PURCHASING POWER IDEAS

Evening Post, Volume CXXIII, Issue 150, 26 June 1937, Page 8

PURCHASING POWER IDEAS

A high compliment has been paid to Mr. Savage by the Federation of Chambers of Commerce of the British Empire in the adoption of his thesis that the root problem of Empire development is increasing the purchasing power of the masses.

It is evident, states the Federation's report, that if people in the United Kingdom had more purchasing power they would gladly consume more food and that if people in the Dominions had more purchasing power they would be pleased to consume more manufactures.

With the thesis as thus stated most people will agree. It should be noted, however, that there is a difference between this statement and that often made by Mr. Savage's supporters. The Federation's statement means reciprocal increases in purchasing power. The New Zealand Labour Party has contended in the past that an increase in purchasing power in the Dominion would solve its problems. Against this we have pointed out that our depression difficulties were due mainly to the reduced purchasing power of our chief customer and this we were powerless to correct. A little might be done by way of correction through buying as much as possible from the United Kingdom, but as our purchases are only a small part of Great Britain's sales we could not thereby substantially increase the buying power of British work people. In attempting to raise our internal purchasing power, without a corresponding increase in Britain, we were in danger of so raising costs of production that domestic competitive industries would be held back and primary industries, largely dependent on an export market, would find costs outstripping returns. A further reservation must be made to the thesis, even when it is stated in the Federation's quoted terms. This is that it is true only as affecting intra-Empire trade, and this is not the whole trade of the United Kingdom. If Britain and the Dominions raise their purchasing power and by so doing raise their production costs, there is a grave risk of loss of foreign trade. Britain's foreign trade has fallen, but it is still considerable and further loss would be embarrassing. By domestic measures Britain hasj increased employment and purchasing power, and brought about a reasonable degree of prosperity. But statesmen have pointed out that this cannot go much further. Foreign' trade must be increased to obtain a marked additional improvement. But this trade cannot grow if Britain's costs rise so that her exports are not competitive. In short, the increased purchasing power solution is conditional. We can go a certain distance in a domestic market, but when we go beyond this we must be sure that our customers and competitors are both keeping pace. Otherwise we may find that higher purchasing power is just an inflationary multiplication of costs and prices, of no real benefit, and involving the possible loss of export market*. I