Evening Post. MONDAY, AUGUST 10, 1936. WORKS WITHIN REASON

Evening Post, Volume CXII, Issue 35, 10 August 1936, Page 8

Evening Post. MONDAY, AUGUST 10, 1936. WORKS WITHIN REASON

Probably no form of activity of ilia new Government has won more general commendation than vigorous prosecution of public works which I Mr. Semple has set on foot. With zeal equal to that which he formerly applied to his criticism of the Coalition Government Mr. Semple is now directing all his energy to the acceleration of a constructive scheme of works. His enthusiasm and forceful. direction will go far towards assuring the success of the public works plan. Nevertheless it is necessary to examine quietly the- limitations of any public works policy, and guard against the dangers that lie in an attempt to extract too much from it. Public works, wisely planned and energetically directed, will be a useful stimulus to general employment. But they cannot alone cure unemployment, and, if an attempt is made to effect such a cure, the malady may ultimately become graver. The principal dangers lie: (1) In the prosecution of works on which the ■ immediate or deferred return does not equaJ^bo cost, leaving a balance of debt lo be borne by the community; (2) in setting such a standard of remuneration that labour, is diverted from other fields of employment, or that industries which have not trie i resources of the State behind them are unaiile to gbtain the necessary labour at- the ;.f/ice which they can pay.

The Government, or at least the Minister of Finance, upon whom rests the responsibility of finding ways and means, for public works, recognises the first source of danger. This much is demonstrated by the Budget classification of public works into four main categories: (1) Those which "ensure a full and immediate return of the annual costs attaching to the loan funds utilised"; (2) those which "represent an immediate and pro-/ bably full return of costs to the community, but not necessarily to Government accounts"; (3) those undertaken "in the knowledge that a full return, direct or indirect, is not obtainable immediately, but in full anticipation that the continuance of recovery and the normal development of the country will bring such a return within a reasonable term"; (4) those from which a full return direct or indirect seems so little likely of realisation within a reasonable term that it is considered desirable to finance the work in the main from current revenue. The classification according to return into (1) direct and immediate; (2) indirect arid immediate; (3) deferred; and (4) deferred and partial covers the whole field, and gives much ground for argument as to which works, come under the various headings. As the Budget does not classify particular works it is impossible to test the practical application of the scheme of differentiation. All that we can say in the meantime (judging from the Minister's general illustrations) is that there is a possi-. bility, in fact a probability, that some of the works put in .class 1 may. be found, when accounts are made up, in class 2, and so on down the scale.

The practical application of the classification is, however, of the greatest importance. We assume, from the Budget reference, that classes '1,2, and 3 are considered suitable for loan or credit financing, and only class 4 13 deemed so unlikely to give a return that it must be financed "in the main from current revenue." But if the return from class 1 is deferred and the return from classes 2 and 3 is never fully realised, if, in fact, some of the works fail to pay all operating costs let alone capital charges, the programme will involve a substantial addition to deadweight debt. ' It is the deadweight effect that is to be feared, whether the money comes from -orthodox loans' or from "costless credit." With orthodox ' loans there is the interest charge; with "costless credit" there is inflation if credit is applied to works which give the community no adequate real return. The credit danger is the greater because it is more insidious. It does not reveal itself in a direct addition to the interest bill, but only gradually in the rise of, prices- The Government (is ' displaying good sense in providing part of the works cost from revenue (£4,510,000 out of £10,450,000), but this involves heavier taxation and heavy drawing upon various revenue funds. It would be belter still to limit the programme to reduce the total cost, especially as some of the loan works should be found in the revenue works class.

The second danger lo which we have referred, that of chawing men from private employment, is one of which Mr. Semplc is aware. He has declared emphatically that he will not lake men from industry and we arc sure ho means it. Yet we. are not sure thai he can guard against all possibilities of harm. If a standard is sot higher than the general standard of industry ran snpport the effect must ultimntely

be detrimental to industry. Either industry, primary and secondary, must conform to the standard or it will finally suffer deterioration in the quality of labour employed. The best men will go to Government employment and those branches of industry which are not profitable will have to do with the second best. Or else costs will increase and industries with only a small margin of ability to pay will suffer gradual extinction. The Government is expected to set a good standard in pay and conditions of employment; but it must be careful that the standard is one attainable by private enterprise. Otherwise instead of expansion of private industry to absorb the unemployment, there will be stagnation' and finally a shrinkage, with niore labour looking to the State for work or sustenance. It is this consideration that makes it essential that the stimulation sought by big public works programmes should be most carefully measured. Without vigilance it may defeat its own purpose.