THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, OCTOBER 7, 1938 LABOUR ECONOMICS

New Zealand Herald, Volume LXXV, Issue 23162, 7 October 1938, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, OCTOBER 7, 1938 LABOUR ECONOMICS

At the end of the Labour Government's first period of office, it should prove instructive to examine the working out in practice of its economic theories. Labour took over under exceptionally favourable conditions in 1935 with the national economy recovering, heavy reserves of London credits, and export prices rising. The economic barometer had set fair for the great experiment, one that the United v States was » already making and that France under M. Blum was •to launch in the following June. The economic theory of all three new deals consisted in laying the emphasis on consumption rather than production, on purchasing power rather than earnings. Purchasing power was to be increased by Government spending, particularly on public works and social services, and by higher , wages for shorter hours. Trade and industry were to be compensated ■ for the inevitably higher costs by larger turnover and so stimulated into greater activity, increasing employment and widening prosperity still further. What has been the result? After a short spurt, America was overtaken by recession with 14,000,000 adult workers unemployed. In France the experiment never looked like succeeding; production fell, prices rose, the value of the franc fell from over 3d to under lid, unemployment increased, imports grew and exports shrank, and France was weakened financially, industrially and militarily in face of her energetic enemies. New Zealand was more fortunate, the Labour Government obtaining a flying start, as already noted. But everyone knows that, as the reserves of London credits are used up and production in important industries falfs, the pace is slackening and that, unless New Zealand changes her economic policy, nemesis will overtake this country as surely as it did the far wealthier United States and France. When he took office, Mr. Savage recognised that his purchasing power idea was not invulnerable. "If we raise wages and decrease hours of labour and then allow prices to go up in the same ratio," he said in 1936, "we will have altered nothing." Workers and their wives are finding by experience that the Prime Minister spoke truly. The early gains of money wages and purchasing power are being cancelled out by higher prices. In the long run the only way to raise standards of living is to increase the, supply of desirable goods or services. Higher wages and shorter hours could therefore be justified only by working harder, or more efficiently, through better organisation and more complete mechanisation. Otherwise fewer

goods and services would be produced and no amount of extra paper money could bring about a larger division from a smaller pool. More paper money and lower output have naturally found their sequel in higher prices. The full effect has yet to be felt, for New Zealand has been drawing heavily on past accumulations of London credits. Relief by that means has severe limits which have been almost reached; the

credits are fast running out. They have gone to pay busy hands in Britain, Australia, Canada, America and even, thanks to Mr. Nash, in Germany, because New Zealand preferred to work 'shorter time and could not compete in many directions. Work created by the Governjment was unproductive, including extra jobs in State departments, uneconomic public works, and relief works undertaken by local bodies. The industries that grew or manufactured things people could use were neglected. To quote an example, Australia in the second

half of last year imported machinery

valued at £14,731,000 to help labour make things instead of importing them, and export them as well 'to backward industrial countries like New Zealand. On the other hand the Dominion's bill for machinery last half-year was £1,482,000—0n1y one-tenth of Australia's—and much of that would not be for productive industry but to enable Mr. Semple to build more uneconomic railways and luxury roads, to cut deeper irrigation channels in land that sours if there is too much water, and to drive more and more tunnels. Such works will make continuing charges on the people instead of returning wealth for the labour and capital now being spent on them. The Government is failing to increase or even maintain the country's productive capacity—dairy production and factory output are actually falling—and the end must be lower standards of living because there will be less to go round. Of course Labour has another theory that New Zealand can rise above economics and markets by insulating herself. Mr. Langstone and Mr. Nash used to be positive about the efficacy of this device, but Mr. Nash is so no longer. He has admitted that the guaranteed buying prices cannot be fixed regardless of the market sale prices. To do so "would wreck the scheme." Apart from that verbal admission, a more impressive one has been made tacitly by the Government's failure to insulate the farmers from the drop in wool. A larger clip last season sold for over £6,000,000 less than that of the previous season. : Here was the very condition—higher ; output and lower return—that Mr. j Nash deplored in the depression and i against which he pledged himself to i apply an infallible recipe. He has i done nothing. In fact Labour i economics have proved their un- f soundness. If they are practised I much longer, national bankruptcy 1 can scarce be escaped. Now Zea- 1 land's political remedy lies in turning ( to Mr. Hamilton and a sound ( economy that will promote increased ( production, so guaranteeing higher ( I consumption and living standards ] m the only lasting way—by goods i produced., 1