QUOTA A FREE MARKET?

Taranaki Daily News, 11 May 1933, Page 12

QUOTA A FREE MARKET?

POINTS TO BE REMEMBERED

DANGER OF RESTRICTED MARKET.

A REPLY TO HON. J. G. COATES.

(By

W. J. Polson, M.P.)

No doubt this is an age of transition and drastic and possibly profound readjustment. No industry is more affected by the changing conditions of a changing world than agriculture. The manufacturer faced by depressed trade conditions can shut down a portion or all of his plant and wait for better times, faced only by his permanent charges. The farmer of course cannot do that. He must continue to work his farm to its

capacity, or ses his whole asset deteriorate and waste until either the whole or a portion of it becomes useless. The waste therefore is much greater and the cost of recuperation often as high as the cost of the original development. It is, therefore, more vital to the farming community. than any. other section

that the new era with its plans for the re-organisation of industry and the orderly destitution and wasting of his produce will provide agriculture with full opportunities for continuing its development. The recovery from slump conditions will create immediate necessity for such development. I gave an address to the New Zealand Farmers’ Union six years ago in which the figures were given, from the estimates of eminent and internationally recognised statisticians, of the annual increases in the world’s population. It was shown that this necessitated under normal conditions—on the assumption that it takes two acres to support a man—that every year the tillers of the -soil must prepare, plant, cultivate, harvest and market the produce of nearly 40,000,000 acres more than they did the year before. America’s population alone has doubled every 20 years, and according to G. H. Kimbles, the eminent Australian statitician, the world’s population doubles every 60 years. Clearly if the London conference does its job, and tariff barriers are broken down to enable the national flow of commerce between the nations of the world to be resumed, there will be room for all the primary production of New Zealand. It is necessary to recall these facts if' we are to place-fix agriculture in society, which depends upon agriculture for its life. It is rather extraordinary that in New Zealand, where this is true in more than the sense of the word, there is danger of forgetting it. Agriculture is both primarily and secondarily essential ; to the Dominion. We live upon the pro- : ducts of agriculture, and we maintain our industries and our population through the efforts of agriculture. Without it we would be forced back to the village community existence of medievalism.

A FREE MARKET ESSENTIAL. It is with these facts in mind that I have urged that at all cost we should seek to maintain our free market with Great Britain as against the proposals for a quota proportionate with the quota imposed on the foreigner. There is already much confusion in regard to this question of quotas, because we urged at the Ottawa Conference instead of a duty upon foreign meat a quantitive reduction in their shipments into Gr a. Britain, which was, in fact, a quota upon the foreigner. We undertook to offer Great Britain, in return for that form of protection against the foreigner further advantages in regard to trade in the Dominion. In a sentence our policy was: “Take more of our trade and we will take more of yours. We realise the necessity for a self-supporting Empire. In face of the high tariff policy of other nations, preferential trade within the Empire can be accomplished. Let us accomplish it.” At no time was it ever contemplated that the principle of quotas should be applied to Dominion products. We perfectly well understood that Empire competition would keep prices within such reasonable limits that the British consumer need be under no apprehension; The rapidly developing primary industries of the Dominions would maintain overseas supplies and in return improve markets for the products of British factories. We have not receded from that position to-day. We believe that a quota upon foreign butter is as important as a quota upon foreign meat, but at all costs not a quota upon Dominion butter and meat. WHAT HAPPENED AT OTTAWA.

At the Ottawa Conference the representatives of New Zealand did to some extent admit the principle of quotas inas much as they agreed that the supplies of New Zealand meat in 1933 should not be greater than those shipped in the peak year 1931-32. It was quite safe to do that because the supplies in sight were not any greater than in that year, but it was unfortunately—to some extent at least—an admission'of the principle of the quota. Just prior to his for Ottawa, Mr. David Jones, the chairman of the Meat Export Control Board, had definitely pledged his objection to a quota. It is time that the system has worked satisfactorily. It could do nothing else because it limited the foreigner’s supplies without limiting ours. To seek to make a comparison between quota-diminished dairy produce results and unaffected meat products results is to present a misleading and inaccurate picture. The advantage we claimed for meat quotas was that it. would affect foreign supplies—not ours. That advantage cannot be claimed for the proposal that is being made to the dairy industry. In the memorandum which he has published entitled “A Butter Quota or a Free Market,” the Rt. Hon. J. G. Coates sets out the case as he sees it for and against the quota proposals. It is clear that Mr. Coates’ investigations have substantially altered his point of view. In a letter to the New Zealand Farmers’ Union, Stratford sub-province, dated May 2, in which he acknowledged receipt of a resolution strongly supporting a free market and the offering of tariff concessions to Great Britain in exchange, Mr. Coates declared his belief that “discussions would not reveal any substantial differences of opinion” between the sub-province and himself. His memorandum published a few days later, however ,is in effect a strong plea for quotas. In it he argues for the quota:—

(1) The alternative is ruin. Not merely a price decline but a debacle is the immediate danger. This will enforce less production, quota or no quota. (2) The raising of price levels, especially for farm produce. (3) The proposal is in line with the efforts that are being made the world over to bring order out of chaos. (4) If the balance of organised control in agriculture and other industries is to be restored, this can be brought about by bringing more organisation into agriculture. The quota is in keeping with that requirement. (5) Quantitative regulation will expire in little over two years’ time. Intelligent. and reasonable organisation is therefore necessary instead of declining to meet Great Britain. (6) The possibilities of very great improvement, and of avoiding still more loss, are there. The correct attitude is to get down to details and examine the possibilities of the quota, accepting tire fact that conditions have changed,

and that new conditions call for naw ways of thinking.

Mr. Coates sets out as he sees them the objections to the quota on butter as follows:—

(1) The quota will involve reduction of exports to Great Britain; hence, unless other markets are found, restriction on production is threatened. (2) This runs counter to the whole accepted policy of New Zealand, which rests on expansion of production from the land. (3) The quota would be difficult to apply; it would involve more control and interference in private enterprise. (4) Control of exports would lead to control and forward planning in production, and this would raise novel and difficult problems.

SOME POINTS OVERLOOKED. But these are only some of the objections. Mr. Coates does not tell us what will happen to the development of this country if we proceed to contract instead of expanding the greatest industry. Neither does he fully realise the difference between quotas on an old and fully developed country and on a new and partially developed one. He refrains from these comparisons possibly in order not to unduly lengthen his very studious memorandum, but New Zealand has no rival as the world’s dairy farm, and it is economical to carry on with what we can do best.

Already our competitors are beginning to lag behind in the race. In a communication to their agents in New Zealand Messrs. A. J. Mills and Co. reminded them that they had expressed the opinion that in the long run the Southern Hemisphere could knock out the Northern Hemisphere as butter producers, and they went on to point out that during the five months from October, 1932, to February, 1933, the imports from Empire sources have increased to 8720 tons, while imports from foreign sources have declined 9180 tons during this period. “These figures are very interesting,” they say, “and justify the opinion expressed so freely that the foreigner is beginning to feel the intense competition from Australia and New Zealand, and production in all European exporting countries is showing a steady decline.” In concluding an in teresting letter they say, “Talk of restriction is in the air. We hate to think that it should ever have become neces-. sary for the British Government to ask Empire countries to restrict their exports of butter to this market, and we still hope that this will not be necessary, but that the Government will adopt the bold course of restricting foreign imports, and so reserve the British market for Empire producers.” In any case a country with little or no margin for expansion can regard with equanimity a quota on the proportion of its production which is exported to Britain, especially if it means an increase in price. We are not in that position. WHAT ABOUT THE CONSUMER? But the most serious aspect of' the quota plan is one which is not dealt with at all. The British consumer might be content to pay a little more than free market prices for his supplies if he felt that he was securing .in return compensating advantages in the way of increased prosperity through increased opportunities for trade, but how would he regard a quota which would destroy hope of Dominion development and increase at the same time his living costs. Nothing is more certain than that such a plan would upset the normal exchange of relationships which exist, and like price fixing methods would have to be extended to cover a multitude of goods. In a celebrated message to Congress dealing with an American proposal to menace prices for primary production President Coolidge made use of the following argument:— “Whatever may be the temporary

influence of arbitrary interference, no one can deny that in the. long run prices will be governed by the law of supply and demand. Is It not conceivable that the consumers would rebel at an arbitrary high price and deliberately reduce their consumption of that particular product, specially as uncontrolled substitutes would always be available. The truth is there is no such thing as effective partial control. To have effective control we would have to have control of not only one

food product but of all substitutes.”

President Coolidge laid his finger on , an aspect of this question which cannot , be overlooked. Whatever we do to in- ; crease prices will stimulate the production of substitutes, and a quota might . easily be a double-edged weapon which would lessen the growing demand for our product by the proportion of its application. There is a further danger. Once quotas are applied, and the British farmer is put in the position of receiving special protection against his fellow countrymen overseas, you have a principle recognised from which it will be difficult to shake free. He will clamour for increased protection, and it may happen that we shall find ourselves eventually shut out from the only market available although we are citizens of the same Empire whose only shortcoming is that we are separated by leagues of sea from the Motherland. WHY NOT OFFER CONCESSIONS ? Mr. Coates in his manifesto declarer that the suggestion that we can manipulate the New Zealand customs tariff, to dispose of the problem of quotas, is baseless, and he suggests that the tariff issue cannot' be confused with quotas. I wonder why? It seems to me that trade and commerce are the life blood of our nation, and that the British delegates at Ottawa took that view. In his speech at Ottawa the Hon. Stanley Baldwin clearly laid down a policy which made no reference to quotas. . Here is what he said:— i “Reverting now to Empire trade, we hope that as a result of this conference we may be able not only to maintain existing preferences but in addition to find ways of increasing them. There are two ways in which increased preference may be given—either by lowering barriers among ourselves or by raising them against others. The choice between these two must be governed largely by local considerations, but subject to that it seems to us that we should endeavour to follow the first rather than the second course. For however great our resources, we cannot isolate ourselves from the world. No nation or group of nations, however wealthy and populous, can maintain prosperity in a world where depression and impoverishment reign. Let us therefore aim at the lowering rather than the raising of barriers, even if we cannot fully achieve our purpose now, and let us remember that any action we take there is bound to have its reactions elsewhere.” Notwithstanding that clear statement of policy our chief delegate to Ottawa tells us that “as clearly and definitely as could be the British Government insist that they will not reduce foreign supplies and leave the Dominions free to expand without limit.” The British Government has reduced foreign meat supplies and has undertaken to further reduce them, having regard to the possibility of Australia and South Africa filling the breach. The 15 per cent, tariff on foreign - dairy produce was also in effect a reduction of foreign supplies. Nor do I think Mr. Coates does justice to the case when he states that our choice is a regulation by quotas and a regulation by price war. I would prefer to state it as the choice between regulation by quotas and regulation by supply and demand created by trade concessions and agreements within the i Empire. *• ’ (

WHAT THE AGREEMENT MEANS. ■ If the agreement which Was' signed at Ottawa-means anything, surely that is what it means. The agreement , reads:— “His Majesty’s Government in New Zealand undertakes (article 7) that protection by tariffs shall be afforded against United Kingdom products only to, those industries which are reasonably assured of sound opportunities for success, and (article 8) undertakes to institute an inquiry into the existing protective duties and where necessary to reduce them as speedily as possible to such a level as will place the United Kingdom producer in the position of a domestic competitor—that is, that the protection afforded to the New Zealand producer shall be on a level which will give the United Kingdom producer full opportunity of reasonable competition on the basis of the relative cost of economical and efficient production, and (article. 9) undertakes that United Kingdom producers shall have an opportunity of putting forward their views in connection with the inquiry referred to in the preced-

ing article.” I cannot imagine British or colonial statesmen signing such an agreement unless they w ere satisfied that it meant what it says. Nor is there anything inconsistent in it with British policy. We have Northern Ireland to-day as firmly entrenched as a part of the British Isles, as the Kingdom of Scotland or the County of Hampshire. If we are prepared to put ourselves in the same position in regard to British manufactures as the North of Ireland, the fact that we are a further distance aWay from Great Britain should not prejudice us—rather the reverse.

Mr. Coates has told us that “the clear indications are that in or after 1935 if not now, the United Kingdom will apply the quota to all imports of dairy produce.” He assures us that the promise to permit this was carefully weighed in every word, and it was insisted on by United Kingdom representatives in the face of objections from all the Dominions. The agreement reads as follows:— “As regards eggs, poultry, butter, cheese and other milk products free entry for New Zealand produce will

be continued for three years certain. His Majesty’s Government in the United Kingdom, however, reserve to themselves the right after the expiration of the three years, if they consider it necessary in the interests of the United Kingdom producer to do so, to review the basis of preference so far as relates to the articles enumerated, and after notifying His Majesty’s Government in New Zealand, either to impose a preferential duty on New Zealand produce, whilst maintaining existing preferential margins, or, in consultation with the New Zealand Government to bring such produce within any system which may be put into operation for the quantitative regulation of supplies from all sources in the United Kingdom market.” NO TIME TO WASTE. If we do not meanwhile set our house in order, it is highly probable that Mr. Coates’ anticipation will be realised. He

had the privilege of meeting the British delegation from day to day, and must know what was in their minds. It is obvious, therefore, that we cannot, afford to adopt a laissez-faire policy. We must either be prepared to contemplate stagnation and possible ruin through the operation of quotas, or We must devise an alternative plan. If we do not it is hot unlikely that in the meantime the British Government may provide some protection (a British Patterson plan) for their own farmers, and allow the market for Dominion supplies to settle itself. Qnly one method occurs to me by which we can escape from disaster, and that is by offering acceptable advantages to British trade.

It is not my intention here to discuss the question of tariffs and their effect on our conditions here. I am more immedtetely concerned with the question of the re-organisation of our industry and the problem that the future holds. There is no doubt that some orderly system of marketing “spanning the gap between the producer and consumer of a given product” is destined to supersede the present unsystematic and chaotic plan. We should immediately turn our attention to the problem realising that it is a matter of life and death, arid that if we do not we will suffer acutely. Mr. Coates has done a great service in pointing out some of . the weaknesses in our internal organisation in the dairy industry. He is perfectly right when he says that “part of the gap between Danish and New Zealand prices is due to the fact that our co-operatives compete while the Danes co-operate.” I have some hives of bees in my garden. Individually they are • co-operators, but let one show any sign of weakness and see how soon the others proceed to plunder it. In some respects they remind me of our New Zealand co-operative dairy factories.

Re-organisation of our industry may mean, whether we like it or not, some form of irksome and disciplinary control. In the light of the story of the dairy industry during the past 15 years, it is clear that some disastrous errors might have been avoided if this discipline could have been imposed earlier. But discipline from within is one thing and regulation from without another. Mr. Coates tells us that “the old order is being replaced by deliberate planning by regulation and joint organisation in all spheres of activity.” We have quarrelled with the Soviet because they have taken control of all spheres of activity and are replacing the old order by deliberate planning, by regulation and joint organisation. It may be argued that theirs is a very different method of control, ‘and that to compare a social revolution with organisation in industry is absurd. But if organisation in industry is to have the effect of curtailing production, and shutting the door on development and human ambition to succeed, it becomes an interference by the State with the very principles upon which the State is founded. The last vestige of freedom disappears. It is not necessary to dwell on the obvious danger that arises for British investments in New Zealand from any plan which would prevent development continuing. Much capital has been sent Jo us for the purposes of dAvolnnmant- -

and the loss of it would immediately further curtail the purchasing power of British investors.

The whole question is one which cannot be decided without very careful study. Certain principles are at stake and men must decide whether it is sound to jettison those principles and adopt a fresh set. I do not think it is. We must remember that the principle of the quota once agreed to we cannot again break away from it. Mr. Coates has warned us that while we might look upon it “as a temporary measure to meet an emergency” the United Kingdom delegation at Ottawa “took the view ■ that it should apply permanently.”''