Evening Post TUESDAY, March 14, 1939. RISK AND REWARD

Evening Post, Volume CXXVII, Issue 61, 14 March 1939, Page 8

Evening Post TUESDAY, March 14, 1939. RISK AND REWARD

To Mr. Hamilton's rebuke for his reference to "dividend kings," Mr. Semple has retorted with citation of special cases in which he considers profits excessive. It is fallacious, however, to argue from special cases, particularly when the circumstances are not all stated.' It may be, for instance, that a high dividend is justified because the concern is working on a wasting asset. Mining and timber industries are examples. Or there may be heavy risk —again as in mining where the investor may have a good return from one investment and none at all from several others. Or there may be a long period 6f development and no dividends, and this must, be set against the time when a payable stage is reached. When quoting a few instances of so-called "dividend kings," Mr. Semple should mention the other cases in which there is a meagre return or none at all. The former reference by Mr. Semple was in general terms and such references always imply an accusation against the whole class. Now Mr. Semple would make it appear that he attacked only the recipients of big profits. "I have never said a word against a person getting a fair return for his money," he states. But what guarantee is there that investors as a class will have a fair return for their money in future, and what, will be the consequences if they do not? An analysis by the Associated Chambers of Commerce of figures made available by the Government Statistician has an intimate bearing upon these questions. These returns show that the share of national production taken by salaries and wages has risen from 63.4 per cent, in 1935-36 to 72.7 per cent, in 1937-38, and the balance left for all other costs, including interest, depreciation, profits, etc.'; has fallen from 36.6 per cent, to 27.3 per cent. These, of course, are averages and cover businesses large and small, payable and unpayable. The position is made worse by the fact that the third party in industry, what a business man has termed the sleeping partner in every enterprise, is demanding a greater share than ever in the form of taxation. How much of this comes from profits and how much from salaries and wages cannot be stated without a further analysis. But the total amount taken'has risen. In 1937-38 national and local taxation • (the latter estimated at the previous year's figure) amounted to £43,392,000, or 6s 5d in the £ of the value of production. The important point to bear in mind is that salaries and wages paid their taxes out of an increased share of the national production, while profits paid out of a reduced share. But taxation as a whole in 1937-38 took over £5,500,000 more out of a production which had fallen in value by £500,000 since 1936-37. These figures, it should be noted, are for 1937-38. It is highly probable that returns for 1938-39 will show a greater tendency in the same direction—more for salaries and wages, more for taxation, and less for the investor. How long can this go on? It is admitted that much of the taxation comes back in wages (though not all for necessary work), in pensions, and in services. But production will not expand if one partner must be continually submitting to a reduction of his share, while the shares taken by costs of production (including salaries and wages) and taxation are constantly rising. Indeed, expansion becomes impossible because the funds for the purpose are not available. There is a smaller accretion of new capital, or there may be none at all. Moreover, as the Associated Chambers of Commerce point out, there is loss of capital through investors seeking better fields for investment. This loss may be stopped now by exchange control, but that control is a boomerang. It will definitely discourage the flow of new capital to the country. A far better remedy would be to recognise what the figures clearly show—that the basis of division is getting out of balance—and to check the rise in costs and taxation. Otherwise the consequences will be serious. In

spite of the Government's efforts to expand production there has been a decline. Artificial means, such as import selection, may reverse this trend for a while, but only at great cost to the community. Only by restoring to enterprise its due prospect of reward, and offering capital a return fairly proportioned to the risks that it must take, will production be enabled to go forward under its own power..