Wairarapa Times-Age THURSDAY, DECEMBER 8, 1938. OUR LATEST EXPERIMENT.

Wairarapa Times-Age, 8 December 1938, Page 6

Wairarapa Times-Age THURSDAY, DECEMBER 8, 1938. OUR LATEST EXPERIMENT.

FOLLOWING upon an extraordinary expansion of this country’s internal and external expenditure, some such policy as the Government announced yesterday plainly has become inevitable. We have been importing too much in relation to our exports and a reduction in imports is demanded imperatively. That apart, there are aspects of the internal economic situation of the Dominion, arising out of heavy public and private spending, which call for adjustment and remedy. Costs and prices are tending visibly to get out of hand.

The Government proposes measures of exchange control, under which the proceeds of all exports must be converted into New Zealand currency at the ruling rate, and imports will be regulated under licence. It may be agreed out of hand that, this action, or some alternative and corresponding action —such as raising the rate of exchange or imposing heavier Customs duties on imports—has become necessary and unavoidable.

According to the Prime Minister, however, the aim is not merely to regulate and adjust the adverse balance of trade, but to bring into effect the policy to which the Government is committed of insulating the Dominion from unfair competition overseas. “This is the practical expression of our insulation plan,” Mr Savage told an interviewer yesterday.

Some people may be a little staggered by the Premier s confident announcement and may feel the need of some more detailed exposition of the policy of insulation than has yet been given. It may be noted, meantime, that Mr Savage avowedly regards exchange control, with its important implications, not as a means of tiding over a temporary emergency, but as a policy that will last, he hopes, “for ever.” Under this pplicy he hopes to build up New Zealand, by the expansion of local industries and in other ways, to lift up standards of living, to expand trade with Britain, and to meet punctually the Dominion’s oversea, obligations. These are all admirable objectives, but a little more light on the conditions in which some of them are to be approached will be welcome.

The existing position perhaps is at its worst in the extent to which our problem of unbalanced oversea exchange—indicated sharply in the diminution of the Dominion’s London funds -—is complicated and made more difficult by internal economic conditions. In itself, the problem of restoring a reasonable balance of external trade should not present overwhelmingdifficulties. The great danger to be guarded against is that of allowing the inflation of the New Zealand currency which is already apparent to be exaggerated and made much more' serious. That danger will develop if credit and the circulation of money are allowed to expand in a greater degree than is warranted by the available volume of goods and services. As one authority observed recently: —

It would be quite possible to peg the exchange rate and the bank rates at present levels and at the same time to continue to expand credit and to inflate and depreciate money in the Dominion.

Under that policy, however, costs and prices would rise and continue to rise indefinitely, and wages and all other incomes, by the standard of purchasing power, would be subjected to an indefinite series of cuts.' .

Everyone, no doubt, is anxious to avoid that slide to disaster and it must be hoped that it will be avoided. Confidently as the Prime Minister, and his colleague the Minister of Finance (Mr Nash), have expressed themselves on the subject, it needs to be recognised that there are many serious difficulties to be overcome in carrying out the policy now inaugurated.

At best, and as anything more than a rough and ready temporary means of tiding over an emergency, the policy of exchange control has its rather obvious limitations. An unduly optimistic view is taken by the London “Daily Herald,” which declares that: —

New Zealand has given France and Britain a significant example by resolutely stopping the flight of capital at the outset, so preserving the people’s freedom to continue the. Socialist prosperity programme without interference from a financial clique.

It has to be considered that what New Zealand needs is a means, not merely of stopping the flight of . capital, but of encouraging an inflow of capital from Britain and other oversea sources. The measures now announced seem likely to prevent effectively a further flight of capital, but it is tolerably certain also that they will discourage as effectively the entry of new capital.

That apart, it will be anything but an easy matter to regulate imports without injuriously disorganising trade and industry. At the broadest view, particularly capable and careful internal management—with an accurate adjustment of credit expansion and spending to production—will be demanded if inflation and a throttling increase in internal costs are to be averted. The policy now outlined opens up some promising possibilities as well as rather staggering problems and difficulties. If the hopes now raised are realised, the secondary industries of the Dominion may find themselves faced by an unexampled opportunity. The best general test of the Government’s policy in the immediate future and as time goes on will be that of success or failure in maintaining the purchasing power of the New Zealand pound.