for the writing-down of Crown mortgages." The demand was resisted, but the result was to give an impetus to a more independent system of finance. Mr. Morrell adds: The Government cannot, of course, dissociate itself entirely from rural finance, but it is justifiably anxious to make it less of a political question. There is certainly an element of danger in the relation between the State as creditor and the farmer (or worker) as debtor. We have not to cast our minds far back to discover how this element of danger appears. In 1928 the Reform Government was severely criticised and suffered in the; election liecause Mr. Downic Stewart, as Minister of Finance, would not yield to pressure to put millions of additional capital into State Advances. Sir Joseph Ward promised the extra millions, and this contributed to his J success at the election. Now wc can j see that it would have been better if ihc State lending operations had not been thus extended. Tho extension gave temporary new life to the boom, but it made the subsequent slump harder, especially for the persons who borrowed and built at that lime of high prices. Again we may cile ihe criticism of the Reform and later Governments for raising the Slale Advances interest rate, though the rise only reflected the heavier rate ibal liic

Government had lo pay tor new loan capital. The Labour Parly in Opposilioti took a leading pari in condemning the Government ol ihc day for not lending more and lending it cheaper. With borrowers in mass formation as debtors lo a Stale Advances Corporation il is more than probable that demands for more and cheaper money will be a great and deciding factor in elections of the future. Borrowers will expect the political parlies to bid lor their support in terms of ample and cheap money; and borrowers are not the best judges of how much credit they should have. Economists of sober judgment are of opinion that farmer troubles have often been due to too much credit rather than too little. There will be the gravest risk of repeating that mistake, especially as the check arising from reluctance or inability of the lending market to subscribe for State Advances Corporation loans will be partly cancelled. It lias been clearly indicated that, if the public do not take up the Corporation bonds, the Government will subscribe for them. The Minister of Finance may see the danger and try to impose a check. But can a Minister stand against pressure from within and without his own party for more credit, lower interest, and possibly the writing-down of loans?