THE New Zealand Herald AND DAILY SOUTHERN CROSS TUESDAY, MARCH 1, 1938 INSULATING NEW ZEALAND

New Zealand Herald, Volume LXXV, Issue 22975, 1 March 1938, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS TUESDAY, MARCH 1, 1938 INSULATING NEW ZEALAND

To those who care nothing for the rest of the world so long as they can live in comfort, Mr. Savage's idea of insulating New Zealand economy may sound attractive. The one question to such self-centred New Zealanders would be whether it is possible so to isolate the Dominion and still live in comfort. The latter is an essential condition because there is little doubt New Zealand could continue to exist on her native resources if she were • willing to forgo many of life's little luxuries and amenities as well as many things at present counted as necessities. The lowering of living standards would therefore be part of the price of economic insulation; for "to insulate" means, according to the Oxford dictionary, ' to make land into an island, to detach persons or things from their surroundings, to isolate." Mr. Savage used the word in" the economic sense, meaning that New Zealand would make herself into an island economically as well as geographically. He says it is possible, but it may not be desirable. And in any extreme sense, it is not even possible. New Zealand cannot insulate or cut herself off from her markets, from buying and selling abroad, without everyone being much the poorer. Mr. Nash has not begun to experiment with the idea. On the contrary he has organised a department with the object of expanding overseas markets.

That is because New Zealanders eat only 17 per cent of the butter they produce, 4 per cent of the cheese, 10 per cent of the lamb and 13 per cent of the pork. With the best will in the world, and the largest appetites, they could not consume a much larger quantity of these excellent foods, much less devour the whole. Neither are they likely to use much more than 5 per cent or one-twentieth of the wool clip. If, then, New Zealand economy were insulated, most primary products would be useless and wasted. Railways, freezing works, dairy factories, wool stores and ports would be idle for the most part and the workers along with them. Moreover, if the vast surplus of produce were not sold abroad, no funds would be available to import many things in daily demand. The ports would be affected again, and the carriers, the warehouses, the shops, and all their staffs. The people would have to go without such things as tea and chocolate, silk stockings and cinema films, motors, tyres and petrol, Virginia tobacco, scents and cosmetics, and a host of other things of more importance and less. New Zealand's economy would be insulated. The result, of course, is absurd and in the political and many other senses, quite impossible. It is only charitable to assume Mr. Savage did not mean all that. He may not know much about trade in a practical way, but he should know enough to realise the shattering effect on employment and standai-ds of living if existing trade avenues were closed. But if trade with the world remains open, the insulation can be no more than partial. New Zealand will not be able to escape the impact of recession entirely, as Mr. Savage so confidently asserts. "We have our plans ready," he says. "They are both comprehensive and detailed. It is -largely a money problem."

Apparently money is to be the insulating material. The National Government used it in that way when it raised the exchange to 25 per cent. Mr. Savage may call his plan by another name, but it would amount to the same thing. By monetary means he intends to protect the farmers' income, among other things. In other words, farmers would be enabled to draw the same number of New Zealand pounds for their produce, whatever it fetched abroad. Suppose then that the wool cheque, affected by recession, drops from £12,000,000 sterling to £6,000,000. Mr. Savage would have to see that it still returned the growers £15,000)000 in New Zealand currency. Growers would therefore receive- 50 New Zealand shillings for every English pound, instead of 25s as at present. The rate of exchange for wool would be raised to 150 per cent. Suppose also that butter, caught by the same recession, falls ii* price but not so far, receipts from exports dropping from £12,000,000 to £10,000,000 sterling. Mr. Savage, "protecting the farmers' income," would have to see that the dairymen still received £15,000,000, and would pay them thirty New Zealand shillings for every English pound. The rate of exchange for butter would be 50 per cent. Like the woolgrowers, the dairymen would be insulated from the vagaries of overseas markets. The question is whether they would be content to accept 30s for £l sterling when they saw the woolgrowers drawing 50s. Actually there is no question; everyone knows the answer. Mr. Savage's plans will have to be more than "both comprehensive and detailed" to overcome such a financial difficulty. But there is another point. The recession, on the examples taken, would have reduced New Zealand's income from wool and butter from £24,000,000 to £16,000,000 sterling. There would be £5,000,000 less from these two items alone to spend on all the things New Zealand imports. Monetary manipulation could not recoup that loss. The ports, importers, transport, retailers and all the rest would be affected, and so would the consumers. Living standards and employment would be reduced. Insulation would have failed, as it must always fail so long as New Zealand relies on overseas markets or, in other words, so long as she is not I entirely self-sufficient.