PUBLISHED EVERY EVENING GISBORNE, SATURDAY, MAR, 11, 1939. SECONDARY INDUSTRIES

Poverty Bay Herald, Volume LXVI, Issue 19885, 11 March 1939, Page 4

PUBLISHED EVERY EVENING GISBORNE, SATURDAY, MAR, 11, 1939. SECONDARY INDUSTRIES

During the past week or so the Prime Minister and some of his colleagues have been obtaining an insight into the operations of New Zealand secondary industries. Mr. Savage, in particular, has been greatly impressed by all that he has seen and. quite understandably, is anxious that fuller advantage 'should be taken of the ability of New Zealand tradesmen and craftsmen. His views on this point will be widely shared, for it has long been recognised that the Dominion urgently needs a greater diversification of industry, and more so now that it is faced with restrictions of its exports. It is not belittling Mr. Savage's enthusiasm, however, to point out that the question is a manysided one and that it must be studied from all angles. It would be futile to ignore the fact that there are serious difficulties in the way of the establishment of new industries on a large-scale, the major problem, perhaps, being that production costs in New Zealand are so high that if the use of local manufactures is enforced by the exclusion of imports the burden imposed upon the consuiner will more than offset the advantage obtained by the development of new industries. There is always a tendency to protect the producer or manufacturer at the expense of the consumer and in a small country like New Zealand lack of balance in this respect might become serious.

It has been reported recently that within the Parliamentary Labour Party itself there has been a good deal of criticism of the dilatoriness of the Government in fostering secondary industries, the chief complaint being that action has been taken two years 100 late. This view seems to be supported by a study of past and present conditions. The first requisites of new industries are capital and plant. Two years ago ample funds were available lor investment at reasonable rates of Interest and there was a large accumulation of overseas funds with which plant could be obtained. Today, the position is vastly changed, in the first place, the trading banks, instead of seeking outlets for their funds, have been compelled to curtail advances, and savings bank deposits, instead of steadily increasing, have been diminishing at the rate of more than £1,000,000 a month. Secondly, the overseas funds have been reduced almost to vanishing point and it has been necessary for the Government to restrict the importation of even consumer goods. These factors alone make the time unpropitious for extensive new capital ventures while other prevailing factors place additional handicaps on those who would seek to develop secondary industries.

During a visit to one factory last week, Mr. Savage stated that the foundation of development was confidence and a little later he stated that an opportunity would be given the people to invest their savings in new industries. If there was confidence people would need no invitation to invest their savings, but the fact must be faced that confidence today is seriously lacking and the reason is not hard to find. Mr. Savage and others have repeatedly pointed out that there must be co-operation between capital and labour, and the Prime Minister, during his inspection of industries, would do well to inquire as to how capital has fared in the past two years. The position is disclosed by an analysis of figures relating to ten companies reasonably representative of the Dominion's secondary industries. A person who, in 1937, had invested his savings by buying 100 shares in each of these companies would have required to pay £1194 and would have secured a return of lust over 5 per cent on his investment. To-day, those same shares are worth only £953, and the income from them has been reduced from £6l 10s to £4B 10s, or a little more than 4 per nent. This means that the investor has lost more than 20 per cent of his eavings and has had his income reduced by a similar percentage. U the investment had been confined to five of the companies, the reduction of income would have been little short of 1 I SO per cent.

This is tlio first thing that the Government is up against in its attempt in foster now industries; it must ensure a reasonable measure of safety for capital and an adequate return on the investment. There is, of course, always an element of speculation in starting a new industry, but the uncertainty to-day is greater than ever before. With a stable rate of exchange and a fixed protective tariff an industry knows exactly where it stands, but the system of import con-

trol 'gives no real security at alt because no one knows how long it will last. Capital that was invested in an industry under the present conditions might be completely lost through a subsequent admission of competitive imports. The return on an investment is governed by the same factors and also by manufacturing costs. If costs continue to rise as they have in recent years the profit margin can be wiped out and no industry will continue indefinitely without profits. Even where profits are earned, the State takes as much as SO per cent of them in taxation and the threat of further increases in taxation adds to all the other uncertainties. The Government will have ample support in its endeavours to expand the industries of the Dominion but it must proceed along sound lines. The first principle is that no new industry should be encouraged unless it is proved to be economic and capable of meeting reasonable overseas competition, and the second is that it should be assured

of adequate protection against, rising costs and taxation.