DANGERS AHEAD

Evening Post, Volume CXXV, Issue 9, 12 January 1938, Page 10

DANGERS AHEAD

TRADE REGULATION

IDEALS AND ACHIEVEMENTS

DISEASE AND CURE

That the intended cure may in the ultimate results be worse than the disease is suggested in a bulletin on "The Regulation of Industry and Trade," which has been issued by the Canterbury Chamber of Commerce and prepared in consultation with the faculty of economics at the Canterbury University College. "Desirable though the ideal of the Government may be," says the bulletin, "its attainment, or even its near approach, is beset with difficulties and dangers, which, when investigated, suggest that the remedy applied may have results worse than the disease it is intended to cure.

"The Industrial Efficiency Act of 1936 gave the Government practically complete control over internal industry and trade. It established a Bureau of Industry with powers of a commission of inquiry, whose members are appointed by the Minister. The function of the bureau includes making recommendations for the promotion of new industries and for regulating and organising the development and operation of industries, new or old The regulations recommended by • the bureau may be made operative by Order in Council. Any -industry, operation, or trade of any Kind may be required to be licensed and carried on only under licence. Prices may be fixed by regulation for any ] goods or services. Production, distribution, and marketing may be con- i trolled, and quotas may be fixed.

"This is very sweeping legislation. It appears to remove much of the security and stability that formerly rested on law, custom, and practice established and proved by experience, and to giye the Government complete power to impose any control it pleases on any aspect of the Dominion's industrial life.

DANGER OF STAGNATION.

•'Since its establishment the Bureau of Industry has been active. Up to March 31, 1937, fifteen industries have been licensed, the manufacture of drycell batteries, asbestos cement products, rubber tyres and tubes, electric ranges, motor spirit pumps, cement rennet, phosphatic fertilisers, and wooden heels for footwear; the importation and wholesale distribution of motor spirit; the retailing of motor spirit; retail chemists; commercial fishing; fish export and the taking of oysters. The flax industry has been reorganised, proposals have .been made for the reorganisation of pharmacy and kauri gum, and some manufactures have been investigated. In addition, tobacco and onion marketing ' have been regulated and inquiry has been made into the marketing of fruit and vegetables. Prices have been fixed for wheat, flour, bread, cement, timber, petrol, fertilisers, gas, etc.

"The ideal aimed at seems in many respects a desirable one. It is true that both industry and trade, in varying degrees, are insecure, unstable, and wastefully conducted. But instability, insecurity,' and reduntant capacity in some measure constitute the price that must be paid for the freedom and flexibility necessary to meet the ever-changing needs of the community and to ensure that progress is maintained."

The fundamental cause' of insecurity is change—change in the resources available, in the technique and organisation of, production, which must always adjust itself to changing productive conditions and changing demand, and change in the tastes, fashions, habits, and needs and consequently in the demands of consumers. To stabilise industry is usually to stereotype it, by rigidly regimenting its resources, its methods, its personnel, its organisation, and its product. This means stagnation.

COMPETITION ESSENTIAL.

"The first of the difficulties is that of removing or regulating competition. Competition is the essential concomitant of liberty, freedom, and democracy. Competition cannot be eliminated without. repression of liberty, of enterprise, and effort, which leads to contraction of production and reduction in consumption and in standards of living. The highest possible standard of living for the people as a whole is the end at which all economic direction by the State should aim.

'.'This standard will be highest when the consumer is free to select for himself what he wants from a wide range of goods and services offered on the market, and when producers and traders are striving so to organise production and marketing as to meet the changing needs of consumers with the quantities, qualities, and prices that will suit consumers best, and which will ensure both maximum production and consumption. State fixation of prices fails to recognise that the fundamental function of a price is to equate supply and demand.

"If the price is too high the supply will not be taken from the market and either the price or the supply must be reduced. If the price is too low the supply will not be forthcoming to meet the demand, and either the price must rise to stimulate further supply or part of the demand must go unsatisfied. That price is right which will clear the greatest quantities and the right qualities of the goods. The right prices, the right quantities, and the right qualities can be found only by a process of trial and error in a market where producers, dealers, and consumers are alike free to buy or sell as they please.

MONOPOLY FOR EVER,

"A second difficulty is that the alternative to competition secured by regulation is not co-operation, which is necessarily a voluntary movement, but monopoly for a privileged few at the expense of the many. The licensing of" a limited number of units in a particular industry necessarily, limits competition in that industry and confers some measure of monopoly on those who are privileged to be licensed.

"Some justification may be found tor this procedure as a method of protection during the infant industry stage where a new industry is being established. But where an old industry is well established the elimination of redundant capacity may mean getting rid of reserve capacity which is an essential spur to competition and which may bo needed should conditions change and demand increase.

"The third difficulty is that of waste. lln eliminating apparent waste from in--1 dustry the authorities may cut away what is essential and the; are likely to introduce another and a greater waste. The prime object of industry is to produce at the lowest possible real cost the goods and services that consumers desire. This object is more likely to be achieved where producers can organise their businesses with the greatest freedom, where they can experiment, modify, and adjust methods to the end in view as directly and simply as possible

"Under competition and freedom the individual units must necessarily see thai wastes are removed as Car us possible from their productive organisation. The Government desires to remove waste by removing redundant units and by regulation. But it requires a large number of investigators, administrators, inspectors! etc., to do

this job, people who otherwise might be engaged iv useful productive work, increasing the volume of production, and therefore of consumption, and so improving the standard of life for the community as a whole.

"In addition the exacting requirements of regulation and control divert much of the laour employed in industry into unproductive channels. This labour is wasted in conforming with regulations not directly associated with the requirements of production.

INSECURITY ENGENDERED,

"A final important difficulty is the insecurity which legislation such as that recently passed in New Zealand creates. Much industry and trade is of necessity a matter of long-range planning; it involves the investment of capital, the return from which must be spread over many years. With the prospect of State control being applied in any part of industry, and with trade subjected to the powers of interference given under the sweeping legislation at present in force, it is not surprising that individuals are reluctant to venture their capital and ability in business enterprise.

"Instead of enjoying a fair field and no favour, in which they must rely on their own capacity to meet changing conditions, they are now expected to meet these conditions shackled by the finality and rigidity of law and legal regulation and in the knowledge that new law may be harshly and arbitrarily applied to their operations at any time. In these conditions extensive private investment, and the industrial progress which must depend largely on the investment of private capital, appear improbable."