AUSTRALIAN CRISIS

Wanganui Chronicle, Volume 76, Issue 105, 6 May 1933, Page 8

AUSTRALIAN CRISIS

THE BURDEN OF TARIFFS PROTECTION AND FARM PRODUCTION Why Australia fell headlong into a financial crisis, why the crisis proved unexpectedly severe, and how the young nation, by heroic efforts, is once more finding its way to its feet, are questions answered by an. Australasian financial authority in three articles, of which this is second. By HUGH JENKINS, in The Christian Science Monitor. In 1925, on its own showing, Australia recovered economically from the war effort. The external debt of £175,000,000 in 1901 represented but 14.4 per cent, of the national wealth, as estimated for that year, and in 1925 the external debt of £467,000,000 represented but 14.2 per cent, of the national wealth. Had Australia beeu wisely led it would have striven to repay as much of public indebtedness as was possible in and around the year 1925, for the approaching exhaustion of the South African gold mines and the obvious increase in the gold-using populations of the world presaged a period of long-term trend declining prices. This meant that the debt burden of Australia measured in goods would become relatively heavier. In these years, however, such a policy would have been regarded as heresy. High prices kept from Australia another disturbing fact —that its national economy was becoming less efficient, despite the heavy increase in external indebtedness. Australia’s prosperity was less real than it appeared. The lack of balance in the finances of the Commonwealth needs no elaboration. Such were the conditions of Australia’s economy when it moved into the crisis.’ *

It will naturally be asked: “ Why was this policy persisted in?” It was persisted in for one aud only one reason—unemployment. Hindered by Workless. With unbounded confidence in the future of Australia both politicians and people felt, rather than reasoned, that unemployment must surely be a passing phase. This belief rested on no sure foundation. At the census of 1921 there were 1,679,992 wage or salary earners. Of these 160,956 were unemployed, 30 per teent. attributing their idleness to scarcity of work. Unemployment naturally eased during the boom years which immediately followed 1921, but after the peak of 1925 had been passed it made persistent increases.

Unemployment among registered trades unionists rose from 2-9,326 in 1926 to 84,787 in 1930. The year 1930 was the first year of acute crisis, and in the fourth quarter unemployed returns mounted to 104,951.

Two instruments had been used in an effort to cope with this growing unemployment problem—public borrowings and the tariff increases. The loans had been secured and spent in the hope of tiding over the period of adversity, and the tariff had been consistently increased in the hope that the protection afforded would lead to the establishment of industries which would provide permanent employment for the city populations. These two instruments had failed in their objective before the crisis. But when the recession came upon Australia a reversal of policy was not practical.

Since 1900, Australia tariff policy has been definitely protectionist. This policy, as elsewhere, has fostered the growth of industries which cannot now, and never will, stand on their own feet. These inefficient industries, by reason, of the prices which they secure for their products, add to the running costs of the efficient industries are not noticed, but when the prices of exportable products suffer serious declines, the added burdens of inefficient industries assumo grave proportions.

Burden on Farmer. A commission of economists sitting in the year 1929 estimated that Australia imposed an 8 per cent, burden on agricultural production by tariff action, and this 8 per cent, represented the margin after all the advantages in whi»ch the agriculturist shared had been taken, into account. Professor Copland, of Melbourne, considers that the ntt tariff burden on agriculture to-day is about 12 per cent. Any industry which suffers from a 12 per cent, handicap can hardly be expected to expand, and Australian agricultural and pastoral industries are in that position, and have been for some time. Price declines under these circumstances may be offset by improvements in farm and station management, but this process cannot go very far. What expansion had occurred before the crisis was but the growth caused by the stimulus which high prices always give to production. In May, 1928, the export index (1927 year as base) stood at 1080, but from then ou it fell consistently until it reached its nadir in August, 1932, when it stood at 300. During this period incomes from exports would have been slashed to less than one-third had not increasing quantities of exports been available to the extent of 25 per cent. This would have been a serious state of affairs in any country, no matter how well balanced its economy, but in Australia there was a large proportion of the population engaged in industries which could not stand on their own feet. These industries were incapable of exporting at any time and supplied a market withiu Australia during prosperous times only. Such adversity as now presented itself spelt ruin for many of the minor industries. Loan Market Dried Up. Concurrently with (he price decline in export products the loan market dried up. Australia’s dependence on loans during the years before the crisis is revealed by its balance of payments which were as follows: —■ Deficit or Amount Year. Surplus. in £ 1922- .. .. Deficit 36,81.1,000 1923- .. .. Deficit 1,562,000 1924- .. .. Deficit 24,484,000 1925- .. .. Surplus 2,655,000 1926- .. .. Deficit 4.1,015,000 1927- .. .. Surplus 14,61.1,000 1928- .. .. Deficit 32.397,000 1929- .. .. Deficit 39,619,000 Actually the trading deficit in the year 1929-30 was £70,000,000, it being reduced to the figure above quoted by sending 1o London some £30,000,000 of the gold held by the banks in

Australia. In nine years, thertfore, Australia had required £190,000,000 of "borrowed money to balance its national ledger account, so that the fall in prices was not alone in causing financial discomfiture to the nation.

The year 1929-30 was the year of crisis. With an unfavourable balance of trade of £70,000,000, loans cut off, and the governments without reserves in either Australia or London, the position was indeed desperate. Temporary finance was arranged by issuing Treasury finance was arranged by issuing Treasury bills, the Commonwealth’s overdraft with the Westminster Bank was increased to £8.000,000 and gold to the value of £26,869,000 was exported to reduce the balance unprovided for by temporary financial accommodations. But as the year progressed conditions did not improve and when June 30, 1931, came round, full interest commitments had to be met and the temporary accommodation had to be redeemed. Interest commitments were met and the floating debt in London was reduced from £18,000,000 to £5,000,000 mainly by drawing on the liquid reserves of the banks in London and on their gold reserves in Australia, In so far as the financial side of the crisis was concerned, it had been met. This had been done at the expense of the reserves of the banks. Should another crisis develop, then the reserves would not again be available to draw on. The trading position had, ’therefore, to be brought into line.