LABOUR POLICIES

New Zealand Herald, Volume LXXV, Issue 23073, 25 June 1938, Page 22

LABOUR POLICIES

A GLARING CONTRAST EXAMPLE OP SWEDEN - PREPARATION FOR SLUMP LONG-RANGE STATE PLAN New Zealand and Sweden both have Governments described as "Labour," but it would be hard to imagine a more glaring contrast than that which exists between their respective financial policies. The New Zealand Government is spending lavishly in every diroction, especially on public works, and totally denies the possibility of a future slump. The Swedish Government, on the other hand, is preparing for that very eventuality by means of an elaborate long-range plan for accumulating public financial resources in good years, to bo expended when any trade decline appears. Just what the Swedes are doing is explained in a recent article in the Manchester Guardian by Mr. Brinley Thomas, of the London School of Economics, and author of "Monetary Policy and Crises: A Study of Swedish Experience," a work published in 1936. Sweden's Last Slump "There is now virtual unanimity among economists regarding the desirability of a policy whereby local as well as national capital development should be timed in such a way as to help to even out the ups and downs of business fluctuations," Mr. Thomas writes. "It happens that the Labour Government in Sweden has taken ambitious steps in this direction. "Loan expenditure on public works played a good part in bringing about a rapid recovery in Sweden after the last slump; but there had been a lack of adequate preparation in advance. The policy of varying the volume of public investment in accordance with the trend of general business activity must rest on two cardinal principles. In the first place, the projects contemplated must be w6rked out in detail beforehand, and the urgent type be distinguished from those which have a fairly flexible time-table. Secondly, the public capital works undertaken during the slump are to be financed out of borrowed money, the loans to bo redeemed from the surpluses of the boom years. Three Steps Taken "Sweden has adhered rigidly to the second of these rules. The loans incurred for public works during the last depression were secured on the yield of increased death duties and surtax; and by the year 1936-37 the Finance Minister was able to fulfil all his liabilities on that account out of current revenues. Next time there will be no falling short of the first rule. The Government has reason to be satisfied with the results of its labours; it can face its critics with a clean slate, and it is as convinced as ever of the need for using the Budget in the interests of monetary policy. "Considerable thought has been given to the problem of conteracting a future slump. Three important steps ( have recently been taken. A committee was set up in 1936 to inquire into the projected capital expenditure of the State for the next five years, and of all local authorities for the next 10 years. Its report, presented in July, 1937, covers the whole range of capital development cbntemplated by the State, public corporations and local authorities, with full details of the cost and amount of employment involved. Indispensable Weapons "Furthermore, the Government has established a Business Cycle Institute, the purpose of which is to co-ordinate all statistics prepared by different departments and to issue half-yearly reports on the course of economic activity. Then, finallly, in the Estimates submitted by the Finance Minister in January of this year, notice was given of an important change in the national accounts. "The Budget is to be divided into two —an ordinary and a capital Budget: and a new Budget Equalisation Fund is created with the object of systematically providing for underbalancing in times of depression and overbalancing during the boom years. "Here is a Parliamentary democracy showing itself fully capable of action involving long-period planning without encroaching on the essential liberties. It is arming itself with three newweapons which experience has shown to bo indispensable in a world so prone to severe fluctuations—an annual inventory of investment decisions by public authorities, an authoritative report at regular intervals on the course of business, and a technique of securing the equilibrium of the Budget over a period of years instead of in each single year. Investment ol Millions "The total of the projected capital investments of the State, public corporations and local authorities, according to the committee's findings, comes to about £145,000,000 sterling. The fact that this is nearly three times the size of the ordinary annual Budget cives an idea of its relative magnitude. Tho aggregate includes £35,700,000 to be spent by the State, the railways and the Post Office, mostly on normal capital development, in the years 1937-42. "Over a quarter of this amount is described as 'works in reserve'—namely, projects designed to relieve unemployment. The municipalities have planned an outlay of £28,750,000 over the 10year period 1937-46, a third of which is made up of works in reserve. The rest of the grand total applies to the years 1937-46, comprising £4,850,000 on roads, £23,200,000 on agriculture and £7.500,000 on forestry. This survey will prove most valuable to tho Government, for it will make it possible to earmark those capital works which can be kept in hand for the lean years. Long-Term Budgetary Plan "The new Business Cycle Institute has already published its first report, I an exhaustive analysis of the course of the Swedish boom. Perhaps the most interesting innovation, however, is the reform of tho Budget. In future there will be two separate accounts, the ordinary and the capital Budgets, and the amortisation of public investments will always be a regular charge on the ordinary account. "The establishment of a Budget Equalisation Fund indicates that henceforth equilibrium is to bo conceived in terms of a period of years; tho surpluses which will pile up in this fund in times of prosperity will be .drained away to Biipport increased expenditure whenever business conditions > become unfavourable. Leniency during tho downward swing to bo counter-balanced by stringency during the upswing, so that the amplitude of the fluctuations may be diminished—this is the avowed object of tho new technique."