Dr Sutch Defended
D.A.P. Defeated?

One of Salient's readers, a third-year economics student, takes D.A.P. to task over the conclusions he reached in his article "Dr. Sutch—his economic consequences," published in the previous issue of Salient.

One cannot but admit that it is a curious twist of fate that Dr. Sutch and the policies associated with him should also be associated with a "shift of National Income away from the workers." It is, however, interesting to wonder whether "fate" is working through economic mechanisms or the uncritical analysis of "D.A.P."

After all, if import controls are to blame for this shift, then perhaps, we ought to blame them also for the relative stability of the price level, the rising rate of productivity increase, the decrease in the taxation rates, and the greater Government Expenditure on defence in more recent years.

But first; How real is this shift in the share of National Income? An examination of the proportion of Wage and Salary payments in the total "Private Income before Taxation" shows that between the years 1951-52 and 1951-58 there is a steady growth from 48.6 per cent to 53.5 per cent. This follows two "cycles" of about an average level of 53.4 per cent. It is significant that the two peak years 1958-59 and 1961-62 were the two years of tightest import control, which would seem to contradict "D.A.P.'s" claim that import controls have adversely affected the wage and salary earners.

Thus we may conclude that in the early part of the period under consideration Wages and Salaries received an increasing share of total Private Income and that more recently this share has stabilised except for the three-year cycle.

But it is true that Company Income's share has increased—or more accurately increased from an average 10.9 per cent in the first nine years to an average 11.9 per cent in the last four. What has been happening is that "Other Income's" share has fallen from 28.3 per cent in 1951-52 to 23.2 per cent last year. The main component of Other Income is the Farming sector but it also includes "Manufacturing and Commerce" and "Professional and Other Services."

Hence we may describe the shifts in Private Incomes in the two periods of 1951-52 to 1957-58 and 1958-59 and 1963-64. In the first the relative fall in farm income was compensated by the relative rise in wage and salary payments; in the second it was compensated by the relative rise in company income.

Thus although the farm share of "economic activity" has continually fallen over the whole period, it was not until after import controls began that the company share increased. Also there was a significant increase from 1.3 per cent per annum in the early period to 2.1 per cent per annum in the rate of growth of labour productivity.

(However, it should be mentioned that it is quite possible that part of the company increase is spurious because income units described as "Company" may be today taking part in activities which were formerly the field of "Manufacturing and Commerce" and "Professional and Other Services". Examples are a manufacturer, "incorporating" himself and a company paying its own salaried lawyer rather than hiring him from a law firm when required. This effect is suggested by the slightly falling shares of the two groups.)

I will not, with the ease similar to "D.A.P.", blame import controls for all of the productivity increases, yet it seems to me that this is part of the explanation, particularly if the fostering of the industrialisation of New Zealand is associated with it. For the latter has resulted in capital, technology, and management being introduced from abroad as many overseas companies, desiring to maintain or increase their share of the New Zealand market, have built or expanded plant.

Thus "D.A.P.'s" final concern—the increase in income from direct overseas investment in New Zealand. This has been the cost of our industrialisation; the return has been the gains from increased productivity and output. (A pleasant little statistical exercise leads to the following conclusions. If the productivity increase of the ore-import control period had continued, and the wage and salary proportion of the G.N.P. had remained at the 1957-58 level, then in real terms this total would have been only 93 per cent of the present figure or, in 1963-64 prices, £52M less than actual earnings. Thus the £9.5M cost of the difference between actual (£23.2M) and projected (£13.7M) income from overseas investment is relatively small.)

However, I do share "D.A.P.'s" concern for the problems of overseas investment and particularly over the government ineptitude in dealing with overseas take-over bids of non-National industries.

Essentially, "D.A.P." compares salary and wages with company profits and then, with a neat flick or the wrist, concludes that the salary and wage share of National Income is decreasing. Furthermore he forgets to point out that this, in itself, is not important socially—although it is fair to say that a similar analysis of the socially more important "disposable" incomes would result in not too different a conclusion about the relative income shares.

(Also, while not accusing "D.A.P." of either making the following mistakes, or intending the readers to make them, it should be pointed out that both graphs are of index numbers and thus only slopes, and not relative levels are comparable, and also that direct overseas investment income is mainly included in company income and it would be double counting to treat them separately.)

The concern of this article has been to refute the charges of "D.A.P," against Dr. Sutch and the policy of import controls and their effect on distribution or National Income so that the debate between the Sutch and anti-Sutchs can be fought over more valid ground—for "shares in National Income" is certainly not.

Notes for the academic: Perhaps the writer should explain that the statistical sources are the publications of New Zealand Department of Statistics and he sincerely hopes that the usual inaccuracies found in these sources do not obscure his conclusions; that all growth rates are from "best least square fits" over periods of seven years to compensate for the three-year cycle; and that he has knowingly interchanged the expressions "Private Income" and "National Income", mainly because although "D.A.P." consistently refers to the latter, it is the former with which he seems to be concerned

—B.H.E.