Canadian Writer Looks at N.Z. Affairs

Northern Advocate, 23 January 1939, Page 3

Canadian Writer Looks at N.Z. Affairs

t in a review written by its Financial ■Editor, Wellington Jeffers, “The Globe and Mail,” Toronto, makes pungent criticism on New Zealand economics. ' The'article, which is headed: “New Zealand Takes Totalitarian Steps Trying to Save ‘Prosperity by- Spending’ and appeared ! on December 7, 1938, reads:

“Those who are urging in public and in private that the Provincial and Dominion Governments should follow New Zealand’s example and institute public works on such a grand scale that unemployment would disappear, would do well to note that as a result of its policies the New Zealand’ Government had to announce yesterday that it is, instituting control of imports, the licensing of exports and the suspension of the statutory obligation of the Reserve Bank to give sterling in exchange for its notes. “The Finance, Minister explains that the object 'of these measures is to enable Government fe) conserve its sterling funds in order to meet the national, municipal and private debt commitments on their due dates. He did not explain that the responsibility lor this state of affairs rests with the policy which the New Zealand Government has been following, a policy, \yhich iA its short-term results, has drawn fascinated attention from Canada by those who believe in guaranteed prices for farmers, high minimum wages for labour, maximum hours, and public works on a grand scale. ’ v “It may take a year or so to, work out, but it is a reasonable expectation that the problems of- the New Zealand Government will from how on become more difficult instead of less difficult. That is because the announcement of r these measures is accompanied by another announcement that the Government intends to raise later an internal loan for capital expenditure on public works and on railroads.

“Bootstrap” Statesmanship Does Short-Term Wonders “To understand the .present difficulties and the growing economic confusion and tension which may be expected in New Zealand, it is worth while for Canadians faced with similar proposals to review the experience to date in the sister Dominion. When the pre- ■ sent government went into power in New Zealand, it transformed that country into one of the most interesting laboratory experiments in the recent field of economics by instituting guaranteed prices on dairy products, which are an important part of the New Zealand economy, and which form the principal export. At the same time it enacted high minimum wages and maximum hours legislation and accompanied these policies with very vigorous public works and housing construction programmes.

“These programmes have been largely financed by borrowed money. With a high level of taxation the tax yield has been relatively high. Revenue collection increased in large measure, but the spending also increased to a very much greater. extent so that borrowing was necessary. The amount that the government had to issue in the way of loans was greatly reduced by the,fact that deposits in the government savings offices increased considerably under the spur of the spending mentioned and the guaranteed prices to farmers. For a while farmers did well and employment increased and everybody had more to spend.

"One immediate result of this heavy increase in spending was that imports increased at a greater rate than did exports. Supplies of foreign exchanges are therefore now inadequate to meet the demand. If the measures announced yesterday had not been taken, the natural result would be for the New Zealand pound to depreciate. This is an undesired result; the New Zealand Government announced when it took office that its. objective was to take measures which would cause the New Zealand pound to appreciate. It is therefore not politically expedient

to let exchange take Its natural course and so control of imports and of exchanges follows. The Reserve Bank also is relieved of the obligation to give sterling in exchange for its notes. In other words, New Zealand is taking such important steps that a European country doing the same things would be called a ‘totalitarian state.’ The devotion of New Zealanders generally to democratic ideals is all that stands in the way of that outcome. Growing Difficulties Loom Ahead

“So much for the past, what about the future? To finance a public works programme, an internal loan will undoubtedly be attempted and that may be a curb on the new expenditure programme as such loans have moved slowly in the last year or two. If the loan is successful and if the works go on, distribution of wages may be expected to continue at a high level. The restriction on imports will mean that the goods available for sale will be reduced and will go higher in price. Exports are the major factor in the life of the citizen, but naturally they have to be paid for by imports.

“The farmer, because of the public works!and the higher wages, has been faced by a choice between shortage of labour or higher costs.' The costs have gone; up and under the new rules f are apt to go up still further. ''The guaranteed price cannot be raised with safety, because the world is at the moment faced with a buyer’s market in dairy products and prices are miich lower than they were when jhe New Zealand guaranteed price was first made. The government ran in luck for a time because the export price was relatively high with respect to the guaranteed price. It had to distribute all receipts, however, in spite of the desire to establish a reserve.

“The domestic cost of exports appears likely to increase under these Circumstances. The growing difficulties ; of the government had been increasingly shown recently by two things: “First, not long ago it substantially increased the import duties to protect home industry, whose costs were being increased by the government policies.

“Second, because of the higher costs for labour and materials induced, railroads were affected and freight rates were raised to save them.

“Now there is not enough foreign exchange available to pay for all imports and so comes control, which means forced saving in the direction of buying imports by the citizens. Those I have consulted as to the economic effects of national policies such as I have described agree that it is reasonable to expect that the costs of farmers will go higher because of the higher cost of living, and that the farmers will therefore demand higher payments in terms of ‘the New Zealand pound. That, of course, will raise the cost of living and labour will ask for still higher wages. Such ' a vicious cycle can only increase difficulties for an exporting country.

“In other words, the first false step has led to others and every effort of the government to extricate itself without abandoning the policy threatens to put the economy in a progressively worse position. The New Zealand Government started out to produce a system whereby the farmer would have an entirely satisfactory living irrespective or world prices or anything else. A rosy beginning and a sad ending have attended all such attempts to induce an artificial prosperity by arbitrary measures which ignore the effects on prices of supply and demand acting and reacting on each other. “Canada cannot, therefore, learn anything of value from this Now Zealand experiment until the whole film unrolls itself except to eschew similar methods.”