Poverty Bay Herald. PUBLISHED EVERY EVENING. GISBORNE, SATURDAY, MAR. 25, 1939. "THE ROAD TO DISASTER"

Poverty Bay Herald, Volume LXVI, Issue 19896, 25 March 1939, Page 4

Poverty Bay Herald. PUBLISHED EVERY EVENING. GISBORNE, SATURDAY, MAR. 25, 1939. "THE ROAD TO DISASTER"

The Prime Minister is entitled to every credit for, and the fullest cooperation in his endeavours to remedy the situation that has been created largely as a result of the policy of his own Government. It has been discovered by dire experience that the long-cherished Labour theory that it

was only necessary to expand purchasing power in order to stimulate production will not operate in practice, and Mr. Savage is to be commended for plainly recognising the fact and striving to encourage his supporters to adopt an alternative. His remarks in Auckland this week deserve to be underlined. Upon the efforts to expand production, he said, depended the standard of living of the people, and he went on: "The mere paying of higher wages will not fill the gap; higher incomes generally will not do it. Real income is to he found in production." Then, most significant of all, came the statement: "Some people think that all that is necessary is shorter hours and higher wages. That is the road to disaster." The people of the Dominion should reflect seriously on that comment for this is the road that has been followed dur-

ing the past three, years. The Prime Minister now seeks to turn the people from that path into the only one that will lead to real prosperity and he is to be congratulated upon choosing the harder course.

Reductions in working hours and increases in wages have been almost continuous features of the industrial life of the country, but in the past adjustments were effected in such a manner as not to interfere with industry to an extent sufficient to restrict production. In 1936, however, a majority of the caucus forced the Government to decree an arbitrary reduction of hours and an increase in wages, and the resultant unbalance of industry lias now manifested itself in more ways than one. In almost every sphere, production, which, as Mr. Savage says, is the basis of real income and living standards, has declined. In some factories, at least, more labour has been employed and higher wages have been paid, but the quantity of goods produced has been less. In other cases, the artificial raising of costs has meant that local manufactures could not compete with imported costs. The immediate consequence was that the public had to pay higher prices for the necessities of life, thus reducing their standard of" living, and now the Government has been compelled to restrict imports, which means that, to some extent at least, the consumer will have to do without things to which he has become accustomed. The effect of this policy has permeated every section of the community and to-day the Government is striving to undo the harm which has been caused. There is no better illustration of the dangers inherent in the policy of attempting artificially to expand purchasing power than that contained in the experience of public works. These undertakings meant, in the first place, that an excessively large proportion of the workers were engaged in capital undertakings instead of on producing consumer goods. They meant, also, that productive industry had to carry an insupportable burden in attempting to maintain works that were not productive. In other words, as soon as one section of the workers produced real wealth it was appropriated to make work for others who were non-productive. This was only the start of the evil train, for by making conditions on public works more attractive than those in primary ini dustries, in particular, labour was diverted from wealth-producing avenues to spheres in which it battened on the real producer. The result of this is seen in the fact that primary production has steadily declined while the number on public works has continued to increase. The unnatural stimulus that has been given to the building industry has produced similar results, the effect being illustrated by the fact that labour is being imported for non-pro-ductive capital works at a time when the production of consumer goods is continuing to decline.

The general position of industry suggests that further adjustments will be necessary before recovery can be expected from the baneful effects of the Government's policy. This is shown by two casual references made by Mr Savage to financial questions. When the present Government assumed office, the Prime Minister asserted that the day of borrowing was past, A little later, the Minister of Finance explained that this referred only to overseas borrowing. Recently, a local body was compelled to go overseas to raise a loan and now Mr. Savage says that if he has to borrow overseas for the supply of raw material he will apologise to no one. It is not likely that an overseas loan could be floated under acceptable conditions, but the change in Mr. Savage's outlook' is significant. The other point that provokes comment is the Prime Minister's reference to overseas funds and his hope that they will presently start to accumulate. The week before exchange control was imposed sterling funds amounted to £4,828,000. At the last return the figure was £4,547,000, a decrease of more than £BO,OOO in 14 weeks covering the peak of the export season. Summed up, the Government's policy of shorter hours and higher wages has failed, its policy of non-borrowing overseas is in the melting pot, and exchange control has not achieved its objective. In the circumstances, Mr. Savage's return to the orthodox doctrine that real income is to be found only in production is timely, if, indeed, it is not too late.