LETTERS TO JOHN SMITH

Taranaki Daily News, 21 August 1930, Page 9

LETTERS TO JOHN SMITH

ECONOMICS FOR ALL PROSPECTS OF HIGHER WAGES. THE MEANING OF EFFICIENCY. This is the first of a series of letters written for the Melbourne Herald oy Professor L. F. Giblin, Ritchie Professor of Economics in the University of Melbourne. They are an attempt to tell plain men in plain words why Australia has drifted into economic trouble and how she may recover. Readers will have no difficulty in making the necessary mental adjustments to apply the lessons to New Zealand. I. THE BASIS OF WAGES. Dear John. —I want to talk first of all about the prospects of higher wages. Not higher wages with higher prices, but higher “real” wages that will buy more stuff. Real wages have had ups and downs, but on the whole have risen greatly in the last 100 years, so that average real wages in Australia are five or six times what our greatgrandfathers in England earned when they were young. Wages will have ups and downs in the future as in the past.but on the whole real wages will go on rising with the growth of knowledge and. invention. But for any given time and place there is always a limit beyond which wages cannot rise. They may rise higher in one trade, but .it will be at the cost of wages in another trade. The average wage cannot go beyond. a certain limit. .. There is also always a limit below which real wages cannot fall the amount necessary to keep workers physically and mentally fit for their work, and to keep them from moving off to other countries. Between these limits there is room fot’ bargaining, and .arbitration and awards by Industrial Courts. Before the workers were organised wages tended to keep near the lower limit. As the unions grew strong, wages moved towards the upper limit. In the better organised trades in Australia it is certain that wages are near the upper limit. That means that higher wages can be got in only two ways with area ter efficiency of production or at the cost of unemployment.you don’t believe that? I don't expect you to all at once. When ' you have got that firmly in your head then your feet will be on the straight track which leads to higher wages. Until you do come to believe it, you will be wandering in a circle in the bush. I have talked over this with you off and on the last thiity years and* eometime<s you have agreed, but mostly not. If it takes another thirty yeans' it will be well worth it. I am cure there is no other way to get what we both want—higher wages and a higher standard of comfort. So °let us look at some of difficulties. Efficiency means producing things—boots or wheat or milk, or giving services— railway transport or -schooling or picture shows—at such a cost that people will buy them and go on buying them. Both management and labour are concerned, and you will only get the beet results when they work together. High wages are a great stimulus to management to improve its side of the job. But it cannot improve more than a certain amount at any given time and place. If wages go up faster than efficiency, the cost of making these things must go up and prices must be raised. Higher prices mean lower real wages always, and in general they mean some industry going out of action in the long run, and therefore unemployment.. But it’s not always easy to see this in. a particular industry. Industries divide into two classes. There are those which can ask higher p "ces w-ithout fear of competition from outside Australia. Milk, vegetables, gas railway and motor transport aie examples of such “sheltered” products, and the industries which produce them and called “sheltered” industries. On the other hand are the industries which will lose their trade if they raise prices, because of competition, from outside Australia—the “unsheltered” industries These arc the export industries, wool and wheat and butter and metals, and the industries which have to compete -with imports, like most woollen and rubber goods and tools and machinery and kitchen gear. Some of these, get such high protection from the tariff that they could raise prices a bit and still keep most of their trade. Others have no margin, and are completely unsheltered. There are all sorts and decrees of shelter, but the broad distinction holds (and is very important) between sheltereel industries which can apparently raise their prices if wages rise - beyond a certain point and unsheltered industries which certainly can’t.

“Well,” you will say, “then _ why should not your sheltred industries go on paying higher and higher wages?” I expect you can see the answer to that yourself, but I will try and supply one anyway in my next letter to-morrow. — Yours, eh-., L. F. GIBLIN,. Ritchie Professor of Economics, University of Melbourne. July 8, 1930.