CAUSES—AND REMEDY

Evening Post, Volume CXXVI, Issue 151, 23 December 1938, Page 8

CAUSES—AND REMEDY

Exporters of capital and importers of goods have both contributed to the condition of things which is reflected in the fall in London sterling funds. The degree to which each ha? contributed might easily become a subject for argument. In this issue a correspondent, H.J.K., quotes figures for imports and exports during three "depression" years and three "boom" years, with the idea of showing that overimportation (which in itself is a relative and a hardly definable term) either does not exist or has not operated to anything like the extent that has been suggested. If a question like over-importation is tested by period statistics, a good ideal turns on the periods selected; land figures taken over different, periods from those quoted by H.J.K. : might give less support to his argu- ■ ment. But with that argument we

are not primarily concerned; it is a matter of secondary, though great, importance. The fact of first interest is that both the exporters of capital and the importers' of goods have contributed to the sterling decline that has forced the Government into action; and that—still more important— both that export and that import have their roots in Government policy. Mr. Savage is faced with a harvest of his own sowing.

To increase the purchasing power of the people, the Government has resorted to over-spending by the State, and therefore to over-taxing and excessive use of borrowed money or credits. To further increase the purchasing power of the people, the Government , has also introduced a high wage policy in private industry and a shorter hours policy therein, and in both ways, also in taxing and in other ways, has raised industrial costs and reduced industrial profits. Such a policy always results in the forcing of capital to go abroad in search of better and surer fields of investment. Possibly that was foreseen, but Ministers hoped to counterbalance it by their theory of purchasing power, under which the New Zealand people as a whole would devote their increased purchasing power to buying so great a quantity of New Zea-land-produced goods that the New Zealand employer would regain in turnover what he lost in higher wages and lower hours. It is now patent to everybody that the Ministerial theory of purchasing power has not worked out, and that the principles of the Reserve Bank report —which ( warned against an internal over-spending that would outpace external income, and would deplete London sterling funds—have worked out precisely. Increased purchasing power of the people has not counterbalanced industrial costs, and has indeed stimulated importing. The net result of a certain increase in internal purchasing power, and of a greater increase in internal costs, is to stimulate the import of goods and the export of capital. The cure is a reduction in Government spending, a course which an employing Government is most reluctant to take; also a reduction in private industrial costs, a course which the Government does not wish to let the private employer take. No reduction, no remedy. No remedy, we just drift.