COSTS MUST FALL

Hokitika Guardian, 17 November 1930, Page 7

COSTS MUST FALL

AUSTRALIA’S NEED. PROBLEMS OF PRIMARY PRODUCTION. b In the course of his 'lucid and vigorous report upon the financial position of Australia, Sir Otto Niemeyer says: “So long as the sheltered trades of Australia insist on taking so large a share .of national dividend, a ltd ieven an increasingly large proportion as the national dividend drops, the difficulties of the unsheltered export trades can only increase.” Sir Otto (writes a special correspondent in the “Sydney Morning Herald”) goes on to point out that the fall which has taken place in the general level of prices outside Australia means that primary producers abroad enjoy a competitive advantage over the Australian primary producer so long as the Australian costs of production are not reduced, and that Australian secondary industry must face a fierce international competition growing in intensity as the price level falls, unless they in their turn are able to reduce their costs. , ? ,

“The secondary producer,’ he continues, “can attempt fp meet this price situation by. iricreajsed tariff protection, but this simply means that his protection is achieved at the cost

of primary production. The primary produer can attempt to meet tlie situation by a further depreciation in the exchange. .Increasing tariffs prejudice the primary producer. Rising exchange)! rates prejudice the whole fabric of national finance.”

Sir Otto points out that whilst Australia has so far been able to remain aside, from the general trend of world conditions, she has now “to adjust herself to a world economic situation more disadvantageous to herself than in the last decade I here .is considerable reason to tear.” ne adds “that the prices ' of those particular products in which Australia as an ex porter is primarily interested will fall more rapidly than the general price level. TARIFFS AND EXCHANGES “Australia,” he insists “cannot wish to remain for ever under <■ regime of emergency tariffs and rationed exchange. She has to emerge from that position and to .show signs of progressing towards that emergence. To achieve this end she depends inevitably to a large extent on the primary. producer, and the power of the primary producer selling in the world market to assist depends largely on the question of his costs, and those in turn depend very largely on general costs in Australia, which govern what he has to pay for his supplies and services.” These iexcerpts from Sir Otto Niemeyer’s' report are crucial. They restate -an argument from the logical force of which there is no escape. That

argument should be quite familiar to Australians, for it was embodied in the report on the Australian tariff prepared two years ago for Mr Bruce by a committee of our leading economists, and it was very clearly stated from the wider view of world economics in the report of the World Economics Conference held in Geneva in 1927. Unfortunately, reports the general tenor of which conflicts with the policies of powerful vested interests are apt to be ignored. Selfishness allied with powers able, for a time at any rate, to disregard logic. The two reports referred to have been shelved, and have not, so far, been •llowed- to exercise any influence whatever upon Australian public opinion. REPORTS RECALLED. Since, however, it is clear, reading letweeu the lines of his report, that air Otto Nieme.ver feels that selfishness allied with power has largely contri/iited towards landing this country in ts present financial impasse,-it is well worth while to recall in brief summary the ma n conclusions of two reports which must certainly exercise considerable influence in the shaping of our fiscal and industrial policies in the near future.

Let us begin with the report on the Australian tariff furnished to Mr Bruce by such eminent economists as Professors Br'gden and Copland, Mr L. F. Giblin, and Mr C. H. Wickens, In the “Summary of Conclusions on the Effects of the Tariff,” these gentlemen declare that “the principal effect on production and employment has been to divert them from export industries to protected industries, Taking Government assistance into account, ooßts of production in the export industries are raised 9 per cent, by protection. The tariff falls with the greatest weight on the export industries. The value of their land and fixed capital is reduced, and the expansion of their production is retarded. They are limited to the use of land which can carry the costs imposed.. The States which naturally depend more than others upon the export Industries feel the burden, not only upon their individuals, but upon the State finances.

In view of Sir Otto Niemeyer’s figures . showing the fall in the price of wool and wheat, and the unsatisfactory increase of per capita production in Australia, as compared with other countries, together with his warning that “the fortunes of the whole are the fortunes of the parts, and the failure of any of the parts, will be the failure of the whole,” it seems evident that the conclusions of Mr Bruce’s committee deserves far more respectful consideration than they have so far received. If, as Sir Otto Niemeyer declares, Australia “depends inevitably to a large extent on the primary producer,” then too much attention cannot be given to the statement of Mr Bruce’s committee, in page 23 of their report, that “tariff protection is normally the protection of higher prices, and these higher prices are made necessary by the higher local costs of production.” The whole burden of Sir Otto Niemeyer’s advice to this country is that both parties and oosts in Australia have got to fall,

WORLD ECONOMISTS. Let us now turn our attention to the much maligned and wholly ignored report of the World Economic Conference, which sat in Geneva in 1927. Since Sir Otto Niemeyer tells us that the time has come when Australia must adjust herself to world economic conditions, we can no longer affect to disregard the considered views of world economists upon matters which affect us J in common with the rest of civilised mankind.

This very detailed and illuminating report points out that agriculture is the occupation of the majority of the workers of the world; that its products represent in value the greater part of human labour; and that the exchange of its products against industrial products forms the basis of world trade. The quality of foodstuffs and raw materials produced is a factor which determines the limit of industrial development. The inter-dependence existing between the nations is no less close between the main classes of occupations—agriculture, industry, and commerce—and it would be vain to hope that one class could enjoy lasting prosperity independently of the others. Economic depression in agriculture is due to the disequilibrium between the prices of agricultural and manufactured products, to the difficulty of obtaining agricultural credits, and to heavy fiscal charges, diminishing' the purchasing power of agriculturists. This has reacted on the industrial situation, contributing t'o unemployment and reducing the outlet for agricultural' products “Unless practical measures 'are taken,” the report said, “to restore the price equilibrium, it is to be feared that sooner or later there will be a diminution ip agricultural production detrimental to the welfare pf mankind.”