Evening Post. WEDNESDAY, DECEMBER 7, 1938. OLD PLAN WITH A NEW NAME

Evening Post, Volume CXXVI, Issue 137, 7 December 1938, Page 12

Evening Post. WEDNESDAY, DECEMBER 7, 1938. OLD PLAN WITH A NEW NAME

At last the Government's "insulation" plan has been disclosed, and it proves to be nothing more than the old exchange control method adopted, under pressure of necessity, by countries in financial difficulties. None of these countries would adopt or continue exchange control willingly, and the idea that it is a new and desirable measure would appear to them incomprehensible. Yet the Minister of Finance, while pleading the decline of sterling funds as the immediate excuse for control, apparently seeks to present the measure as one desirable in itself as fitting in with a scheme for co-ordinating importing with a policy of encouraging the production of consumable goods within the Dominion. This may be a beautiful theory, but the practical difficulties in operation should cause even the most visionary theorist to pause. Practical business men, we are, convinced, willnot welcome the proposal to try out the theory in practice. To them the revelation of the "insulation" plan will not be a pleasant surprise. Other people who expected the Minister of Finance to work some kind of "insulation" magic, to produce rabbits out of a hat, will be disappointed when all that is done is to let the cat out of the bag.

Of the necessity for some action to check the decline in sterling funds there is no doubt. How urgent and pressing that necessity may be we cannot say. The Minister's statement' covers the combined trading and Reserve Bank funds only for October (£11,856,000), and there has since been a further and steady fall of Reserve Bank sterling. But this necessity has not arisen overnight. Attention has been drawn repeatedly to the movement and to its acceleration, and the %auses have been well known. The Government has had time within which to apply less drastic corrective measures. Had it paused in its expansion policy, as the London "Daily Herald" (Labour) recently advised, and sought to reassure nervous owners of capital, it would possibly have avoided the necessity for exchange control tmtil the crisis passed with the advance of the exporting season. Instead, whether from hesitation or in the deliberate choice of the more drastic control.method, it has delayed action till the position could, apparently, be relieved only by emergency measures. Even now the control is not presented as a scheme for an emergency, but, seemingly, as part of a permanent plan. If this were for an emergency the Government might claim that it had a precedent in the export credits control instituted by the Coalition Government in 1931. But in that case the cause and the circumstances were vastly different. The Coalition Government, was forced'to form the exchange pool because of the London crisis following the abandonment of the gold standard. It drew on the pool only to meet debt service commitments; it dM not attempt dictatorial control of trade, and it ended control after-six months —as soon as the emergency was past. Here the Government has introduced control following a period of marked prosperity,; and is evidently proposing not merely to secure sufficient sterling to meet its own debt service and that of local bodies, but' to decide by whom and for what purpose the balance of funds shall be used. In the circumstances the adoption of this drastic remedy can be pronounced nothing but a proof that the previous policy has failed, that increased purchasing power, high costs, free spending, shorter hours, and all the , machinery of the Industrial Efficiency Act have failed to achieve their purpose; and now something else must be tried. Much will now turn upon whether the Government regards this as a tempprary expedient* or a permanent part of its economic policy; whetheri it proposes to use exchange control temporarily till it has time to put its house in order, or whether it thinks that trouble due in large part to excessive regulation and high costj policy can be cured by more regulation. If the latter is its belief, what organisation or machinery has it devised for controlling imports so as to co-ordinate importing with local manufacture? Such a control demands inquisitorial examination of all the needs and desires of the country if it is to be anything more than catch-as-catch-can. What preparation has the Governmenl made to put such a policy into successful operation? Without the exercise of dictatorial powers and the imposition of irksome restrictions, any farreaching attempt at regulation is I bound to result in, disorganisation of 1 trade and industry.

More regulation on top of regula-

tion cannot be productive of lasting benefit. It must discourage enterprise, make investors still more reluctant to venture, and. finally add greatly to the cost of living. The Government would be wise to mark the lesson that the emergency teaches, to modify its present expansionist policy, and endeavour to retrace its steps. Emergency action may tide the country over a crisis, and even produce a deceptive and temporary restoration of prosperity. But enduring prosperity can be based only upon a true adjustment of the economic factors. There must be a realisation that existing industries can be maintained and new industries established only if the economic conditions are favourable —if taxation, hours, wages, and other costs are kept within the productive capacity of the country. Disregard of these basic considerations cannot produce healthy-and thriving local industry, only a hothouse plant which will wither when the heat supply is cut off—and sooner or later the heat supply must fail (the adoption of control now is irrefutable evidence), for the primary industry of the Dominion cannot produce unlimited fuel without being itself consumed.