MISUNDERSTOOO WORD

Rotorua Morning Post, Volume 1, Issue 88, 4 December 1931, Page 2

MISUNDERSTOOO WORD

ITS MEANING EXPLAINED . (B-y A. M. Seaman in the N.Z. Financial Times.) Like many another lechnical word that has come into common use, the term "rationallsatlon" has been mlsunderstood, its aneaning has heen mislnterpreted, and its resnlts misrepreil sented. Actually, it involves a process akin to stoektaking, and as a national stoektaking is the order of the day, it is essentdal that a elear cut apprec'iation of t'he issues involved should take the place of the present loose thinking. ' A'pplied primarily in the reata of | lhdustry, it has 'been thus deflned:— I "Rationallsation is the •moblllsation oi the flghting lorces o'f an lndustry. It is accomplished hy the „ fuslon of manufacturing oapacity and the closing down od redundant units to eliminate waste and loss, production being concentrated in i the best equipped shops, under the I 'most favourable output 'Conditions It implies not merely a reconstruction of capital, a reorganlsation oi management, a re-shuffling of plant, hut a revolution in our ideas, in our mentality, in our outlook on the industrial situation." • The go-al of all business enterprlse is to -secure an increasing number oi satisfled ' customers, and rational'isitlon alms to achleve th'is by reductioh of prices resultdng from: — 1. Concentration of production in ■works where low manufacturing •costs, are obtainahle, with a view to -"full-'tlme" output. 2. Installation of labour-saying ' plant to ohtain a "speed-up" in ihe rate of produ'ction. 3. Segregation of particular preducts to individual works. 4. 'Standardisation of production', and increased research work. 5. fteduction of trans'port charges. 6. More economical use >of power. 7. Reduetion in flxed charges by centraiisation of administration. 8. Concentration of. selling organisation, and in some cases the eltainatioij of the "hiiddieman." 9. Avoidance of destructive price cuttlng. 10. G'entralised flnancial control. If these a'ims are to be achieved there must be some radical changes ln our industrial fabrdc, and in particular there ' 'will liave to • be : — I. The closest co-operation between . or co-ordination of the different units in an industry, so that there may be an eltaination of the inefflclent under - taking which cannot produce competitively, and a concentration of the whole output in works capahle of efflcient / organisatlon. Prdbably, though not necess>arily, amalgamations will be required, but it is weli to stress that amalgamation is not necessarily rationallsation, and may be opposed to it. The capital in an inefflcient eoncern which is to he closed down is already "dead," or largely -so, as it is non-productive oi proflt, and should not be loaded on to the reorganised industry. On various occasions, large amalgamations have been arranged to create a monopoly that therehy dead capital might be protected at the expense of t'he consuming public. This is opposed to the spirit of rationalisation, which, while aiming at the prevention of destructive price cutting, also seeks to ensure that the price paid by the custoiner shall be no more than a fair reward to the producer. II. Complete modernisation of the remaining operating units. III. Complete modernisation oi the management. This may involve the • uropping-" of some who have 'been the leaders in an industry, for.those who take charge under revolutionised conditions must be young enough, in spirit as well as in years, to 'change ; they must be prepared to give young ^ men an 'opportunity to prove themselves, and must place brains hefore social position or influence. Tho Lmptoyers' Sldo. To carry out this prograinme wib have uiastic effects on some at least, of bodi employers and employees. The employers will he faced with the uetaile loss of part (in individual cases, periiaps the whole) of the capital sunk in the various factories. Ili the reconstituted industry, only those units which have productlve ,-alue should be taken into account, and then only at their value for purposes 'Of production. The unprofltahle and mefiicient unit is worth no more than the value of any of its assets .that will still be of use, the scrap value of the remainder, and the goouwill oi the trade or connection Ouilt up by that particular faotory. The adoption of any other hasis of : adjustment would merely perpetuate the crippdng load of overhead expenditure that has handicapped industry in the past. A very difflcult ; nractical probiem arises in t'he appor-

Lionmenl of the capital in a rationalised industry, for the owner of a discarded plant is entitled to share, to some extent, in the heneflt that will a'C'Crue thro'ugh the removal .of hls competition, and the consequent eltaination of waste overhead expendiI ture. The capital remaining in the j industry should be fully employed and so should r'cceive a full, adequate and more certain reward, than ln the past. Effect on Employees. The employees will suffer iii the earlier stages of re-'organisation, for the closing down of inefflcient works would throw some out of •employment, the concentration of output in feWer factories resulting in equal production with fewer employees. Modernisation of equipment with adoption of more lefHcient miethods would tend further to reduce 'the number uf employees. However, this condition would only be transient, for if there is achieved the desired reduetion of costs wit'h its consequent stimulation of output, the gradually increasing demand for the products would permit 'Of a 'corresponding increase in the number of operatives. The immediate unfavourable effect on 'the employment position is proha'bly the most difflcult issue in rationalisation, and has given rise to wholesale condemnations. It would seem, however, that those who condemn rationalisation Of an industry on the ground that some men will thereby he t'hrown out of employment often lail to reaiise that without this re-organisation the industry as a whole may succumb to foredgn competition, thus throwing all employees out oi work, and destroying all the capital invested thereiu. The Consumlng Public. The 'consuming pub'lic, on whom employera and employees depend, •thould 'beneflt hy the rationalisation of on industry, for the effect should he cheaper ■production of hetter articles. As a local i^sue, rationalisation has been discussed, hut little real effort has been fflade to hring it about. That the conditions ohtainnig in some of our industries warrant action *is revealed on eveh a cursory 'examination. We flnd in aggravated form; — a. Over-capitalisatldn and 'Overequipnieht. Fa'ctorie's have' heen huilt, and plant erected, capahle of handling far more "business

than is likely to he avallable for many years to come. 'Tlie best known examples are proh'ahJy freezing works, boot manufactories, woollen mills and iiour mills; there are others less well known. The following extract frcm a recent offlcial report- on the flour-millihg industry is •capahle of much wlder application : — "The output from a number of the efflcient mills could he double.i or trebled. In 'Other words, there are too many plants operating for the requirements of the Dominion." b. Diversiflcation of products — the endeavour, hy individual manufacturers to supply too wide a range of goods. This involves an undue expenditure on plant, with depreciation and other overhead expenditure out of proportion to the possible output, but also, aod that Is worsd, it tends to the securing ofvlarge numbers of. •small orders — orders too small to" permit of that length of machine run which is inseparahle from economical production* c. Arising naturally from those two factors comes an intensive competition in marketing, adding materially and disproportionately to the' oost of products already too highly priced as a result of those same factors. These, and other factors, not the least of which is the almos1-. complete ahsence of scientific cost accountiog, bring the total output cost of ihe products of several of our New Zealand industries to a figure far above their true value. Often they have been able to carry on only because of the h'igh protection afforded, flrstly, by our 'customs tariffs, and, secoadly, by the freight and other charges incidental to the bringing in of competitive goods 'from overseas. Tariff protection plays too large a part in the national budget for any one other than a radical free-trader to advocate its abolition, hut one is forced at times to the conclusion that protection may he -alike detrimental to the manufacturer and harmful to his customer. On •occasion, pleas have heen made" for higher protection when the true remedy was a lowering of production costs by the appldcation. of rationalisation; the remedy might he more painful, hut the cure would be a lasting one. ValUe Plus Senthnent. While some cf our manufact'irers produce most excellent goods at competitive prices, others have failed to reaiise that a permanent market must be huilt up on value, and not on sen-

timent. Too much of the "Buy New Zealand Goods" advertising has taken the form of an appeal to 'buy be•cause support of local industries would lessen unemployment, instead of setting out to convince buyers that the local goods are the best in qualdty and value. The principles of rationalisation have not heen followed — prohably their signifieance has not heen grasped. There have been too many eiforts directed towards making the customer pay for the manufacturers' mistakes, too much combination and organisation designed to keep up the price rather than to hring it down. To-day our local manufacturers have a unique opportunity. The exchange position puts their overseas competitors at a deflnite disadvantage, there is a decided inclinatioh on the part of buyers to purchase local goods because of the immediate effect on ihe unemployment problem, and there is, apart from this, a growing consciousness in New Zealand of New Zealand as a manufacturer. Now, if ever, is the day when the industrial house should he set in order, that the market given to-day to the local factory may he held hy it in the tomorrow, when conditions return to t'heir normal state. There is a local need for rationalisation — will our industries face it and win the day?