MR. BALFOUR'S PRONOUNCEMENT.

New Zealand Herald, Volume XL, Issue 12402, 26 October 1903, Page 6

MR. BALFOUR'S PRONOUNCEMENT.

A REMARKABLE STATE PAPER.

■ .--. THE FISCAL PROBLEM. ! '[from ovb. OWN CORRESPONDENT.] I ■■■.-..'■ . London, September 18. : : 'the Prime Minister has just enlivened a I sillier silly season" than usual with a dis-t-inot political surprise. He has long been twitted, with timidity, 'if not with V rank cowardice, for his reticence as to the intentions of his Government as a whole regarding Mr. Chamberlain's fiscal proposals. But-all the denunciation; and reviling and derision to which he was subjected troubled Mr. Balfour very little. That sort of tiling never does worry him. He simply goes on his way, smiling and takes his own course in the manner favoured; by himself. He has clone so once more in this instance. Last Wednesday, without any prelim note of warning, ho launched upon the world an important State paper setting forth his own. views on "the. present fiscal problem and on freo trade in general. ■ It is a very able document, argued with the dialectic skill of which Mr. Balfour is so distinguished a master. Mr. Balfour, in a brief preface, describes this pamphlet as preliminary to th.3 more popular exposition of his views which he will make shortly at Sheffield. He gives to his paper the name of " Economic Notes on Insular Free Trade," and adds that he had placed them in. the bauds of his colleagues " in the first days of August." The "economic man" of the text-books, who is supposed to be uninfluenced by any consideration save sound economics, . does not exist in actual life. Nor do we ever get " perfect i fluidity ', of capital and labour." There cannot be such a thing for a thousand interfering and hampering reasons, of which the most potent, perhaps, are nationality and national boundaries. In other words, we must not judge practical fiscal proposals from the standpoint of cosmopolitan economics. We must shape our plan "according to the kind of State wo desire to create or maintain." What was the struggle; which closed in 1846? Mr. Balfour says: — "It was, in its inner reality, not a fight over an economic theory, but a struggle between two opposing ideals supported by two rival interests. Was the country to become mora and more a manufacturing community? Or was agriculture to be maintained, at whatever cost, in its ancient predominance, with all the social and economic consequences which were, or were thought to be, involved in such an attempt? , The country decided (in my opinion rightly) in favour of the first of these alternatives. Its benefits, to bo sure,' have not been unmixed; but it has i this conclusive argument in its favour—that : a predominantly agricultural Britain could never have supported the men or furnished the money required for. her Imperial mis- I sion." ' ■"""■■ |

But to render the manufacturing ideal at all _ tolerable there must, be two conditions satisfied: (1) A large export trade to pay for our luxuries-, and the necessaries we are obliged to import, and (2) sufficient capital steadily forthcoming for heme investment, in order to keep the increasing urban population in rood employment. These* conditions, argue? Mr. Balfour, did not trouble the old Oobdenites, who made two great mistakes. They did not foresee that the world at large would reject free trade, and they did not foresee the full commercial possibilities of the British Empire. The author goes on to show h;>w every State, irrespective of its wealth, size, and position, has been impelled to embrace the protectionist system, and he asks, " Whether a fiscal system suited to a free trade nation in a world of free-traders remains suited in every detail to a free trade nation in a world of protectionists." Mr. Balfour devotes the fourth and'fifth sections of his pamphlet to analysing the economic effects of universal prohibitive tariffs on imaginary free trade islands of varying capacity, productive power, and mineral resources. He finds the case of Great Britain bears the greatest resemblance to that of "a free trade country, completely environed by a wall of protection; a wall high enough to make export first difficult and then impossible. We inferred that it would find imports first costly and then unobtainable." How is it then, ask the Cobdenites,( that Great Britain contrives still to cany on 'an export trade which, if it-does not increase as we might wish, yet increases rather than diminishes, and' an. imnort trade of unexampled magnitude?" Mr. Balfour finds the explanation in three great reasons: _' (a) Foreign countries owe us a great deal of money, which they "pay by means of imports* into the United Kingdom. " lb) Largo areas still remain which are not protected nt all

''(c) Existing protected areas are not completely protected.". Mr. Balfour, devotes a closely-reasoned section, to each of these three differentiating particulars, and shows (1) how " the expatriation of capital which might have increased • the effective demand for British labour i* pro tanto, a'loss to the labourer and the nation, if not to the. capitalist himself (2) how, while there is a danger of the existing free trade territories being lost to us, there is exceedingly little chsnoo of their area being increased; and (5), how, in the "not completely protected areas," our exports are not growing edmmensurately with the increasing wealth of those areas. In a wbrti, the symptoms of cur exports are not satisfactory; "and, if wo exclude coal and machinery, " there are signs not only of a diminution relative to population, but of a diminution absolute," The outlook, therefore, is bad. Is it gdn"to improve? Mr. Balfour thinks not. He says: —

."I see no satisfactory symptoms. The highly-developed industrial countries, like Germany, America, and France, give no sign of any wish to relax their protectionist system. . The less-developed protectionist, communities, like Russia and some of our own self-governing colonies,, are busily occupied m building up protected interests within their borders—a process which is doubtless costly to them, but is not on that > account tile Jess injurious to us." And the injury to us is increased by the fact, that it diverts in these countries- the supply of capital and labour from agriculture to manufacture, and so tends to raise the price of the wheat which we are obliged to import.

.the ordinary manufacturer in a free trade country is hampered by the fluctuations of trade and over-production. But what of his protected rival, who is supreme in his own home market? "lie is not haunted by the fear of over-production. If the home, demand slackens, compelling him, if he desires 1:0 maintain prices, to limit home supply, he is not driven, like his less-favoured brother, to attain this result by also limiting output. He is not obliged to close part of his works, or to dismiss some of his hands, or to run his machinery on half-time. On the contrary, so long as other countries are good enough to oiler him open markets, lie can dispose of his surplus abroad, at prices no doubt lower, often very much lower, than the prices which his quasi-monopoly enables him to obtain at home, but at prices which nevertheless make the double transaction, domestic and foreign, remunerative as a whole."

The free trade manufacturer can do none of these things, because lie is ahvavs fighting to the dentil the control of his own homo market, and cannot fix two prices. If ho did his own goods might bo reimported! The results isto take u, concrete instance—that German steel has been sold in England at a price far below that at which an English manufacturer could produce it, or, says. Mr. Balfour very acutely, "German manufacturers either, without the double aid of combination and protection." Mr. Balfour continues: "But why (it may he" asked) should any free trader object to such a proceeding? After all, what it comes to is that the German consumer is amiable enough to make a handsome present to the British consumer and sometimes to the British manufacturer." His answer is that it disorganises industry. It scares the capitalist, already timid. It shatters "the buoyant energy which is the very 'soul of successful enterprise." And the "unprotected" trader is* stabbed, not only at home but abroad, and finds himself undersold in foreign markets through no fault or slackness of hia own, but owing indirectly to the unfair competition of the trust. What, than, is the upshot of it all? Mr. Balfour asks the optimists to study tendencies—the dynamics', not the statics of trade and manufactures. The ocean we are navigating is smooth enough, but where are we being driven by the tides?" Ho docs not look for any mitigation of the protection all round vis, for any conversion of the economic heathen, despite 50 years of missionary effort. There is hope in one direction only. Let us quote Mr. Balfour's own words:-—

"The source of all the difficulty being protective, tariffs imposed by fiscally independent communities, it is plain that we- can secure no concession in the direction of a freer exchange, except by negotiation, and that our negotiators can but appeal to selfinterest, or, in the case of our colonics, to self-interest and sentiment combined. Now, on the freo trade theory, self-interest should have prevented these tariffs being originally imposed. But it did not; and if argument failed before powerful vested interests were created it is hardly likely to be effective now. The only alternative is to do to foreign nations .what they always do to each other, and instead of appealing to economio theories in which they wholly disbelieve to use fiscal inducements which they thoroughly understand?. 'Wo, and wo alone, among tho nations] are -unable to employ this means of

persuasion, not- because in our hands it Heed be ineffectual, but because :in - obedience- to 'principle' we have | deliberately thrown it away." L ...,„'. , . „ And this salutary principle" is what ? Free trade,, as interpreted by : those 'who regard the. Cobdenite maxim that taxes should be- imposed for revenue only, " not as; the concise description of a fiscal ideal, but as a moral imperative of binding force,". Mr. Ralfour urges that there is "one and only one standard by which wo can measure the free trade merits of any policy, > and that is the degree to which it promotes free trade." And then he concludes as follows:—_ ;. .'.;; " I hold myself to be in harmony, with the true spirit of free trade when I plead : for freedom to negotiate that freedom :of exchange may be increased.:.- This freedom to negotiate, like: all other freedoms, may, of course, be abused. But are wo therefore in a mood of irrational modesty to'declare ourselves unfitted to enjoy it I think myself that it ought not to be difficult to devise a method of turning it to most useful account. But were- I proved to be wrong, my opinion on the fundamental question would remain unchanged.'; Where we fail others may succeed. It cannot be" right for a country with free trade ideals to enter into competition with protectionist rivals, self-deprived of the only instrument by which their ; policy can conceivably be modified. The first and most essential object of our national efforts should be to get rid of the bonds in which we have gratuitously entangled ourselves. The precise manner in which we should use our regained liberty, is an important, yet, after all, only a secondary issue. What is fundamental is that our liberty should be regained." '". • ' .