The Wanganui Chronicle THURSDAY, APRIL 27, 1950 THE BUDGET DEBATE

Wanganui Chronicle, 27 April 1950, Page 4

The Wanganui Chronicle THURSDAY, APRIL 27, 1950 THE BUDGET DEBATE

'T’HE problem which confronts the Labour Party in England is 1 that of making the best of a bad situation. No one will deny that the situation is a bad one, for no country depreciates its currency unless its economy is in a very unhealthy condition. The United Kingdom is today in that unhappy state and there is no easy way out of it. The Labour Party’s difficulty lies in the fact that it has promised so much to the working class—using ' that term in a very narrow sense—by pointing out that if the middle man was eliminated then the producer and the consumer could share that on which the middle man previously lived comfortably. There were also the very large profits that were alleged to have been won by management and which could reasonably have been shared by the producers or wage-earners. Further, with the absorbing of accumulated wealth when the owners die the all round betterment of the masses of people could be achieved to a highly satisfactory degree. Theoretically, the argument was a good one, but it- did not square with practice nor even with past experience, hen the middle man was eliminated from the market the cost of distribution did not go down. Too often it went up. It was not recognised that the services of the middle man who provides the conduit between producer and consumer were rewarded according to the efficiency of that service. The efficient distributor was able to operate on a smaller margin of profit and competition brought more business to his establishment and at the same time kept down his margin of profit. Competition was deemed to be wasteful by the Socialist who believed sincerely enough and with good reason, that if efficient planning could take the place of competition then the cost of competition could be eliminated from the economic setup. But it -is at this point that the rub comes: competition although costly and ruthless in its elimination of the unfit protects the consumer more than does the effort at planning. The large profits of management, it is to be found on examination, are neither frequent nor are they continuous. Some managements or proprietors get higli profits but not all of them, and management and ownership overall does not get very much in return for its skill in conducting' business and in in-resting capital. High profits are seldom long lived, competition or new invention sees to that, while the change in demand due 'to' alterations in human requirements or to the downswing of the trade cycle put an end to the high-profit period. Accumulated wealth is often not easy to distribute. When a man dies leaving an estate worth, say, £500,000, it seldom is comprised of money, for only a miser hoards currency in the ordinary way. The estate will be found to comprise a house and furniture, some clothing, a garden, possibly several motor cars, but these personal possessions will be but a very small part of the whole. Much of the money will be in investments. Government bonds are monies loaned to the Government, debentures are mortgages on properties owned by companies, the properties being charged as securities for the return of the loaned’ money and for the payment of the interest. This is a convenient way to get money which they can repay when they no longer need it. Shares in a company are shares in the ownership of machinery, mill buildings, stocks of raw materials, and all the things necessary to employ people in economic production. When a country loses its capital unemployment is rife, for capital is but another way of describing tools of manufacture, trade, and transport, and raw materials. A country to increase its standard of living needs not less capital on which to pay profits, but more of it. Had capital not been necessary and its replacemeimand improvement not imperative, Robinson Crusoe would have been the happiest and most comfortable of men and castaways on a Pacific island would have been as near to Utopia as man could But when Germany inflated her currency after the first world war she robbed people of the value of their savings and consequently there was no new capital available to finance the farmers and production of food dropped away at once, manufacturing dwindled, and the streets of Berlin were black with men without work. When the second world war was brought 'to its close the problem which confronted the United Kingdom was how to pay for the war and how to get back to production on an economic scale. These two problems were to a large extent conditioned by the recovery of the rest of the world, which could only buy if it could at the same time sell. The alternative to selling and buying was loaning first and then selling goods for the money loaned. The experience which was gained after the first world war indicated that the loan finance recovery operation was not easy to implement. The cancellation of the first world war debts was speedily determined on by the then United Kingdom Government, but the United States Government could not bring its public to accept that realistic policy. In the end the American loans were' not paid. Today America is alive to the international situation and is making direct contributions to the recovery effort on a gift basis. Can this recovery movement be speeded up? The devaluation of sterling was a negative point and the loss of purchasing power by British manufacturers will eventually make itself felt. In the meantime competition from the dollar area is boosting up the value of raw materials in terms of sterling, but a more correct picture will be gained if the loss of value of sterling as a purchasing unit is kept in mind. The Bradford spinner with a working capital of £lO,OOO can purchase only one half the quantity of wool when its price rises to double its former cost. To do the same turnover he will need double the money formerly used in his business which places him competitively at a disadvantage, even when he can get that extra capital. Since the devaluation of sterling in September last the prospect of unemployment developing in England has teen growing as time passed and the fear of unemployment was exploited by Sir Stafford Cripps in his contribution to the closing of the Budget debate. Mr. Churchill’s attack has been directed against the fact that the Socialists have no panacea for the present situation and even their new taxes oh- petrol and lorries, so lie claims, have the secondary purpose of endeavouring to drive traffic on to the loss-producing railway system which the Government had purchased in order to secure “the profits.” The situation is an uninviting one for any political party to deal with, lhe Labour Party has failed, but whether any other party would have succeeded in similar circumstances is impossible to proclaim. But in the United Kingdom the Socialists have no easy way out of the present situation, nor have they any secret formulae for dissolving the nation’s economic problems such as that which was possessed but never revealed by the Labour Party in New Zealand during the time of the Great. Depression. * No country that meets a major dislocation such as a war on its own territory or which withdraws a large portion of its population from productive employment can dissolve its problems by any sort of legerdemain.