OUR FINANCIAL POSITION.

Otago Witness, Issue 2997, 23 August 1911, Page 6

OUR FINANCIAL POSITION.

THE TRAFFIC IN SECURITIES. ~ Mr J. A. Johnstone, speaking at the anmfal meeting of the DuWin Chamber Commerce on Thursday night, said. ° f irSg ho* I might best employ the oDDortunitv of addressing you , toSlht. ft occurred to me that it might Saps be Ti value to you if I gave some Sunt of the financial position of thw , Dominion as it appears to me, and mdi- , cated the object towards we ought to work in our future legislation. these matters are generally out before us by those who have political ends to serve by presenting them in some particular light, anTTt seamed to me that it would be a change for you to hear the point of view of one who looks at them as a busines* man pure and simple, and. who holds no brief for either Conservative or Liberal party. The relative value of the imports and exports of the Dominion has been kept pretty prominently before the publicof late, and a good deal has been said about the tendency for the imports to increase and the exports fo decrease. the figures quoted, however, represent merely m-oduce, goods, and specie, and they leave right out of account another class of imports and exports which nevertheless have an equal, or almost equal, bearing on the financial condition of the country. I refer to securities, the traffic in which is always of considerable extent and is yet seldom" considered as a factor in the financial situation. When New Zealand raises a loan in Londor wo export to that securities, the realisation of which creates a credit at Home in favour of New Zealand, just as surely as the realisation of our wool clip or our cheese output. Tho same thing holds good in the case of private concerns which issue shares or debentures abroad. It is true that in such cases there is an effect upon the future financial position which is not felt where the credit arises from the sale of goods, for on loans interest must be paid, and there comes ultimately the time for repayment, but their immediate effect is precisely similar to that proceeding from the export of goods. What is that effect ? Well, as one who is largely concerned with farmers and farming finance, I think I can put it most clearly by taking the conduct of farming operations as an illustration. Let us suppose thai a man purchases an* almost unimproved farm at a time when money is tight, and that ho spends every psnny' he can command in buying the land and stocking it. Ho can deal with his property in only one waiy—namely, by devoting all his energies to getting money out of his farm. He will buy nothing but what is absolutely indispensable to him, but will keep to such operations as can be carried on by the work of his own hands and at the least possible expense. In short, he will curtail his imports and increase his exports to the fullest capacity of the farm. A few years pass in this way, during which time the farmer has kept up his output so that the farm is possibly in worse condition than when he took it up. Then comes a change; money becomes easy, and he finds himself able to raise a loan on his farm at a reasonable rate of interest. At once his whole policy is altered. He now begins to spend money on his farm. He puts up subdivision fences, buys implements, breaks up tussock land and buys grass seed to sow it down, bo adds to his buildings, and generally effects all the improvements he can with the funds that are now at his disposal. His whole energies are taken up in this way, and he cannot take the same revenue out of the farm. The area sown in grain is decreased, and there are less surplus sheep for sale, because he has improved the capacity of his land and needs the natural produce of his flock to stock it up. His imports, in a word, increase enormously, while his exports go down. The productive capacity of the farm is being increased, and probably the operations of this period have done more for tho farmer's prosperity than ail the years put. together when he was taking out of his farm every penny it would yield. _ . ' •■ . This illustration applies to New Zc-iixnd both directly and figuratively, tor the ex- ( ports and imports of tho country arc largely a 6U!vwMo.ry of the trunsaetiot.M of i each individual farm, and again, the ; development of the country dv public I works Is prwisely like the deveianttiani. of j a farm, but on rv iarjfer scale. If, there- I fore, -wo are increasing tho creiliU ©*isfc- , ing abroad in favour f-f Nov.- Zealand by | tho 'WCjor-t of j-u'jlic and prlvaio sc-cuvitios, • n*> In lho ommint cf our imperii rcla- !

tively to our exports may naturally be looked for, and need occasion us no alarm. There is no means as far as I am aware of arriving exactly at the movements of securities to and from the country, as the Customs returns enable us to do with g-oods. The transactions in the securities of the Government and local bodies, however, are published, and I desire to make what I think will be an interesting comparison between two recent periods, each of two years' duration. Unfortunately, the last return of Government securities jhat I have been able to obtain takes us up <>nly to the 31st March, 1910, and the figures obtainable. in connection with the finance of local bodies are a year further back than that. However, I have assumed for the purposes of this comparison that the tendency in the -case of local bodies shown in the year covered by the last available return was continued during the succeeding 12 months, and this, I think, will not be far out. I find then that the public debt of the Dominion, including under that ter.m the securities of both Government and local public bodies, was iircreased during the two years ended 31st March, 1908, by £6,077,140, of which £5,043,212 was raised within the Dominion, and only £1,033,928 was found abroad. For the two years ended 31st March, 1910, I estimate the total increase at approximately £10,000,000, of which something like £2,400,000 was raised locally and £7,600,000 abroad. As it is in imports mainly that loan moneys become available, it is easy to understand, and to view without concern, the increase in imports that has taken place. So far I have looked at the movements irr securities only as they affect the immediate financial position. It is obvious, however, that there is the distant future to too, for sooner or later our securities mature, and must be provided for. If the money realised is -wisely expended, however, the day of reckoning will have no terror for us. Now that the elections are drawing near, wo are getting from the public prints and from politicians of both parties widely different accounts of the financial position of the Dominion. While one side sees everything rose-coloured, and assures us that all is right as right can be, the other side paints the picture as black as it is possible to do, and warns us that with our huge borrowings and large public debt we have nothing to look forward to but ruin. Well, it is generally admitted that it is necessary for all young countries, if they wish to develop with anything like rapidity, to borrow from older countries that have already gone through the development stage. Canada and the United States have done this, but in those countries development of the natural resources by means of railways and other similar works has been left almost entirely to private enterprise. The export of securities under such circumstances consist of debentures, bonds, and shares of private companies. These securities do not form part of the national debt so called, yet they represent a debt due by the country just as much as our public securities do. As in the Australasian colonies, the State has taken in hand many of the enterprises that are elsewhere in private hands, it necessarily follows that the public debt per head is greater than in other oountries. It is idle for use to question as to the wisdom of State ownership. It has been adopted, and it is not likely that an attempt to depart from it would now be successful. The question for us to solve, then, is whether as our public liabilities increase our productive assets are growing with them in a just ratio. If we go back 20 years, say to 1890, and compare our position then w r ith our position in 1910, I think there can be no question vhat we have progressed and not gone back. In 1890 our public debt was £6O 5s 3d per head of population; in 1910 it was £72 13s 9d, an increase of £l2 8s 6d per head. Twenty years ago the assets the country had to represent its indebtedness consisted of its railways, telegraphs, telephones, roads _ and bridges, public buildings, etc. I - think it will bo readily enough admitted by most peoplo that our assets under these headings have increased with the growth of our population, and thnf they arc as good a security r.ow at £6O os 3d per head of our population as they wore • in 1890. To represent the

additional £l2 8s 6d per head of debt we have the following rrew enterprises started since 1890: Lands for settlement purchases... £6.271,026 Advances to settlers 5,743,800 Advances to workers 703,500 Native land purchases ... ... 786,242 Bank of New Zealand preference shares 500,000 Wellington-Manawatu railway ... 1,000,000 State coal mines ..'. 170,000 Reserve fund securities 800,000 £i5,984,568 Divided over our population in 1910, this amounts to about £l6 per head. As with the possible exception of the State coal mines these investments are all interestbearing, they form no burden on the taxpayer, and his position is therefore better tharr it was 20 years ago. I think, too, that it will be generally admitted that the population of to-day is better able to- bear its burden per head than it was in 1890. The wealth of the country has increased enormously, and, to take only one evidence of this, we may bear in mind that barrk and savings bank deposits now amount to about 37 millions, as compared with 15£ millions in 1890. Another point of importance in this connection is the question as to who holds our public debt. In 1890 practically the whole of our debt of £6O 5s 3d per head was owed abroad; in 1910 over 13 millions, or upwards of £l3 per head, was owned by the people of this country. In spite of what we have expended on new enterprises, therefore, the foreign money we are using is no greater per capita than before we entered upon these. To put it in another way, we may say that the money invested in the State concerns I have enumerated has been furnished b'y the people out of the profits of our local industry, and that our borrowings abroad since- 1890 have merely been used to increase our public assets step by step with the increase of our population . The figures I have just quoted refer, of course, to public securities only, for so far as I know there no no means of .'inuing out exactly to what extent the debt of the Dominion on account of its private securities has diminished.' That there has been a diminution, however, I think no one who can look back 20 years can doubt. In 1890 there were in Otago and Southland such foreign-owned concerns as the British and New Zealand Mortgage Company, the Otago and Southland Investment Company, New Zealand Agricultural Co., the New Zealand and Australian Land Co., the New Zealand Mortgage and Investment . Association, Robert Campbell and Sons. New Zealand Trust and Loan Co., and others, as well .as numerous foreign owners and mortgagees, the Colonial Bank of Australasia, for instance, which owned Moa Flat Estate, the British and Australian Trust and Loan Company, which owned Brooksdale Estate, and quite a number of others. During the period referred to almost all these companies have been bought out or paid off with locally owned moneys. Of the companies mentioned, the only ones still existing here are, I think, the New Zealand and Australian Land Company and Messrs Robert Campbell and Sons, and the holdings of both of these are now very much reduced. The cases mentioned apply only to Otago and Southland, to which places my business experience has been almost entirely confined. Even leaving the rest of the Dominion out of account, however, the falling-iin of the securities mentioned will account for a very large sum, and I think we may safely conclude that this import of private securities has been going on side by side with the increase of our public debt, and that during the last two decades, instead of going from bad to worse, we have been successful in making a verv substantial improvement in our financial position. While there is ground for eoiid satisfaction with our position, however, I do not think wo stand as well to-day as we should do if we had made the most of our natural advantages. New Zealand is admirably fitted to be a large exporter of the products of the soil. We can send our wool, meat, butler, and ribses© to the markets of the Old World, and can successfully compete with any other country on earth. Moreover, the demand for these products is an increasing one, and I believe it is destined to increase more and more. Taking wooll as an example, I learn from Dalgety's last Wool Review that in 1895 there were, roughly. 1004 sheep for every 1000 of the world's wool-using population. The latest figures available show that the proportion has fallen to 917 sheep per thousand wool-users, and it is evident that the demand for wool is gaining upon the suppy. In frozen meat, also, it appears that we shall shortly have a number of new markets open to us in Europe, and, on the

I other hand, the competition we have to meet j from North America is likely to decrease, as that continent will shortly be under the I necessity of importing' foodstuffs rather than exporting them. This being so, everything j points to a good time ahead for the country that will increase its production of wool, mutton, beef, and dairy produce, and this we I ought to set about doing. The importance i to New Zealand and Australia of any movement which may have the effect of enhanc- . ing the value of its pastoral and agricultural products is realised when wo remember that, according to Dalgetv's Review, such goods represented in 1910'£53,000,000-for Australia, and £17,726,722 for New Zealand, or 71 per cent, and 86 per cent, of the total exports from the respective colonies. Wool alone accounted for 39 per ceimt. of Australia's export, and 40 per cent, -of New Zealand^. Now, people are crying out for more manufactures, and suggesting the establishI meat of this industry or that. The fact is j that we - have not the population to support the manufactures we have already undertaken. Manufacturers complain that they cannot get operatives -to carry on their work, an<l on the other hand they say that competition is so keen that they cannot I make their factories pay. Most of you, I think, can point to industries that arc not I making more than a bare investment in- ! terest upon the capital sunk in thisni. Some | of our manufacturing industries, indeed, are ] artificial ones, created by our protective tariff, and in a good many cases I believe | we would have done better had we imported the ai tides we are now manufactur- , ing, and encouraged the workers of the j Dominion to take to the land for their livelihood. Our circumstances are such that j we cannot manufacture for export to any appreciable extent, wages here being too , high and labour being protected by all sorts 1 of harassing restrictions that effectually prevent us from competing with other countries. The only imports in which we can meet the world's competition are raw products, and if we are to increase our exports as it is desirable we should, we can do it only by securing a greater output of agricultural and pastoral produce. To do this it is only necessary to encourage close settlement in the country districts. I may illustrate the possibilities in that direction by putting the case of an estate of some 55,000 acres that was subdivided a few year 3 ago. I do not know what was the gross revenue from this property worked as a whoic. I do know that it could not bo made to pay interest upon its cost, and I think I am greatly overestimating' the gross return from the property to the former proprietor when I set it down at £25,000 per annum. The estate is now cut up into dairy farms, and as the bulk of what it is producing is focussed into dairy factories in the vicinity it is possble to make a fairly reliable estmat© of what is being ta.ken out of it. According to my computation, the gross return for the past year amounts to something like £125,000. These farms are, however, by no means fully developed. Probably not much more than a third of the land has been brought into first-class order, and a much better return may bo- looked tor year by year for several years. Though much has been accomplished of late by the cutting up of large estates, the process is a slow one under present conditions, and further subdivision is necessary. In carry ng this out we are hampered by lack of population, and this is where I think a serious error has been made in the past by our legislators, both Liberals and Conservatives. They have been devoting their attention too much to tariffs to bolster up our manufactures, and too little .to the settlement of the land. In late years we have seen the inception of some very wise policies, such as the purchase of lands for settlement, the encouragement of scientific methocls of agriculture, the regulation of the dairy industry, the inspection of stock, and so forth. These are all steps in the right direction, and have already been found beneficial, but they do not go fair enough. We ought to add to them a vigorous immigration policy, faking care that the immigrants wo invite are of the class .we want — namely, experienced farmers with moderate means and farm labourers. To this end we ought to advertise as Canada and Australia are doing, and impress upon possible immigrants of the classes mentioned the resource's and (prosperity of our country. More than this, however, is required, for our aim should be to rob country life as far as possible of its discomfort and hardship, and to give the settlers facilities, by means of roads, railways, bridges, irrigation works, and so on, to develop the productive capacity of their land. I look forward to the day when

we shall see the whole of this Dominion settled by small farmers of every class—pastoral, agrcultural, dairying, fruit-grow-ing, poultry-raising, and! so forth, —all working small holdings and taking out of them the utmost that they are capable of producing. When that comes to pass, we city folk will have nothing to complain of in the way of trade. To try to increase the population of cur cities by establishing new industries seems to me to be beginning at the wrong end, but once wo have our country districts thickly settled our city trade will take care of itself, and we may then be able successfully to inaugurate the new manufactures that are being spoken of to-day. If this chamber and the sistsa' chambers of the Dominion would urge upon the Government the necessity for attracting Working farmers and farm labourers in large njumbems land on with energy those public works that are beneficial to the farming community, they would be going to the heart of the problem and the adoption of their recommendations would lead to an era of trade prosperity that cannot be realised in any other way.