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Salient. Victoria University Student Newspaper. Vol 35 no. 7. 19 April 1972

book — Import Controls and Full Employment . . or else!


Import Controls and Full Employment . . or else!

Now that the new Prime Minister is pledged to stand or fall by his success in countering inflation, New Zealand has reached the stage where one of the basic structural problems of its economy, endemic price inflation, may actually become an election issue. In this situation, any discussion of economic policy making is welcome, and Mr Rosenberg's extended defence of the policies which got us to where we are now is of considerable historical interest. New Zealand's only radical economist is, as usual, not advocating major radical changes in either economic structure but defending those policies which he believes were responsible for the 'prosperity' of the past. He believes these have been upset only by the interference of wicked foreigners.

Rosenberg's economic views have often been regarded as radical because of the claim that his policies alone can guarantee full employment. The effect of import substitution, the development of small 12, or 20, man factories is to create exactly the kind of industries which will collapse when the first major downturn in the balance of payments eventuates, so generating mass unemployment. The more hothouse and artificial your 'industrialisation' the more readily it will succumb to recession. Hothouse industry also, by the demand for imported raw materials and machinery and the price inflation it fosters, accelerates balance of payments downturns. These possibilities are nowhere discussed in this pamphlet.

The Rosenberg-Sutch policies, even though rejected by all other New Zealand economists, still retain influence in the Government and the State bureaucracy, and remain the basis of Industries and Commerce Department decision making, as Mr. Rosenberg's pamphlet makes clear. They have such a strong appeal to important groups of manufacturers that Muldoon only a few weeks ago defended the retention of import licensing until the various manufacturing interests (read 'capitalist pressure groups') could make submissions (read 'bribe') the Government. It is no accident that the Minister of Finance is attacked only once in this leaflet, and then for implementing a policy which led to an inflationary wage explosion. Mr Rosenberg believes that the danger of Mr Muldoon's policies is that they favour the workers, a rather unusual contention, but one which must be put up by anyone proposing a conservative alternative to Mr Muldoon's economic strategy. Mr Rosenberg, however, although not without friends in the present administration, has no illusions about the power of governments. He writes on page 56:-

"To assume that under import licensing in the New Zealand system 'administrators' determine the allocation of resources is, of course, quite incorrect. The function of the Industries and Commerce Department in vetting new projects is little different from that of an investment banker. The initiative comes from business...."

It may be asked why, the Industries and Commerce Department does not become a private investment bank, and so save the taxpayer a large amount of money.

What should be noted however is that Mr Rosenberg acc epts the Marxist theory of the state as the executive arm of the business community, but, unlike the Marxists, regards it as desirable, not only that the State should be controlled by business but that this control should be increased. The acceptance of import licensing, he contends would allow businessmen to make the crucial decisions.

Where in the past, has this system lead us? This pamphlet concedes that in the past licenses have not been retained by the manufacturers to which they have been allocated but have instead been sold to the highest bidder by the firm owning them. It does not worry Mr Rosenberg that the selling of import licenses makes a mockery of Government decision-making - as we have seen, he wants the basic decisions left to business in any case. Mr Rosenberg is concerned only that money earned by such sales is 'unearned increment' and should be taxed at a higher rate. As a result of policies of import substution, wages have risen, it is conceded, but at a slower rate than in comparable economies. It is argued that in periods of full employment allegedly resulting from import substitution wages will rise only slowly but with larger degrees of unemployment there will be 'wage' explosions. Mr Rosenberg's policies will keep the workers quiet. Whatever we may think of Mr Rosenberg's logic, he describes accurately two results of past economic policies slow wage rises and import control by the black market. He is more backhanded about two other major consequences, price inflation and monopoly control, though his argument assumes that in no case will an imported product be allowed to sell more cheaply than a domestically manufactured competing article. The consequences of this for the New Zealand standard of living need not be spelt out. Import substitution raises the cost of consumer goods, while slowing the rate of wage increase. In another book,

Full Employment: Can the New Zealand Economic Miracle Last? He has admitted that the growth of domestic monopolies is encouraged by policies of import substitution.

Mr Rosenberg's policy for the future, where it is new, amounts to "a degree of incomes policy" and proposals for "wage and salary earners" to make sacrifices for the sake of the nation as a whole" (p52). As there is a close similarity between these policies and those of the Government. The old recipes for economic growth and the new are, once the polemics are buried not too far removed. The conservative implications of the 'Rosenberg Revolution in Economics' were first developed by Michael Hudson in a series of articles from 1964 on, and Hudson's views have won increasing acceptance on the left since that time, especially among various Marxist groupuscules. During this period, too, Rosenberg has moved more and more firmly toward the right. The essential criticism of Rosenberg, however, as of any conservative economist, is that he sees the problems of the New Zealand economy not as structural but as administrative. The force of this criticism has been aweakened by the tendency of Hudson s supporters to endorse trade union responses to Government economic policies rather than political responses. The structure of New Zealand industry — based on the small factory employing less than 20 — can only result in endemic price inflation. It is Rosenbergist economics which have helped create this situation. The left's abandoning Rosenbergism would be a first step away from economic and ideological inflation, toward a demand that our economic system must be changed.