Finance—Public & Private
Australia—An Object Lesson
AFTER a prolonged period of anxiety and tension, the financial and exchange crisis in Australia has been materially relieved, and the improvement has found expression on the Stock Exchange in a fairly general and material rally in Australian Government securities. The reasons for the improvement in the situation are not without special interest in their application to conditions much nearer home than Australia, and while on several previous occasions I have dealt very fully with the causes of the Australian crisis, it may be useful to recall some of the main points.
Those taking a merely superficial view of the situation might urge that the direct cause of the crisis was the heavy fall in the price of Australia's principal commodities such as wheat and wool, thus materially affecting the balance of trade and making it difficult for Australia to meet the sterling engagements both of the Government and Australian nationals. That statement would be true, but it would give a very incomplete picture of the situation. Countries with the wealth and resources of Australia should not be completely at the mercy of a sudden fall in the price of exportable commodities, for not infrequently such a fall is offset, to some extent, by lower prices of imports, thus to some extent counter. acting the effect upon the net trade balance. The causes responsible for the crisis in Australia were far more general and of longer duration than those expressed in the recent sensational fall in the price of wool.
UNSOUND CONDITIONS.
Long before that fall occurred and the exchange crisis became acute there had 'been real anxiety on the part of holders of Australian securities because of certain tendencies which it was felt must, if unchecked, necessarily lead to a serious position. Those tendencies included such circumstances as excessive borrowing overseas, the fact that the proceeds of many of the Loans were not applied to expenditure of a productive character. Further, the domination of Labour throughout Australia for many years—no matter what particular Party happened to be in power—resulted in the establishment of an uneconomic wage and a false standard of living, andnthia,,in its turn, gave an impetus to imports of articlea.,of luxury, thus materially affecting the trade balance.
PROMPT MEASURES.
And this weakness was, of course, abundantly demon- strated in 1929, when Australia, afflicted by circum- stances beyond her control, found her economic position greatly enfeebled by a policy within its control which had been in operation for many years. Nevertheless, when the crisis was revealed, the Labour Government in Australia acted with considerable promptitude and, obviously with the sincere determination of maintaining at all costs the credit of the Government in the matter of its sterling engagements. Gold was shipped from the country freely, while a little later there was instant co-operation amongst bankers and the Government in pooling of exchange facilities and making arrangements that the Government should have the first claim on a certain proportion of such pooling to meet the engage- ments on Australia's Loans held abroad. It was soon perceived, however, that the crisis was one of the first magnitude, and the Australian authorities, again with considerable courage and ,,wisdom, invited the Bank of England to send a representative to consult with the authorities as to the best policy to pursue, and choice was instantly made of Sir Otto Niemeyer, who has a unique experience in National Finance, gained both by his long connexion with the • British Treasury and his close association with the finances of the various European States during the post-War period."
GOOD: RESULTS:
The result of Sir Otto Niemeyer's visit can be very briefly stated. He paid the authorities in Australia the highest compliment in his power by dealing faithfully with .the problems submitted to him. In no spirit of (Continued qn page 2913.) Finance—Public and Private
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captious criticism he, nevertheless,' made a statement which by its gravity and at the same time by its com- pleteness and faithfulness seems to have gripped.- the conscience and intelligence not only of the Australian authorities, both in the Federal and State Governinents, but of the Australian people. The result was the unani- mous passing of a series of Resolutions by the Federal and State Governments, the first of them expressing a determination that the Loan Council, which now controls the borrowings of Australia, both Federal and State, shall not raise further Overseas loans until existing short-term indebtedness is completely dealt with, and further, that no approval shall be given to undertakings of new unpro- ductive works. Another ReSolution was to the effect that in order to secure a regular service of the Public Debt from revenue, all interest payments shall be made to a special Account of the Commonwealth Bank solely for payment of interest.. Moreover, a ,further Resolution was passed determining that the C.ommonwealth and State Treasurer shall publish monthly in Australia and Overseas a uniform summary of Budget and Revenue expenditure and the position of the short,term debt and the 'state of the Loan account. The Loan Council has also decided greatly to reduce the total of the Loan pro- gramme for' the current year.. In addition, Sir Otto Niemeyer referred in no uncertain terms to the extent to which the economic situation of the country was pre- judiced by high costs of production and a false standard of living. In the course of his statement Sir Otto said :— " So long as the sheltered trades insist on taking so large a share of the national dividend—even an increasingly large pro- portion as the national dividend drops—so the difficulties in the u:isheltered export trades will only increase.. . . While the money wtge is almost double that of 1911, the number who can attain that wage is steadily decreasing, unemployment having doubled since 1924. The margin of those who have to be carried neutralizes the advantages of those fully employed. The process must increase unleas adjustment is made."
COMING NEARER HOME.
. It is impossible to read this statement of Sir Otto Niemeyer's or to consider the circumstances which inspired it without being impressed with the similarity between conditions in Australia and those prevailing in this country. Here, too, we know something of the uneconomic ,wage in sheltered and other industries and the extent to which these influences have affected trade and the figures of unemployment. In Australia, however, it has been possible to bring about at long last a clear apprehension of the facts of the position for the simple reason that, as she has not centuries of accumu- lated resources to fall back on, the defiance of economic laws had brought about an impossible situation. In this country successive Governments have endeavoured to meet the sithatibil by a persistenfirivasicin of the nation's capital funds and the results have been disastrous.
Like Australia, we too have been afflicted by cir- cumstances entirely beyond our control, such, for example, as the after-effects of the Great War and the revolutionary conditions in countries such as Russia, China and even India, conditions, of course, demoralising to international trade. They are circumstances and conditions, however, which called for a very different policy to that which has been pursued by successive Governments.
ARTHUR W. KIDDY,
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