PROBLEMS SURVEYED

Evening Star, Issue 23335, 3 August 1939, Page 18

PROBLEMS SURVEYED

REVIEW OF DOMINION TRADE AND FINANCE ADDRESS BY CHAMBER OF COMMERCE PRESIDENT DISTANT RUMBLINGS OF STORMS AHEAD . A comprehensive survey of the business of the country was given by the retiring: president of. the Chamber of Commerce (Mr P. 0.-, Smellie) at the fifty-second annual meeting,, of the chamber last evening, when moving the ' adoption of the annual report and balance sheet. Jn the foreground of the picture he saw, said Mr Smellie, there was a paradise in which apparently everyone was occupied, contented, and enjoying a high standard of living, but in the background there were signs of a gathering storm, in the foreground was the mythical pot of gold and in the background the lightning and rumb-lings-of an approaching storm,. “ A Chamber of Commerce,” stated the retiring president, “ has been aptly described as an aggregation of business men blended-together to work as a unit to promote commerce and industry. We are frequently charged, with being a political body, but in my experience business and politics are two things that do hot. mix, afid. 1 feel that ,1 am expressing the thought of everyone here to-night when J say that all that business asks of politics is to be allowed to carry on its work of production and expansion with the minimum of interference necessary for the proper regulation of economic forces in the interests of the people as a whole. “ Where business and polities do come into conflict it is due to political activities infringing on the realm of industry and commerce and not to any seeking on the part of business. If our .deliberations during the past year appear to have been more concerned with political questions than usual, 1 that is due to the fact that never be- 1 fore has political action thrust itself I so deeply into the realm of business. “ It is usual from this chair to give • brief pen-picture of business and commercial activity during . the year. I find it bn this occasion not an easy task owing to the perplexing and - ap- i parently irreconcilable elements that have to be taken into account. Jn the foreground is a paradise in which apparently everyone is fully occupied and contented and enjoying a high standard of living. Every indicator points to economic expansion and great activity. The figures for sales tax, totalisator returns, amusement tax, beer duty, note issue, aud bank transactions all provide evidence of a high internal purchasing power and a maintenance of business turnover. Certainly some of the indicators are beginning to show, signs of wavering and even slipping back, but generally it can be said that’ business has been good. “ In the background of our 'picture, however, there are signs of a gathering storm. The balance of payments in our overseas ' transactions has been drifting against us during the past three years, and this) accentuated by a fall in export values Inst year aud a flight'of good money out of the country, created a situation that for a time threatened disaster, which has, boweyev. he*u averted for the time being. Jr. the foreground is the rainbow aud its. mythical not of gold, aud in the background the lightning and rumblings of the approaching storm.

ECONOMIC PROBLEMS. “ 'J'liu 'ailing level of overseas funds during 1. 1;*» rear was clearly a danger aigaai. • 'Ac total overseas funds of the hanks ic June, 1936, amounted to £<11,000,000 (S.'/i.) , but in Juno, 1937, they had fallen to £40,000,000 (N.Z.), and by June, 1938, to £26.000,000 (N'.Z.). Thereafter there was a rapid drain, and by December, 1935, they fell to the record low level of £6,800,000 (N.Z.h Is was to meet this situation that the Goytrnment found it necessary to introduce on December 5, 1938, a ayatem of control of exports and imports and to suspend the statutory provision requiring the Ueserve Bank to sell sterling funds in exchange for New Zealand currency.

“ The" situation that was developing was obvious to'most observers long before December, 1938, and the Government could have taken measures by voluntary co-operation with the banks, as had been done on other occasions, to ration exchange and so check the drift. It is difficult, however, to escape the conclusion that the Government was anxious to put its import selection and insiilation theory into operation,” the » tpeaker said. “ The country has now had six 'months' experience of import licensing,

and the difficulties tend to increase rather than diminish. The first impost fell on importers and indentors, whose business it is to handle a very large proportion of the 50 odd million pounds 'of merchandise that comes into the country every year. “The conditions under which this section of our business men have had to carry on in the past six mouths have been extremely difficult and harassing. The forms to be filled in prior to obtaining licenses are numerous aud intricate, and have entailed the full-time employment of clerks on this work alone. In addition, many points in the regulations were obscure, and the Government, in the first few months, would not - divulge the [principles on which it intended to deal with applications. This entailed many interviews with Customs officers and correspondence with Wellington in an endeavour to clarify the position. Subsequently the failure of sterling funds made it impossible for the banks to provide exchange to the full value of permits issued! To get over this difficulty many importers were forced to go to, outside sources, and-secure their sterling requirements at conversion rates as high as 137} per cent. Through all these local problems the need arose to keep overseas principals informed on a situation that was without precedent in New Zealand history and changing _ from day to day. The difficulties of importers arc not yet at an end. A survey of the latest figures indicates that a still greater reduction in imports than anything so far achieved will bo necessary to keep our overseas payments in balance. The visible trade figures for the year to 31/3/39 are:—Exports, £57,867,000 (N.Z.); imports,' £54,408,000 (N.Z.), leaving a balance in New Zealand’s favour of £3,459,000 (N.Z.).

REDUCED IMPORTS. “ The net amount required for debt services, shipping charges, and other payments is approximately £10,500,000, thus leaving a deficiency on these figures of approximately seven millions per annum by which imports must be reduced, for in 1940 a further amount of two millions sterling and thereafter in each of the four following years three and a-half millions has to be found out of our export proceeds to provide a sinking fund on the recent loan conversion. Over five years tbc amount of imports will, in this way, be reduced by 20 millions in New Zealand currency, or four millions per annum, which, added todho reduction of seven millions per annum referred to above, means an annuid reduction in imports in the next five years of 11 million pounds per annum, or a total over the live years of 55 millions.

“ This estimated reduction is based on the assumption that gross export income will remain at the same level as last year, but everything points to a reduction in the volume of exports. There is fortunately at the moment an indication of an upward tendency in values, and our best hope is that this will hold, and that our wool, meat, and butter will bring higher prices and so ease the position so far as imports are concerped. “ In the face of those figures the importer cannot regard the future with any feelings of optimism, and the question arises whether it is equitable that one section of the community which has rendered good’ service in the past should be sacrificed in this way, while other sections are continuing to enjoy a high standard of prosperity.

FOSTERING LOCAL MANUFACTURES. “ Linked with the Government’s i policy of import selection is that of fostering local manufactures. While there are advantages in such a policy there are also certain dangers to be avoided. International trade is based on the principle that each country produces those goods to which its resources and climatic conditions are most suited, and exchanges its surplus products for the goods of other countries, and by this means to economise the aggregate effort needed to provide a certain standard of living. “ New Zealand, in exchanging its butter for English manufactured articles, follows this principle to the mutual benefit of both countries. If we carry too far the denial of imports it will inevitably follow that we shall have to work harder or lower our standard of living. With onr small population and deficiency in raw materials, the manufacture of finished goods, or even the finishing of partly-manu-factured goods, can only be carried out at a higher cost than in the older manufacturing countries, and' the ultimate effect of this policy carried to excess will be a rise in cost of manufactured articles and a lower standard of living for the people. SECONDARY INDUSTRIES. “ At the same time, there must be scope for the development of some secondary industries, and' one can readily sympathise with the objectives of the

Government of diversifying employment and transferring workmen from unproductive public works into productive employment. Here in Dunedin many of our old-established l secondary industries have proved that the development of industry can take place as a natural and healthy growth without the aid of prohibitive tariffs or total prohibition. The haphazard development that takes place during a time of emergency behind the protection of import prohibition may prove to be a source of weakness rather than strength in our economic system in time to come, and it is as well to bear in mind that a policy of self-sufficiency, pushed to excess, means forfeiting to some degree the benefits of effecting advantageous exchanges of good 1 ,-? on the basis of ‘ each according to his bent.’ INABILITY TO BUY OVERSEAS. “ In the great feverish activity to cope with the situation created by our inability to buy overseas, there is a disinclination on the part of the Government .to consider the underlying causes that have created that situation. While the more immediate difficulty is the balance of payments and the level of London funds, it is but a symptom of the more .fundamental problem of costs. New Zealand is not. and cannot be isolated from the rest of the world—in fact, it is more dependent than most countries on overseas markets. The great internal expansion m the last few years, accompanied by a rise in costs, Las thrown onr econoniy out of adjustment, and this has been accentuated in the past two years by a fall in export prices. This is strikingly illustrated by the index figures based on the average of 1909 to 1913 - 100

“ The index of money wages rose from 84 in 1934 to 110 in 1938, an increase of 50 per cent., and it is not surprising to learn that the primary producer is find- ' ing it more difficult to carry on profitably and that there is a tendency to cut down expenses on the farm at the expense of production. In this connection it is worthy of note that farmers and stock and station agents had to lean on the trading banks to the extent of £2,649,000 more in March, 1939, than in March, 1937,

FARMERS’ PROBLEM!

“ At this point 1 ask the question again, whether, it is equitable that a large ami important section of producers should he sinking into debt while the rest of the community continues to enjoy a high level of prosperity. The figures 1 have quoted indicate a growing difficulty in balancing internal costs and export prices, and no real solution of our difficulties will bo found until this disparity is remedied. | “ I have referred previously to the high level of economic activity which we are enjoying. Travelling through the country it is not difficult to appreciate that a great deal of this activity is due to Government expenditure. Hoads, public buildings, railway works, housing schemes, irrigation works are giving employment to thousands of men, but it is not until a study of the figures is made that the extent to which Government expenditure generates'all this activity is realised. Comparing 1934 with 1938, .something over 30 million pounds per annum is being spent. On the public works there are approximately 23,000 Government employees without taking into account the hundreds employed on private contracts on public works schemes, and on the housing schemes there are 0,1)00 men directly employed, and work is being provided to thousands more in timber mills, brick and cement works, and so on. In the Government .service wc see building after building elected or taken over by Government departments and filled with new staffs. “In addition, we know that the dairy farmers arc being given two millions more to spend this year than their produce will realise. Now, all this activity can only be financed from three sources—loan moneys, public credit, or taxation. The Reserve Bank report made it very clear that the n.se of public credit had reached its limit, and. with the depletion of capital by remittances overseas and the shrinkage in savings as a result of high taxation, it will be increasingly difficult for the Government to borrow the large amount of money internally to meet its requirements.

THE DANGER SPOT. “ ft seems that we are faced with the possibility of this great activity being stopped or severely curtailed by economic laws outside of the Government's

control. This, to my-mind, is the danger spot in our economic structure today. No one (and certainly no business man) wishes to sec men thrown out of work and a return of the severe conditions of the depression years, , but if this is to be avoided a great effort is necessary to get these men off the Government pay roll and back into private industry.

“ I can hear someone say: ‘ But that is what the Government is doing in encouraging new secondary industries,’ and my reply is; ‘ Is it wise to build up uneconomic secondary industries behind import barriers while our primary industries, which can compete in the world’s markets, are languishing for want of labour? ’ We have gone too far and too fast in building up a standard which the country cannot sustain, and there must be some retracing of our steps if we are to escape disaster.

“ I admit the possible criticism that my remarks have not been of a constructive nature, and I am sure everyone here to-night supports the theory that the ideal of good Government is that state in which our people are fully employed and our natural resources are fully developed. Looking back over our economic history of the past 10 years, 1 am struck by the fact that the graph of our internal activity follows very closelv the graph of our export income. When exports are high, imports rise, factory production increases, and unemployment diminishes. When export income falls, the reverse is the case. Unfortunately, the graph of export income resejnbles nothing so much as a drawing of the skyline of the Southern Alps, and we are consequently alternating between a state of prosperity and depression, and it is difficult to determine the normal level of activity which can he maintained over a period of years.

ORDERLY MARKETING. “ Internal policies for smoothing out tlio level have been tried without much success, and it seems to me that a very good case can he made out for closer co-operation between New Zealand, Australia, and Great Britain in an endeavour to solve this riddle. Take the three main products—dairy produce, meat, and wool. New Zealand and Australia produce about one-third of the world's avool, and 30 per cent, of their total exports go to Britain, who is also a huge buyer in other countries. The total world trade of meat_ and dairy produce is almost entirely Avitb Britain, and New Zealand and Australia and British home-grown supply 89 per cent, of the total consumption of lamb and mutton, (J 9 per cent, of beef, and 09 per cent, of dairy products. “ With this great volume of trade in these communities under control, surely these three countries working together could do much towards ensuring a more orderly marketing of their products to avoid selling below cost of production and violent fluctuations in price, and, most important of all, to see that their products maintained a fairly constant exchange value with manufactured goods. “ There are: 1 realise, such factors as seasons and climatic conditions affecting production Avhich no one can control, but I venture to suggest that no manufacturer or group of manufacturers .would market their goods in such a speculative manner as the primary producer Avithout knowing Avhat price he was to receive and subject always to the haggle of the market, I find myself, therefore, in sympathy Avith one of the principles endorsed at the British Empire Producers’ Conference in Sydney in 1938 to the effect that ‘ This conference accepts the need for orderly marketing of Empire primary products in order to maintain continuity of supplies and to prevent avoidable gluts and resultant instability of price levels and speculation.’ “ I know there is a ease to he made against New Zealand agreeing to the prineiulo of restriction, but I believe the time is not far olf, in fact is here already, when this has to be accepted ; but I am sure that a reasonably stable price level over a period of years would enable us to build an internal economy that Avonld bo free from the stresses and strains of an undulating export income, and would give to the whole community, worker and employer alike, that sense of stability and confidence in the future Avhich is sadly lacking to-day.

TRADE WITH AUSTRALIA. “ before I .conclude there is one matter that I must refer to. That is our trading relations with Australia. We are the two most distant members of the Empire drawn together bv history and geography with a common heritage and culture and similar aims, ideals, and problems, and shortly to be brought within nine Incurs of each other by modern transport, yet the trading relationships between us have never been worse. 1 do not refer particularly to the potato and orange

wrangle which is a standing reproach to both Governments, but more to the recent developments under the import selection policy by Avhich Australian purciiases have been drastically curtailed.

" in the very nature of things we must have an adverse trade balance Avitb Australia, but a Government really anxious to improve trading relations with our great neighbour would have this to bargain with in securing a triangular treaty with New Zealand, Australia, and Great Britain. It suits New Zealand to buy from Australia, and her prices are competitive and deliveries are prompt, and the benefit of that exchange could be secured to us with Britain’s approval in consideration for Australia diverting some of her foreign purchases to England. “ Whether the situation is met in this or any other way I would' A'ery much like to see an attempt to improve the present position. Our destinies in the Southern Pacific are inextricably linked, and wc must not allow trade difficulties to develop into long-standing grievances.”

y. 4~* w ,V> T. c to a, a i W 5, C ' Z1934 ... , ... Ill 133 '1 V 3S 1937 ... , ... 144 150 157 1938 June 139 1.52 102 1939 t'eb. , ... 134 152 165