ECONOMIC RECOVERY.

Waikato Times, Volume 112, Issue 18723, 25 August 1932, Page 12

ECONOMIC RECOVERY.

CONTRIBUTING CONDITIONS FREEDOM OF ENTERPRISE NEEDED BETTER EXPORT PRICES. Being extracts from a Canterbury Chamber of Commerce bulletin. This Dominion exports a bigger proportion of its total product than almost any other country in the world. Its exports are practically all pastoral produots. Other industries sell In the local market alone and they find an important part of their market in the demand of those who produce for export. The heavy fall in exporters’ incomes has reduced their demand for locally marketed products very severely. Non-exporting industries have therefore had their sales reduced, have had to contract output, and have reduced their demand for the goods and services they use in production. Still others have been affected in turn, and in tlils way contraction of production, . with unemployment, falling demand, falling prices, and depression have been spread throughout the community. Unless farm production for export can be made to pay, present conditions mean a considerable contraction in the volume of exports. Imports must then contract in turn in order that overseas payments may balance. Local manufactures, some of which have already increased production as the result of reduced import competition, might then expand. But heavy reductions in local costs would be required before production for the local market could absorb all the present unemployed, and some decline in the standard of living would be almost inovitable. The alternative is an in- ■ crease of production for export, and of farmers’ demands for local products, sufficient to absorb those at 7 ' present unemployed. This depends on making farming profitable, and it can be brought about in one or both of two ways—by a substantial improvement in export values, or by such reductions in local prices as will enable the export Industries to buy with their reduced Incomes the same volume of local goods and services as before. Progress Towards Adjustment. Substantial progress has already been made towards the adjustment of our affairs to changed conditions. The recovery from an unfavourable to a favourable balance of overseas payments is a substantial achievement. V It meauj that the Dominion as a whole, as regards its overseas commitments, can technically be said to be living ; within its income. Within the Dominon, however, there are important sections who are not living within their incomes. The most important of these are the farmers and the Government. Under pres■i . ent conditions some farmers are probably balancing current revenue and - expenditure and making production pay, but there can be no doubt that i .vjnany farmers are maintaining' production only by drawing heavily on reserves of oapital and credit. So far production for export has been maintained and in some cases increased. There is evidence, however, that this production has been maintained only by using up real capital which should have been conserved to maintain future production. It is estimated that the Dominion's sheep now number about 2,500,000 less than two years ago; and there are ominous signs In the ’reduction In the amount- of butterfat produced per cow, and in the reduced consumption of fertilisers. It Is plain that farm production cannot be maintained unless farming can be made to pay. The danger of a continuance of present conditions is that, as farmers’ reserves of capital and credit become exhausted, it will provo impossible to find a means to finance production, and the volume of farm production and, therefore, of exports will decline. This must mean fewer people employed In farming, a contraction of farmers’ demand for goods c and services marketed locally, and consequently further contraction and unemployment in other industries. The immediate effects would be a progressive contraction In the volume of production which is the source A all our Income, and a progressive ;n- ---/ crease In the numbers of unemployed. State Asa I stan oe. New Zealand has characteristically looked to the Government for assistance. But the Government has had great difficulties of Its own. These are largely the result of Its ever ready response In .the past to the .Insistent popular demand for expenditure on public works and on social services, the cost of which has now become a heavy burden on the taxpayer. On the one side it has now to meet heavy expenditure, a substantial part of which is regarded as rigid and difficult to reduce, but must give way to force of circumstances. In addition there have' been claims for increased expenditure for the relief of distress. On the other- hand the severe decline in national income and the much greater decline in taxable capacity has brought a heavy diminution in Government revenue. The Government has therefore been forced to resort to measures for reducing its expenditure and Increasing its income. (It must be remembered that increases in Government Income are made only at the expense of the community). It appoars that the Government’s expenditure on ourrent account Is exceeding its revenue at the rate of about £4,000,000 a year. This excess ’ Is being met by borrowing and the use of reserves, methods which represent In effect an increase In unproductive debt amounting to about £4,000,000 a year. Such an increase cannot bo permitted to continue for long since it must make the situation steadily worse. The Government has, however, given some relief to Industry. Its legislation effected a reduction of 20 per cent. In private Interest and rent, and has enabled wages to be reduced all round by 20 per cent. In addition It has provided facilities whereby temporary adjustments have been made between debtors and creditors. On the other hand it has imposed higher Customs tariffs and higher taxation which tend to increase the cost of production. It Is doubtful whether the net effect of these Government measures would reduce average costs of production in industry as much as 15 per cent. Against this must he set the fact that the exchange rate on overseas countries has been advanced by about 10 per cent., which tends to maintain internal prices and costs of production at a level of 10 per cent, higher than they would be at the normal rate of exchange. There is another direction in which substantial progress towards adjustment has been made. Almost every Individual in the community lias had his income reduced niore or less by

the depression. Each individual has, therefore, had to make reductions .in his expenditure. Producers everywhere have striven, by reorganisation, by the adaption of old and the application of new methods, and by the strictest economy, to produce their goods at lower costs; consumers everywhere have, had to cut their expenditure in order to bring it within their reduced incomes. In addition | there have been many arrangements made between prvate debtors and creditors, including remissions and postponements of rent and interest, to tide over the period of crisis. The sum total of these' individual efforts constitutes an Important part, , and probably much the greater part, of the adjustments made to date. Overseas Relations. Tho prospects of a recovery In export prices should at present be brighter than they have been for some time past. Britain’s suspension of the gold standard, together with the subsequent balancing of her Budget, has increased greatly her freedom of action. It appears, too, that a policy of easy credit has been decided on. The bank rate, is now 2 per cent. Treasury Bills have recently been .floated at less than 1 per cent. in addition, the world’s confidence in sterling has been restored, money has been flowing in from other countries and funds have been provided to maintain sterling exchange at the levels most appropriate to the recovery of prosperity. In the United States similar developments are occurring. It is announced, too. that the League of Nations has guaranteed a loan for Austria, which suggests co-operative action to aid Central Europe. Tho objective of easier oredlt Is oponly said to bo tho restoration of prices to about the 1929 levels, and there can bo no doubt that definite aotlon Is being taken to create such conditions as will enable Industry once more to prosper. All this means some measure of. credit expansion aimed at price recovery. Now Zealand has more in gain from higher prices in her markets abroad than from higher prices within tlie Dominion itself. Higher export prices have always meant increasing prosperity in New Zealand. Inflation within New Zealand would lend to increase internal prices and costs of production rather than export prices. Such inflation could not increase export prices within New Zealand until it forced up tho rate of I exchange, and then export prices I

would perhaps increase less than costs of production. A free market for exchange, however, is very desirable. Under free marketing conditions the exchange rate is unlikely to fall at present, and appears unlikely to rise appreciably unless overseas payments have been made to balance during the past year by rationing of exchange. The free market, moreover, is necessary to encourage trade and to widen the range of possible enterprise. The effect of restrictions is to limit this range. Conditions of Improvement. For similar reasons restrictions on internal trade and production should be removed wherever possible. During recent years internal trade and production have been' greatly hampered by restrictions of many kinds imposed through legislation or through industrial agreements and awards. Under present conditions it is necessary to provide every encouragement for production, for enterprise and for the adaptation of business organisation to changed circumstances. More production and more enterprise are required to absorb the unemployed in productive work, and to expand the stream of wealth upon which we all must live. The difficulties of the Government provide a serious handicap to recovery. The present high taxation imposes a serious burden on industry and helps to maintain costs of production at a high level. The heavy demands of the Government for credit are also an important factor in maintaining the local interest rate at a high level and so increasing the burden of high production costs. In its State trading concerns the Government is faced with a problem similar to that which private etnerprise has to meet, and which must be solved in the .same way if those concerns are not to continue .a burden on the taxpayer. Progress towards recovery, however, must depend largely upon the efforts of individuals, it is on private enterprise of all kinds that the prosperity of the country ultimately depends. It is the enterprise of individuals that directs production and provides the chief sources of wealth, taxation and employment. But production cannot he carried on if the conditions of production are such that continuous losses must be incurred. Business must, therefore, be made profitable before it can expand. Given freedom of action, private enterprise can do much for business recovery, and at the present time every facility should be provided to further enterprise. The present situation constitutes a challenge to private ehIcrprise and individual initiative to

show, that It can adjust Itself to changed conditions and can restore prosperity in Industry. It challenges the Government also to provide the freedom of aotion which will permit enterprise to develop to the full Its potential, but at present restricted, capacity for adjustment and expansion. Probably the greatest hope of recovery lies in the collective efforts of individuals, each of whom is striving to'-'set his own affairs right. To these ends much has already been done, but much remains still to do.