TO DEFEND PROSPERITY

Evening Post, Volume CXXVII, Issue 1, 3 January 1939, Page 8

TO DEFEND PROSPERITY

Though the Prime Minister's New Year message expressed his usual confident optimism, one might read between the lines that Mr. Savage anticipates that prosperity will have to be earned-—even fought for—this year, not simply lifted down from a shelf. He spoke of fighting slumps, and called for co-operation to defend prosperity and the rising standard of living. That this note should be struck indicates that the Government is not blind—and it could not well be—to the evidence of the last few months. That is something gained. But the Government has yet to prove that its eyes are open to the real pitfalls in its path. Of that there are yet some doubts. Only a few days ago the Prime Minister declared: "If there is any political conflict in New Zealand just now, it represents a test between the welfare of the people as a whole and big profits for the few." And in his New Year message he said: ". . . the national income has been expanded by increasing the purchasing power of the people, and by increasing the country's powers of production." Both of these statements are dangerously errofieous; the first because it suggests that those who diifer from the Government desire big profits and have no thought for public welfare, and the second because it omits the most important factor in the increased prosperity of the past three years—-the higher returns for exported produce. The check to prosperity now in evidence, though veiled by heavier Government spending and reliance on the Reserve Bank, is attributable mainly to the fall in last season's wool prices and the fact that overseas buying did. not contract in proportion. On the contrary it expanded, because of the internal expansion policy, and so the reserves of sterling funds have been drawn upon heavily. If the Government proceeds to fight slumps and defend prosperity with a plan based on the misconceptions to be inferred from Mr. Savage's statements, it cannot hope for a full measure of success. It

may gain a temporary respite by a policy of inflation, by issues of credit without the creation of •assets of equal value, and by covering the fall of national income from exports by more Government spending. That is being done now, but sooner or later there must be a reckoning. In part this reckoning is with us now in the drain upon sterling funds, leading to exchange control. Later, especially if the Government goes far in its professed policy of "insulation," there may be a further item in the account —a more rapid rise in the cost of living. Tp avoid this it must be realised that a decline in national income from exports can be balanced only by more production—real production. Mere spending is not enough. Unless the roads, railways, power stations, and other products of Government spending are a genuine contribution to production, either by cheapening it or increasing its volume, they will not /offset the decline in income from abroad. In fact, they may act in quite the reverse way, by maintaining the internal expansion so that the pressure upon overseas funds is more than can be met. That is what the Reserve Bank warned the Government against, and that is exactly what is happening now. An artificial barrier has had to be raised in exchange control to lessen the demand on sterling funds. The surest way to expand economic domestic production is to encourage private industry. The Government appears aware of this in its publicity campaign for the encouragement of New Zealand industries. But is it prepared to go as far as is needed? Publicity can create an initial demand and help in sustaining it; but the demand can be permanently sustained and permanently supplied only if New Zealand producers and industrialists are placed in a position to meet it economically. If consumers have to be forced into buying by. higher tariffs or import restrictions (perhaps amounting to embargoes) the greater production "must prove costly to them and to the country. Economic production, therefore, implies the necessity for conditions which will permit industries to expand without unduly expensive protection. A hopeful sign for the introduction of such conditions may be the consultations by the new Minister of Labour with the aim of inducing closer co-operation and greater harmony in industry. Particularly will this be so if one of the results is to produce a wider recognition of the fact that hampering restrictions are as'bad for the employee as for the employer if they check the expansion, anjj even force a contraction, in the area of employment. Another welcome sign would be some earnest of true recognition by the Government of the part played in prosperity by the partner who provides capital and business enterprise and takes the business risk. That evidence is certainly not given by the Government's taxation policy and it is not discerned in the Prime Minister's reference to the conflict between big profits and public welfare. Industrialists and investors do not seek big profits, but they do ask for a fair reward. If this is denied, there will be neither confidence nor capital for the expansion of enterprise. This should be remembered when the Government invites co-operation. The Government itself must be ready to cooperate, to work with investors and grant them a reasonable return when they place their savings at the disposal of the Government and due scope for enterprise when they enter industry. With such an attitude cooperation will be forthcoming, but confidence will not be invited if it appears that investors are only tolerated till they can be displaced by some experimental and dangerous credit system.