CHECKING SLUMPS

Evening Star, Issue 23352, 23 August 1939, Page 8

CHECKING SLUMPS

THE NEW POLICY REARMAMENT'S ROLE REVIEW BY DIRECTOR OF INTERNATIONAL LABOUR OFFICE Experience over the past two years in many countries indicates that substantial’ progress. has been made in the ( technique of handling the problems ot economic depression. This is made clear in the annual report of the director of the-International Labour Office in June, 1939. . After drawing attention to the difficulties confronting the world at the beginning of 1936 on account of the slump in America, Mr J. G. Wiuant, the director' of the International -Labour Office, remarks that the reactions of most countries to the economic difficulties of 1938 “stood out in sharp contrast to traditional depression policy.” The index of world industrial production had fallen from 100 in 1929 to 60 in 1932. It then rose to 108 in the middle of 1937. There was a sharp fall to 90 by the middle of 1938, when the fall was arrested, and by the end of the year it was again over 100. On this occasion the downward movement in economic activity was not accompanied by a general process of liquidation, contraction of credit, and deflationary policy. It would be rash to generalise from one example, but the experience of 1938 lends point to Mr Winant’s statement .that it is now widely agreed that whatever the initial cause of a business' decline, active steps can be taken to prevent the secondary ‘effects which inevitably followed! it under the traditional procedure. If consumers’ demand can be maintained by rapidly replacing any decline in private' investment by wellprepared public jnvestmeut, the secondary fall in private investment and further deflation may be checked.

MEASURES OF RELIEF. £ As regards the measures taken to check the “ secondary effects ” that threaten to cause a general depression, Mr Winant draws attention to the policy of the United States in deficit spending to the amount of 4,000,000,OOOdol, and in reducing the reserve requirements of the banking system. In Great Britain the maintenance of cheap money, the depreciation of the pound sterling by about 5 per cent, during the second half of 1939, and the increase in expenditure on armaments all work in the same direction. The agricultural countries experienced a heavy fall in farm prices, wheat declinin'’’ by 50 per cent., wool by 40 per cent., and cotton by 33 per cent. Action to meet the difficulties was taken on two lines, summarised by Mr Winant as follows—“ In the first place, shortrun measures have been introduced to sustain money incomes; secondly, steps have been taken to adjust the future output or quantities more nearly to the prospective demand.” Thus in the Argentine, owing to its policy of “ monetary insulation,',’ gold losses resulted in practically no credit stringency. A similar policy was adopted by Australia, on which Mr Winant remarks: “ The Commonwealth Bank offset the decline in its foreign exchange reserves by purchases of Government bonds, enabling the commercial banks to meet the increased. demand for advances. Short-term interest rates remained low, and long-term rates rose only slightly.”

long-range investment. An interesting and illuminating section of the report deals with the plans of many countries for long-range public works. In Russia, for example, the iplanned increase in industrial production over the period 1938 to 1942 averages 14 per cent, per annum ; made lip of a 15.7 per cent, increase in production goods and a 11.5 per cent, increase in consumption goods. The total investment required for the fiye-year plan will be 112 milliards of roubles, of which 94 milliards will go to the production-goods industries and -18- milliards to the consumption-goods industries. In countries so widely differing in their economic structure as Poland, Bulgaria, Portugal, Hungary, Brazil, Turkey, and Egypt, public works policies are being developed on the basis of long-range planning for the increase in production and l promoting rearmament. The extent to which Government investment is developing in all countries is a marked feature of current economic policy. The follow-

ing brief extract from Mr Winant’s report illustrates the point:— “ In Yugoslavia the Finance Act for 1938-39 empowered the Cabinet to float a loan of 4,000,000,000 dinars for the purpose of carrying out new schemes of public works, including land development and national defence. In Latvia the industrial holdings of the State now amount to little short of one-third of the total investment in industry. Iraq has adopted a five-year plan of public works. In Iran and Afghanistan the progress in industrialisation under the TOgis of the. State has made such advance that special measures have been found necessary to meet the shortage of skilled 1 -labour.”

PROBLEMS OF REARMAMENT. ,The most striking development in economic planning has naturally been in the problems of investment and finance associated with rearmament. No doubt increased expenditure on armaments and industrial development for defence was the most important influence arresting the incipient depression of the first half of 1938.

In Great Britain, for example, expenditure on armaments in 1938-39 was £274,000,000 from revenue and £132,000.000 from loans. For 1939-40 a greatly enlarged programme is to be financed by a smaller absolute amount from taxation—namely, £250,000,000 — and a big increase in the provision from loans—namely, £380,000,000. All countries arc faced with the task of transferring resources of labour and capital to the armament industries from other industries. This involves a reduction in the amount of normal investment, with greater Government control oyer investment generally, and a reduction in eorfsumption. In Germany, for example, consumption is kept down by a rigid control of wages, by limiting dividend payments, by increasing taxation, and by restrictions on the supply of commodities. If it he true that increased expenditure on armaments has.helped to arrest the depression, it is also true that this expenditure must be made to some extent at the expense of normal economic development and the standard of living. Yet it is doubtful whether, in the absence of this expenditure on armaments, the world as a whole could have expanded its expenditure on housing, public works, and measures designed to increase the production of consumption goods, and by this means have created a condition approaching full employment.