DUBIOUS REMEDY

Poverty Bay Herald, Volume LXV, Issue 19808, 9 December 1938, Page 15

DUBIOUS REMEDY

DANISH EXPERIENCE RESTRICTIONS ON TRADE MANY PROBLEMS ARISE PARALLEL WITH DOMINION Control of foreign exchange and also if imports is a remedy which several countries have attempted to apply during the last few years in an effort to rid themselves of economic ills. Almost invariably, the experience overseas hap been that the complexities of the cure have given rise to other ills of their own making, states the Auckland Herald. In the present situation, both with regard to exchange apd overseas trade generally, an interesting parallel can be drawn between New Zealand and Denmark. Both are primary producing countries, replying mainly on the British market for the disposal of exports of foodstuffs. In addition, both countries are endeavouring to build up their secondary industries, along with an expansionist programme generally, and, as a result, similar sets of problems have arisen. Denmark has attempted to free herself from difficulties by adopting a system of foreign exchange control, but the events of the last nine years have tended to show that such a system breeds other difficulties of its own. The country is rapidly being converted into a closed economic system on the German model and many of the more important commodities which are not produced in Denmark can only be imported under license.

Tariff Barriers Raised

The system ip held to serve a threefold purpose. It enables the Danish Government to continue its present commercial policy and to carry out m some measure the terms ol trade treaties with Great Britain and Germany; it upholds, in appearances at any rate, the integrity of the currency; and it enables the Government to superimpose an ungcaleable wall on existing tariff barriers in protection of Danish secondary industry. As far as the stability of the currency is concerned, most expert observers are of the opinion that foreign exchange restrictions would not have been necessary if the Danish Government had not pursued an expansionist policy, devaluing the currcncy, expanding credit, starting large public works for the relief of the unemployed and encouraging secondary industries. Another factor was that the Danish National Bank was not allowed to control the money market in the orthodox way. Credit Structure Unbalanced The orthodox procedure, according to economists, would have meant a higher bank rate and some restriction of credit. But that would have aggravated the unemployment problem and increased the weight of farmers’ indebtedness and it was probably only natural that the Danish Government recoiled from such a step. However, there is evidence that the expansionist policy was carried too far. “The damage has been done,” stated one commentator last year. “The Danish credit structure, at its present parity with sterling, is out ol' balance.' just as was the French before the devaluation of the franc. And hence all sorts of artificial supports arc required to prevent an artificial currency from finding its true level. Renewed devaluation would prove unpalatable but it is now about the only tiling that can be done to bring the Danish credit structure back into line without a depressing dose of deflalion.” Sweden’s Offer of Help The gravity of the situation can be realised when it is recalled that some months ago Sweden, in order to help the Danes out of their economic straitjacket, was prepared to grant Denmark a large loan out of its huge foreign exchange reserves on the condition that the worst features of the exchange control system were modified. For a considerable time now normal channels of trade in Denmark have been almost blocked. Rigorous control of foreign exchange, it was found, could only be accomplished by means of equally rigorous control of imports. Overseas balances were almost non-existent and the Danish Government was forced to adopt all sorts of irritating and complex methods in order to regulate the .flow of imports. The whole system has placed Denmark at an even greater disadvantage with those countries with which she is accustomed to trade. Throughout Denmark’s experience the parallel with New Zealand is easily drawn. The two countries, in 1!>33, and almost to the day, raised their exchange rates on London, but in New Zealand there was a couple of years of gradual reflation before the' Labour Government swung into action with an expansionist policy very much on the lines of the Danish model. Danish foreign credits were quickly dissipated when an inflationary policy was followed during the depression years, and some economists regard it as a measure of too precipitate action that New Zealand’s London funds should have been dispersed by the adoption of an “onward and upward” policy during a period of comparative prosperity.