ECONOMIC CONDITIONS.

New Zealand Herald, Volume LXVIII, Issue 20924, 14 July 1931, Page 9

ECONOMIC CONDITIONS.

DISTINCT GLEAM OF HOPE. PROBLEMS OF AUSTRALIA. LESSONS FOR NEW ZEALAND. —-IP. "There is a very distinct gleam o? hope in the situation which at present confronts New Zealand," said Sir Lennon Raws, managing cjirector of Imperial Chemical Industries (Australia and New Zealand), Ltd., speaking on the condition of Australia at the luncheon meeting of the Auckland Rotary Club in Milne and Clioyce's Reception Hall yesterday. "Together with the United States, Canada and Australia, New Zealand shares the honour of possessing the highest standard of living in the world," he continued, "and in its surplus in this direction lie the resources from which the country may speedily be put back on a prosperous and sound financial basis."

Sir Lennon said he had been tempted to speak of the condition of New Zealand as he saw it, but he felt lie would be on safer ground in describing the problems which confronted Australia and allowing his listeners to draw their own conclusions in regard to the application of his remarks to New Zealand. There had been too great a tendency in Australia and also in New Zealand to attribute economic disasters to the malevolent influence of such local incarnations as capitalism, Socialism, Bolshevism, the banks and the Arbitration Court, in much the same way as our ancestors had attributed their famines to the evil influence of malevolent spirits. Great Seduction in Income. The trouble which confronted Australia was a reduction of about £200,000,000 in the national income, Sir Lennon continued. This was due ; to a rather severe drought in the producing districts, the fall in world prices and more particularly to tho cessation of overseas borrowing. During the past 10 years Australia had borrowed at the rate of £22,000,000 a year, whilo for the past five years the rate of borrowing from overseas had been about £30,000,000 a year. There were four directions in which this borrowing had caused trouble in Australia. In the first place, a great deal of work had been provided in the past for Australian workmen and now that the borrowing had ceased many men had been thrown out of employment. Another result of borrowing was the increase of the internal price level. Much of the money

borrowed had not been spent- on productive works and there had been a great increase in luxuries and a more extravagant mode of .living. Government Expenditure;, ■

Government expenditure had increased from £80,000,000 a year in .'L9I4 to £231,000,000 in 1929, Sir Lenrion continued. The bulk of the increase was due to heavy outlays on the social services such as health, pensions and education. Mr. Lang had chosen repudiation and Mr. Theodore an inflated currency as & solution of the troubles of their respective Governments, but they did not seisin to realise that neither repudiation nor inflation could add one penny to the real income of the country. They were merely book-keeping devices which might enable a balance to be struck on paper. The final result of the borrowing had been an increase in the amount of interest paid on external indebtedness. From £8,000,000 a year in 1914 the interest charges had now grown to the enormous sum of about £3,000,000 a month,, and expressed in terms of wool, the chief export, this represented an increasingly heavy burden as the prices for wool went down.

Points Wortii Careful Study. To meet the position it had been sought to convert £550,000,000 of internal indebtedness at reduced rates of interest. While it was unreasonable to expect all of the bonds to be converted, the speaker said it was very likely that the reduced interest would be accepted by 80 per cent, of the holders and that moral suasion would be sufficient to bring about acceptance by the remainder. Concluding his remarks, Sir Lennon said he felt sure New Zealand had not felt the depression as acutely as Australia, but there were many points emerging from the condition of the Commonwealth which would repay careful study in this Dominion. It would be necessary to avoid any further overseas borrowing, unless it was for work of a definitely productive nature which could repay the interest charges at least. New Zealauders should also keep a close watch on non-productive expenditure in their own businesses and also in Government matters and they should remember their' dependence on overseas markets. It must not be forgotten that prices were based upon the ability of the buyer to pay, and not on any regulation by the producer. If prices fell, it [ was the duty of the producer to reduca his costs of production.