PROBLEMS OF PRODUCTION

Hokitika Guardian, 12 July 1929, Page 3

PROBLEMS OF PRODUCTION

THE MODERN ECONOMIC

fcjUIiUTION

The most pressing of New Zealand’s problems to-day are t/iie depression or „rauo and lucieasmg unemployment, i’he remedy for this state of aliaiis is to stimulate greater activity m mu secondary mdusuies, and tins activity can only be attained by many which are now imported being made in the Dominion. If the public cannot be persuaded to buy New Zealand-made goods voluntarily rather than import several millions per annum, the safeguarding of certain industries by legislative means seems the only course to pursue/ and this ‘ brings, up the question of Protection versus Free Trade.

The older economists based their views upon the assumption that i'iee Trade, and not Protection, is right in principle, but those of the modern school hold a very different view. One of them—John S. Heeht, an Englishman and a member, of tne Royal Society of Economists —lays down as a basic principle that ; “'The first clause in the charter of every nation must be ‘Freedom to Produce,’ and this pnnciple of non-interference, and recognition of the right of each nation to its maximum economic development is essential not only to the peace of the world, but for the very existence of the small nationalities.” DUMPING FROM ABROAD.

He contends that Free Trade enables a larger nation to dominate commercially a smaller one by unloading its surplus goods, and that this is particularly the case where the exporting country has a lower living and wage standard than the importing one. As a consequence of this, Free Trade is found impracticable as soon as.it is put to the test of experience under modern conditions. It has been given up by all countries, even England, since she has now to defend herself against foreign manufactured goods produced undei lower living conditions than her own. Free Trade was adopted in England at a time when she had complete command of markets abroad for her manufactures. Her position in the manufacturing world made it mimatorinl whether sb" had Free Trade or Protection for her secondary industries, and it is a question whether the sacrifice of her great agricultural industry for the sake of her exports was justified, and whether the clipping of what is after all, a great industry in England has not left her poorer than if she bad, given it a measure of protection. New Zealand is suffering through the practice of economics based upon the contention that “as a gen-Mal principle the case for Free Trade, i? absolutely unchallengeable.” Those are the words, of one of our economists in a lecture given last year. It is self-evident that there is no more rightness in principle in Free Trade than there is in free love, or the free helping oneself to other people’s property, yet we share our niarkets—a priceless asset —and call it a matter of principle.

THE RIGHT TO OUR OWN MARKET. While there is no principle in Free Trade, here is a principle in the right to our individual existence, either personally or as a community, and. as it is essential for our existence as a progressive nation that we have our secondary industries, and since we cannot develop these industries without our home market, wo must have the right, to this market. Historians say that in the Dark Ages the division between the peoples of the civilised world was into classey rather than into nations—the upper classes and the lower classes. A national spirit was relatively indistinct, and it was not until later that it was developed. Losing the sense of class distinction and developing that of nationality appears to be the spirit of the age. We want this individual spirit in each of the members of our Empire, New Zealand developing in her way, Australia in hers, and other members each in her own way, and yet all one within the Empire. New Zealand, in order to do this, must have a just balance between all industries so as to give outlet and opportunity for self-expression to each individual mind and temperament.

DEVELOPING OUR NATIONHOOD. Psychologists says that self-expres-sion is the need of all nations and of all individuals, and in order that this may be made possible to our people they must have the right to the industries of their country. Our children have a right to the protection of the homes in which they are born ; also to that which will enable them to live, produce, and make homes for themselves. No doctrine, such as Free Trade, should' be allowed to deprive them of this, their birthright, and of the opportunity for complete self-expression. When Richard Cohden passionately advocated Free Trade, he thought that all the nations would adopt it also, and that wars and international conflicts would cease. He little thought that the other nations would ring-fence themselves against England with protective duties and strike at her markets with poverty-produced goods. Conditions have completely changed since Cobden’s time, and economic principles which then appeared ineonI trovertible are now found untenable I in • the light of modern conditions.

Turning to the authorities who assert that Safeguarding of Industries, and not Free Trade, is the right course we find the Right Hon. W. M. Hughes saying in his address to the Chamber of Manufactures of New South Wales in November, 1925: “The belief that certain industries create wealth and that others are parasitic, living upon the wealth produced by what are termed the ‘Primary Industries,’ is a mischievous and shallow doctrine, which by confusing men’s minds, retards progress.” Mr Hughes then shows that the development of machine methods and the wonderful inventions of modern times havo enabled each individual to devote his life to the occupation to which choice of circumstance has called him. In Australia there was, he says, “a prejudice against anything that was not primarly, happily lessprevalent now than in days gone by, hut that, broadly speaking, one thing is certain, diversification of industries is wise and profitable.” He says: “A nation that devotes itself exclusively to agricultural and pastoral pursuits cannot hope to progress very vapidly. JFor one thing, it is, in these days, out of step with the world. The great outstanding fact of modern life is the growth of cities. The real test of national greatness is to he sought in the conditions of the great mass of the people. If these are good the nation is great; if they are bad, although the nations may he rich and powerful, its so-called greatness is but a white sepulchre. Unemployment not only retards progress, hilt'breeds’Bolshevism and un-

dermines the foundations upon which the National House is built. Unemployment on a large scale is usually a condemnation of the statesmanship of those in whose hands are placed the reins of government.”

SAFEGUARDING OUli INDUSTRIES. A nation can only manufacture economically and efficiently with a considerable market and a nation’s home market is essential. Heeht says that unless a nation retains for itself its home market \for its industries ft handicaps itself., irretrievably. “It must be recognised as not merely the right, hut the duty of every nation to keep such industries inviolate; to neglect to do so is to commit economicsuicide —and it must at all costs preserve its m'arket Tor their output against all international whatsoever.”

He points out that the importation of goods which could be made at home from countries working under low labour conditions lowfers the condition of the home workers to the level of those of the exporting country.

He says that the wealth of a nation is attained by the employment or skilled workers with efficient machinery, turning its raw materials into valuable products in their own country, so that tne wealth produced remains in the country, and that: “A nation is justified in reserving to itself the whole market for the products of its skilled laboui, foi otherwise its industries cannot be efficient.” «

“Thus, prohibition of imports of all such products, to the extent of the nation’s utmost capacity to produce for itself is right and desirable, and this right being exercised, a mass of unnecessary and wasteful competition would be obviated. . . . Underselling by one nation of another, or Free Trade, permits competition, waste and the degradation of humanity.”

Heclit continually refers to the rights of the smarter, nations, and New Zealand is economically in the position of a smaller nation. She needs, therefore, special safeguarding to give her the opportunity to expand and to work out her own industrial salvation.

It mav be said with confidence that, given the security of her own home market, she will justify herself by producing high-grade goods and that her factories will become highly efficient. The keen competition within, the Dominion will prevent exploitation of prices.

RAISING OF PRICES. There is a fear that protection will raise prices; this fear has been used as a bogey to frighten the poor woiker in England, who dreads an increase in the cost of living. In New Zealand it is the fanner’s bogey. He fears a rise in the cost of production as against the value of his produce sold in the open maikets of the world.

He thinks (1) that the protection of secondary industries will raise the price of goods, and (2) that, by drawing workers to the towns, labour in the country will be harder to obtain and more expensive. As regards (2>. It is impossible to say that this will happen, but one thing is certain—the home (New Zealand) market for primary products will improve with prosperity and the increase of population, and in case of a falling-off in overseas prices—a not unlikely thing to happen, ,tho New Zealand market will become increasingly profitabo to the farmers. There is an inter-denendeneo between primary and secondary industries, between country and town, and farmers will, to an increasing extent, look to the cities to supply their requirements, to take their products and to give openings in business and the professions for their sons- and daughters.

,PROTECTION REDUCES PRICES. As regards (1). It does not follow that protection of manufactures will raise the prices of anything. The farmer will hud the cost of his

gc.itrai requirements, implements, clothing, etc., falling, while there arcgood prices for locally-sold produce from the land. Australia has proved that increased turnover brings prices down. The Victorian Government first took steps to create a tariff for the protection of their home markets in 1866 and 1893 a board was appointed to make an exhaustive inquiry into the effects of the fiscal system. The report contained the following:— “On the vexed question whether goods have been made dearer or cheaper by the imposition of protective duties we have received a great deal of evidence. It is an established fact that such goods are, as a rule,cheaper to the public than they were before the imposition of shell duties. And that recent increases of rate have not, except in isolated cases, been followed by corresponding increases of prices to the public.” “ CHEAPER FARM IMPLEMENTS.

Taking a definite, example of the above, in Australia the-tariff on farm implements and machinery in that country was raised to its present level in 1921; since that date the prices of imported implements and machines have dropped by an all-round average of 27 per cent. In the case of the sixfeet reaper and hinder the reduction was as high as 44 per cent., a drop in prico about equal to the amount o' duty imposed. Other farm implements were affected to the oxtent o! from 11 per cent to 34 per cent. The prices of imported machines had rr-yi steadily whilst there was no protective tariff duty on these machines, hill with the advent of a tariff that fostered local manufacturing, the price/ of all machines and implements camdown as stated above.

In England a duty of 33 1-3 per cent, was put- upon the importation of motor vehicles under the Safeguarding of Industries Act, pf 1911. The result was remarkable.’ The Austin Motor Company, under the confi donee given by security of marketincreased its turnover six times. Increased its workers’ earnings, taking an average figure, from £IOO to £247. Increase in employees, four and aquartcr times. Increase in profit volume, five and a-quarter times. Decrease in selling price to consumer, 62 per cent. r)' E Increase in export sales, fiVe times.

A larger market resulting from having tho home market' results in increased’ifirnover, and - consequent reduction ! oi?! factory and overhead expenses. ,)Tiiis makes it possible to reduce prices, and a reduction and not an increase of price results from protecting nearly all manufactures provided wages are not unduly increased. THE QUESTION OF WAGES.

It has been contended that as soon as factories" become busy-’there will he wage increases, which will destroy the advantage gained by • protective duties, but the main object of safeguarding our industries is to increase the amount of work available and not to raise wages.

The present depressed state of industry is caused partly through wages here and our standard of livin being superior to other countries, so that we cannot compete with them at an equal cost of production, even after allowing for the present duties and transportvch arges. This diffidence in wages .results in the importation of many lines tlin.l would otherwise be made; hctc, and a consequent limitation of output fi om our factories.

We are determined, however, that rtnndiml of living in New Zealand shall not be lowered, and to attain this end it is necessary to maintain a volume of output sufficiently lai go to absorb all workers at. a reasonable -wage.

A larger output decreases rather than increases the cost of manufactured goods, and there will he no increase in the cost of living and in wages which the opponents of protective duties put forward as reasons for allowing, more or less, unrestricted importations.

Output must lie in proportion to the needs of the people, and duties on importations aro required to keen output at the highest possible pitch and provide full employment to oil workers.

If output is limited through importations, wages must have corresponding limits, as there will no ho enough work to go round. Some workers will he paid; others will go short, or get nothing. If importations are allowed, to decrease out output, there will be increasing unemployment, despite palliative measures, and there will be a vorv marked and continued lowerin' 1of the standard of living, definite all personal efforts and willingness to avoid it.

FALLACIES IN ECONOMICS. MONEY N0 T SFiNT OUT OF THE COUNTRY. Our economists, in trying to explain away the financial drain upon the countrv caused th ,- oiigh importing over forty-eight million pounds’ worth of goods yearly, say: “The is not sent ryot. of This is a quibble. If boots? clothing, etc., which could he made here, economically and well, are imported from abroad, that work “goes out of tins country,” and the sweated wages are made, and not in New Zealand, where they are sold. Money paid for goods made overseas is circulated in the country of origin, whereas practically the whole cost and profit on goods made in New Zealand is circulated in this country and finds its wav through the whole community. Workers’ wages, more than any other form of payment, go into circulation as soon

as received. There is very little held back. ’Employees’ wages are spent in the shops—the butcher, the baker, the draper, etc., and find their way to the professions, doctor, dentist, etc., and to practically every sort of business. All classes feel the effect of this commercial life blood. The want of it is causing depression and unemployment, and to infer that we are not suffering through loss of it, because the actual cash is ;iot sent out of the country, is an obscuration of the 1 truth, quite unworthy of the high-minded men who put forward the contention seriously.

IN EACH OTHER\S WASHING.”

Economists of the old school talk of internal trade as “living by taking in each other’s washing,”, as “living by scratching each other’s hacks.” The genial Mark Twain describes the lotus-eating people of a tropical island, who have little to do except quarrel about cats, as “earning a precarious livelihood by taking in each other’s washing.” Washing and back-scratching’ must he considered as unproductive occupations and therefore in a highly organised, largely self-contained, industrial community the analogy docs not hold. A community may bo wholly selfsupporting and still economically sound; and our best market is that bounded by our own coast-line. Heeht points out that Free Trade may destroy a country’s best industry, and that the industries best suited to a country are those which will yield the best results from the least amount of labour expended. It often occurs that a- foreign trust will kill a nation’s industry by dumping and undercutting, and then proceed to squeeze the consumers for all they are worth.

The things “beat suited” to us in New Zealand are those in which we can use: (first) our fertile lands to produce foodstuffs and raw mateials; and (second) our limitless electrical poiver to turn these raw materials through machinery and efficient workers into valuable goods. To let the second go to waste is as foolish as to let the first be uncultivated. There is no radical difference in wealth-production between agriculture in the country and manufactures

in the towns. Both are essential to the well-being of the Dominion.

THE NEED FOR. (SAFEGUARDS. Economists say: “A young industry could not compete with a large established industry without protection,’’ implying that, once thoroughly established, an industry can successfully compete and that the protection, given for a start, should later be withdrawn. I'll is is the sort of half-truth that flourishes on theory.

In practice it is known that long establishment will not stand against ruinous competition in prices, llicoiists do not know the sustained efloit required to keep a business going year after year, and how, under unfair competitive conditions the best and oldest established business will languish and fail against sustained attacks from ruthless competitors from abroad.

“BUY IN THE CHEAPEST AND SELL IN THE DEAREST MARKETS.”

In this plausible contention our economists have a vision of a joyful universe wherein everyone can buy at a cheap price and yet have g ..id wane-- and salaries to nay for these goods—a “getting it both ways’ nr‘7 g men quite impossible under their favoured Free Trade system.

i.of it be said again that buying overseas products, however cheap, while our workers arc idle, impover'<*Kog the communicy. That if. we buy at a cheap pries from a nation wnh a lower' standard of living an article which we could make ourselves we force ourselves down to the same low standara.

Our workers’ \Vives buy cheap imported goods, and as a consequence i in nonie to find their husbands o neighbours with short-time wages or out of work.

Our shopkeeper finds his turnover fnjling because the workers’ wives have not th.o money to spend in his

shop. If he sells imported goods they are replaced from overseas stocks, and not from the local manufacturers, resulting in a still smaller sum in wages being paid with which to purchase further goods from him. Multiply this through the community and carry it through all classes. Professional men .find business bad. They cannot earn the fees they should do. and find it hard to collect what they do earn. Their wives purchase imported goods and help to depress the '.business of their husbands’ clients, and so on, ad infinitum, all suffering because they, “buy in the cheapest market.” ,

IN CONCLUSION. If we can recognise that “the old order changeth” in economics as in other things; and if by taking a new and wide view of the subject we can build up an economic system suited to the needs of this Dominion, we shall soon «cq a change from the present unsatisfactory and unscientific condition to one which will lead to prosperity and national contentment. Instead of having a succession of years in which imports more and more force the local industries out of existence and unemployment gets worse,

wo shall find, with an assured market that capital will ho forthcoming for extension of manufactures and the

skilled industries will take their share in building up the wealth of the Dominion. ■:•••• Our hope lies in the adoption of. the now economic law, which may; be summarised as follows: 1. A country’s industries belong to her own people. 2. Surrendering her home industries impoverishes a nation. . 3. Political action is needed to protect a; country from economic, invasion.