THE REPORT O F THE BRITISH ECONOMIC MISSION.

1. Terms of Reference. 11. Public Borrowing and Government Enterprise.

111. Immigration and Problems of Development. IV. The Tariff and the Arbitration Court. v. Supplementary Memoranda. VI. Conclusion.

1. The real subject of the Australian investigations of the

“four independent business men” from the United Kingdom, who constituted the British Economic Mission, may be stated as, The Business Management of a Continent. .

The Terms of Reference were:- “To confer with the Commonwealth and State

Governments, with the Development and Migration Commission and the leaders of industry and commerce in Australia, on the development of Australian re- sources and on any other matters of mutual economic interest to Great Britain and the Commonwealth, which may tend to the promotion of trade between the two countries and the increase of settlement in Australia.”

Evidently, the stop-watch methods of the efficiency engineer, valuable as these methods may be in their application to many individual tasks, were inappropriate here.

The inquiry called for abilities of the panoramic order, though the capacity to understand details, and to perceive their significance, was also indispensable. The terms of refer- ence, as the Report points out (para. s), “lay emphasis on the problems of the promotion of trade and commerce between Great Britain and Australia, and the increase of settlement in Australia. ” The instruction t o consider “the development of Australian resources” may easily be read as covering the whole field. This, of course, includes a survey of the existing stage of development, and of the methods by means of which that stage has been attained.

The homogeneity of the Australian population-its almost entirely British origin, and the thousandfold interrelations, racial, political and commercial, between Australia and Oreat Britain-formed the accepted foundations of the work of the

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Mission. On the commercial side, the United Kingdom, as a market for Australian products, is of predominant importance, taking (1927-28 figures) more Australian goods than France, Germany, Belgium, Italy, Russia, and the United States, com- bined. At the same time, Australia is one of the best customers of the United Kingdom. The insight of the members of the Mission is shown by their swift perception of the fact that “the increase of Australian prosperity and productivity is an essen- tial condition of increased trade with Great Britain.” Again, “if the desired conditions of Australian prosperity and power t o absorb population are not present, artificial means of promot- ing trade with, and migration from Great Britain, must fail.” Each of the two countries, from the point of view of exchange of products, is indeed particularly interested in the maintenance and expansion of the purchasing power of the other. On the immigration side, an increase of Australia’s capacity to absorb British immigrants would be one of the best indices of her own prosperity, and would offer a valuable outlet for a part a t least of the surplus population of the United Kingdom.

11. The members of the Blission saw that their concern was “to

consider whether there are any modifications of Australia’s financial and economic practice which, if adopted, might, by enhancing her own prosperity, conduce to the realization of the objects envisaged by our terms of reference.” In considering “Main Problems,’’ they turned first to Pinance. With a view to exhibiting the relation of Australia’s borrowing to her revenue and expenditure, tables were given, the first two of which show that for the six years ending 1926-27, Australia (Commonwealth and States combined) “balanced her Budget to within O.‘i3%, and that the average annual deficit per head of population was four shillings. ” These figures were pronounced “satisfactory enough.” The growth of the Public Debt of the Commonwealth and States for the six years 1922-1928 is set out in a table showing that, during that period, the States Debt rose from €519.6 millions to €723.0 millions, while the Debt of the Commonwealth and States combined increased from €884.4 millions to €1095.8 millions. The combined Debt per head of population increased from €159 to €174.

The members of the Mission were evidently troubled by the rapidity of this growth of Debt, and their disquietude wad increased by consideration of figures (which they quote) show-

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ing that during the five years ending June, 1927, while the interest upon the States Debt rose from €20,807,026 to $31,373,271 (a little over 50%), the proportion which had to be provided by taxation rose from €5,786,676 to €9,711,749, an increase of 68 per cent. “Thia position,” they remark, ‘‘results from heavy expenditure of loan capital by the States on developmental undertakings which have not proved to be self-supporting, and have imposed a heavy burden on the general community, and consequently on the cost of living and production.” Many instances are cited in which public loan money has been spent on unprofitable schemes. Pressnre of sectional interests, and the hasty adoption of costly schemes without adequate investigation, either of the probable coat or of the probable economic r d t s , are pointed out as main causes of many failures. The financial and economic riska of Government borrowing for developmental worka moved the Mia- sion to suggest that “Governments should restrict the sphere or their activities in this direction and in that of businem under- takings, and should leave the field more widely open than in the past to private enterprise.” As a middle course between purely governmental and purely private enterprise, the authors of the Report suggest that, in appropriate cases, the Govern- ment might guarantee for a limited term of years the interest on preference ahares representing about half the paid-up capital of approved enterprises, the balance of capital being provided by ordinary shares paid for in cash. This suggestion has obviously been put forward from a conviction that only by way of compromise can the desired change be even partially effected.

Some degree of deflation is seen to be an inevitable resnlt of curtailment of loan expenditure, but “deflation nevertheless remains the course of wisdom, if it ia true, as we think it is, that free expenditure on schemes very doubtfully remunerative has contributed to produce an inflated position.” The para- graph which states the final conclusion with regard to Aus- tralian Gnance reads as follows:-

“30. Our final conclusion in regard to Australia’s h a n c e is that her creditors have no cause whatever for present anxiety, because she ie atill borrowing well within her actual and potential resources, but we are of opinion that ehe haa not in past years always borrowed wisely, and that she has pledged to too great an estent those future

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resources, and mortgaged too deeply that future pros- perity upon which she can reasonably reckon, thus throw- ing the burden of her borrowings upon future generations, who will have their own needs to meet.” It is difficult to regard that paragraph as self-consistent.

The figures of Australian borrowing cited earlier in the Report as illustrating the recent rate of borrowing (and mentioned above), viz., those for the years 1922-1028, show a rapidity of increase in State indebtedness which, if continued for a period of fifteen years from 1922, that is, until 1937, will double the aggregate of State Public Debts. In other words, if that rate of borrowing be continued, the State Debts will, in 1937, exceed €1,000,000,000. An increase of 100% in the State indebtedness will have to be carried by a population which (assuming the average annual rate of increase t o be 2%) will have increased by about 35%. To describe annual borrowings in amounts which would produce that result, as “still borrow- ing well within her actual and potential resources” cannot, I submit, be accepted as the real opinion of the Economic Mis- sion, for it is irreconcilable with an extensive contest. The members of that Mission undoubtedly desired to convey a serious warning, and that warning is conveyed not only in the latter portion of their paragraph 30, quoted above, but incidentally in other paragraphs. They were, one may surmise, hampered by an anxiety to avoid expression of a judgment which might injure Australian credit (though they say in par. 10 that Aus- tralian credit has to some extent been already damaged by too frequent recourse to the loan market) and also by a fear that an opinion too bluntly voiced might offend that Australian “touchiness” against which they had been warned. In efiect, they say: “You have increased your post-war debt much too fast. You have frequently committed yourselves to costly pro- jects without any effective investigation of the best methods of carrying them out, or of the probabilities of their becoming self-supporting within a reasonable time. You have occupied many fields of endeavour which it would be more prudent to leave to private enterprise, or for which privately-subscribed capital should carry the chief responsibility. ”

III. But they find justification for one important group of

financially unremunerative expenditures, that is, those relating to Soldier Settlements, in the fact that “a main motive was

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the discharge of a debt of honour to the returned soldiers.” Also they welcome the policy which led to the creation of the Development and Migration Commission and the Council for Scientific and Industrial Research. Much is to be hoped from these two bodies, closely co-operating with one another, “and with all the other institutions in Australia with which they have connections.” The Development and Migration Commiaaion, however, is restricted. It is largely an instrument for the effec- tuation of the purposes of the €34,000,000 Agreement relating to migration from Great Britain to Australia. That Agreement, with time limit, tends “to encourage the proposal of schemes not fully matured.” Schemes proposed to be carried out by means of loans granted to States under that Agreement must, indeed, pass the scrutiny of the Development and Migration Commission. But “the field within which schemes such as the Commission is likely to be able to approve can be put forward is comparatively narrow. It is confhed, practically entirely, to the field of more intensive primary production.”

The 234,000,000 Agreement imposes an obligation on a State undertaking an approved scheme to accept a number of assisted migrants proportionate to the capital cost of the scheme. Difficulties likely to arise under that provision, and which would operate to the disadvantage of the States mainly engaged in primary production, led the Economic Commission to suggest an amendment of the Agreement to provide “that the funds made available under it might be used not only for schemes involving the acceptance of specific numbers of migrants by the individual States, but also f o r work calculated to promote migration into Australia generally.”

Figures quoted in the Report show that from 1923 to 1928, years in which great efforts were made to increase migration by direct means, the numbers of “requisitioned” migrants, that is, migrants directly assisted by the Governments, have declined. Creation of the conditions which assure a reasonable degree of prosperity to healthy, industrious and competent %grants, will more surely attract them than will means which may seem more direct. Considerations of that nature led the members of the Mission t o stress the desirability of Pafig more attention to “that more intensive use of the already partially developed resources of Australia which we believe to be among Australia’s principal needs to-day.” They noted, evidently with some surprise, and certainly not with approval, the projection of schemes a for eztensive development

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by puahing railway and road canstruction at heavy capital cost into territory as yet unsettled, while it would seem that more intensive use of land already settled or partially settled might, at far less cost, be productive of a greater increase in popula- tion, and in wealth production, than the extensive schemes are likely to yield. ”

That passage throws the spot-light upon a major dificulty, perhaps a major cause of comparative failure, in our ndminis- tration of the enormous estate which we call Australia. It is certain that if such an estate were placed to-day in the hands of a competent General Manager, with plenary powers, and out- side the “gravitational field” of political attractions, the methods of development adopted would differ widely from those which have been followed. The Economic Mission, impressed with the magnitude of governmental economies which would be possible if development occurred by the intensive use and culture of gradually expanding zones of country, did not over- look the difficulty which intensive culture confronts in the Australian environment of to-day. Such examples as blildura, Remark, and other closely-occupied producing areas show that industries arising from intensive use of land soon reach the point of saturation of the home market. Outside markets must be entered. The competition of other countries must be encountered.

Will the Australian costs of production permit of success- ful competition in the world arena? This is the central economic question of the whole inquiry. On this point let us quote paragraph 44 of the Report :-

“44. But all measures designed for the increase of Australia’s mcalth-production and power of absorbin, - new population tend to be defeated if there are strong forces within her which operate so to raise her costs of production that she cannot sell her products in the markets of the world, and is restricted within the limitations of her own home market. Here me approach the most vexed and the most important of all Australian questions, that of the combined effects of the protective Customs Tariff ar.d of the legislative enactments, both of the Commonwealth and of the States, for the fising of wages and conditions of labour, which we will call, for brevity, the Arbitration Acts.’’

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IV. Continuing the discussion of this vital question, the Report

cays that “we have been strongly disposed to the view that the combined operation of the Tariff, and of the Arbitration Acts, has raised costs to a level which has laid an excessive and pos- sibly even a dangerous load upon the unsheltered primary mdnstries. ”

This leads on to the conclusion that “there lies no task before the Australian people more urgent than that of in some way breaking the vicious circle of ever-ascending costa and prices, and of bringing down costs of production, as is being done in the other industrial countries of. the world, without lowering the standard of living of the workers as measured not by money but by real wages, which are the reward of labour in the form of goods and services. ” The community should find out what the T a r 8 protection is really costing it, and would make efficiency the condition of protection. A “working canon of efficiency” is that an industry can supply or is likely within a reasonable time to be able to supply its goods at a price not greatly exceeding the cost of similar goods imported free of duty.

As to Arbitration, the verdict of the &fission is that the Arbitration Courts should go. Round-table conferences provide more effective means of arriving at fair and working industrial agreements.

But, if Arbitration tribunals are to be retained, overlapping must cease and the Courts must be bound “to have regard to the economic effects of their awards, both on the industry imme- diately concerned and on other industries indirectly affected. ”

v. Supplementary Memoranda deal with Transport, Taxation,

Banking, the Development and Migration Commission, the Council for Scientific and Industrial Research, and Economic Research, the Pastoral Industry, Marketicg and Distribution, Reciprocal Trade between Australia and Great Britain, and the Civil Services.

Space limitations permit only the briefest indications of the substance of these Memoranda.

Transport.-The principal conclusions are :- 1. “Even if it should mean drastice economies, or the

raising of railway rates, State Railways shculd be made to pay their way.”

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2. Unification of railway gauges, a t least of the main arterial systems, should be undertaken.

3. There should be co-ordinated control of all forms of transport.

Taxation.-Uniformity is required in methods of calculat- ing income for the purposes of income tax. Averaging, or eet- off of losses, should be universally allowed. Graduation of Land Tax is condemned as inequitable, . . . “the thou- sandth acre is no more valuable than the first.”

Bunking.-Establishment of a Reserve Bank (as a function of the Commonwealth Bank) is favoured. But, if that status were conferred upon the Commonwealth Bank, then (a) the directors should be appointed otherwise than by the Govern- ment, ( 6 ) the trading department of the Bank should be divorced from the Bank as a reserve bank, and (c) in order to encourage the use of bills of exchange stamp duties on bills should be substantially reduced.

Development and Migration Commission, Etc.-The De- velopment and Migration Commission, The Council for Scien- tific and Industrial Research, and an Economic Service should all be responsible to one Commonwealth Minister, and “be brought together in one Committee with the Minister as Chairman. ”

The Pastoral Industry.-leasehold areas are often too small. Capture of the “unearned increment” by the State is too much in mind. To settle people on the land should be secondary to the highest economic use of the land. The export meat-works industry of Queensland is over-capitalised and over-equipped.

Yarketing and Distn’bution.-First step is to reduce the cost of production. Quality rather than quantity should be studied. ‘‘We do not believe that Australia can develop a real export business in agricultural products unless the cost of pro- duction and delivery can be brought down to world prices for equal quality of goods.’’

Reciprocal Trade Between Australia and Great Britain.- Formation of a Federation of Australian Industries correspond- ing to the Federation of British Industries is suggested, with close co-operation of the two organisations.

The Civi2 Service.-The method of recruitment, wholly from the bottom, should be modified by provision for admission

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of a proportion of morehighly educated young men, corre- sponding to the Higher Division of the British Civil Service. The esisting conflict of authorities (Public Service Commis- sioners and Arbitration Courts) should be removed.

PI. The Economic Mission has considered the most dif6cult

questions decting the economic welfare and progress of Aus- tralia. Striking originality in dealing with such questions, which are almost incessantly under discussion, could not be expected, but it is a merit of the Report that there is no evi- dence of any striving after mere novelty of effect. The Report is characterised by clear thinking and clear expression, even though at times opinions seem y a r d e d and modified to an extent which somewhat reduces their muzzle-velocity and pene- trating power. When, however, one remembers the incom- pleteness OE uncertainty of some of the data upon which, never- theless, opinions had to be expressed, one does not wonder that a prudent reserve was preferred to an imperfectly-informed dogmatism.

But whatever limitations must be admitted, the Report possesses a high value as a masterly examination of many of the most pregnantly important questions in the economic field.

STEPHEN MILLS. Aielhourne.