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The Pamphlet Collection of Sir Robert Stout: Volume 70



The Position To-day and in the Future.

Having carefully studied the subject of the capital lent to, or invested in, Australasia during the past fifteen years, it is well that we turn our attention to the future. Are the borrowings of the past to be the measure of the borrowings of the future, and if so, what are likely to be the consequences? The purely colonial government borrowings in the ten years ending 1871 reached twenty-seven millions; in the ten years ending 1881, they mounted up to fifty-seven millions; whilst, in the last ten years, ending 1891, hey aggregated ninety-seven millions, Municipal indebtedness at present totals over eleven millions, the most of which has been contracted during recent yea re, and supposing the total was spread over the three periods in the same proportion as the colonial government, we should find the borrowings, the purely official borrowings of Australasia, to have been twenty-eight millions, sixty-one millions, and one hundred and three millions, respectively, in the three periods, bringing the aggregate public indebtedness at the close of 1891 up to 202 millions, entailing a yearly interest charge of eight millions. Adding the private indebtedness, we find a total of 400 millions as the lowest approximate estimate of the financial interest in Australasia possessed by capitalists resident in Great Britain, and that this entails a yearly charge on these colonies of from fifteen to eighteen millions sterling, equal to per head an average indebtedness of £100, and a yearly charge of £4 for interest; or, per family of five persons, an indebtedness of £500, and a yearly interest charge of £20. The stream of new capital flowing towards Australasia during the past ten years cannot have averaged much, if anything under eighteen to twenty millions sterling every year, and has represented no insignificant portion of the regular income of the various communities.

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The position to-day is one that demands the thoughtful consideration of earnest raen. If the colonies, during the next ten pars, publicly borrow as much as they have borrowed during the previous ten, and if private investments are also on the same scale, then Australasia would in 1901 have an aggregate indebtedness of no less than £600,000,000, with a yearly interest charge of from £28,000,000 to £26,000,000, a sum very considerably Exceeding the value of the present annual wool clip of the whole seven colonies. The full effect of these growing interest charges is but little understood. During the past ten years we have said the annual new capital borrowed or sent out for investment has been close to, if not quite, twenty millions, and if the same were continued for the next ten years the interest charge at the intervals might be placed, roughly, at the following—eight millions in 1881, sixteen millions in 1891, and twenty-four millions in 1901. It will be seen that twenty millions borrowed in 1881 would pay the interest charges due to Great Britain, and leave twelve millions to actually come to the colonies in the form of excess of imports. In 1891, the interest having grown to sixteen millions, there would only remain four millions to actually arrive here. While it will be seen that in 1901 there would be nothing left to import, but that the whole sum would be absorbed in England, and, in addition, Australasia would have to ship other four millions to make up the amount due for interest. It may be said that every year when twenty millions of new capital have been obtained the whole sum, in some form or another, has been used in developing the wealth of the colonies, and that the increased wealth is easily able to bear the interest charge. Happily, to a considerable extent, this is true, but it is not altogether true, and we must not allow ourselves to dwell on the extent of our wealth when it is so enormously mortgaged.

Australasian Production.

It is more desirable that we should carefully watch the production of our industries, for, after all, it is the result of our own labors that must ultimately bear the sole burden of our indebtedness, Unfortunately, no one who carefully studies the matter can fail to note that the percentage of production left after payment of our interest charges is regularly diminishing. We have calculated the interest charges for 1881 at eight millions; we have no means of estimating with anything like accuracy what the charges were in 1861 and 1871, but probably we shall not be very far wrong in taking it at two millions for 1861 and four millions for page 38 1871. On this basis, then, let us compare the exports of Australasia—our salea of produce to the rest of the world—with our interest payments:—

1861. 1871. 1881. 1890
£ £ £ £
Total exports Australasian products 16,009,783 23,090,325 31,210,972 36,731,351
Aggregate inte test Australasian indebtedness 2,000,000 4,000,000 8,000,000 15,000,000
Balance available for the purchase of imports 14,609,733 19,005,325 23,210,072 21,731,000
Percentage of exports required to pay interest 12 17 26 41
Percentage of exports available to buy imports 88 83 74 50

The figures here given are exceedingly remarkable. Our net or free exporta, wherewith we can buy commodities which we desire to import, are actually less in 1890 than they were in 1881, and very little more than they were in 1871, The interest payments which in 1861 left £88 out of every £100 of exports, in 1890 only left £59. Comparing the net or free exports with the population, we find that in 1861 they reached nearly £12 per head, whilst in 1890 they had fallen to less than £6 per head. We must point out that reduced exports are often a sign of increased prosperity, for the greater the consuming power the smaller must be the surplus available to sell to other countries; but making every allowance for this fact it must certainly be admitted that the figures we have given are very unsatisfactory. We should have preferred to have compared the interest charges with the production for the four periods referred to, but the necessary figures were not available. We have, however, in a previous article, been able to compare the production of 1881 and 1890. The result confirms the inference to be drawn from the table now published.

"Reproductive" Works.

We fear that a great deal of delusion exists on the subject of borrowing for "reproductive" works. If a million of money is borrowed in England, it is thought to be wholly satisfactory if there is a probability of the public work on which it is ex- page 39 pended bringing in sufficient revenue over working expenses to pay the interest. Such a result is entirety satisfactory so far as the public department concerned is interested, yet it may not be wholly so on the broad grounds of the country's welfare. At present a traveller can proceed all the way from Adelaide to Brisbane by train; a few years ago he must have gone by steamer. This means that large revenues have been taken from the shipping trades by the railways. Recently the line between Sydney and Newcastle was completed, and the disastrous effect due opening of that line had on the Sydney-Newcastle steamship trade is well-known. Money was taken from one industry to pay, or to help to pay, interest to British capitalists, A cable tramway between King Street, Sydney, and Ocean Street, Woollahra, will shortly be constructed. It is expected the line till earn interest as well as expenses. But it is clear that it Will lessen by thousands of pounds the receipts of the omnibuses cow running on the route. British capitalists will receive interest—we might call it a guaranteed dividend—on traffic worked at present in another form by Australian capital. Some thousands a year will be paid to British capitalists on traffic the profits of which at present remain in Australia, and this is a "reproductive" work.

The Burden of Interest.

The burden that interest may be to a community is far more serious than is generally understood; yet we have only to consider the position of either New Zealand or Queensland daring recent years to know how serious it may be. In both those colonies, after a too rapid development brought about by enormous supplies of new capital, reaction set in, the stream of Dew capital almost absolutely ceased to flow, and of the days of exuberant prosper, nothing was left but the heavy burden of interest. The public finances of those two colonies give evidence of how grievous that burden was, Hitherto, or during the last ten or fifteen years, if the supplies of new capital have ceased in some colonies, they have continued, perhaps grown Iarger, in other colonies. Let it be remembered that the time will come when the supply will, if only for a period, cease as regards the whole of Australasia. The private investment stream very quickly ceases to flow when times become dull; the stream of official borrowing can be continued longer, but a marked degree of depression here or a financial crash in Great page 40 Britain would make such borrowings impossible. It will be well, then, for Australasia to face the possibility of an entire cessation at a very early date of all supplies of new capital, Such a cessation must take place sooner or later. In 1801 the statistics of imports and exports showed an excess of exports, indicating that the supplies of new capital were not sufficient cover the interest charges on Australasian indebtedness which as we have seen, probably means from fifteen to eighteen millions. Evidently it would be a very serious thing if the tide turns so completely in the other colonies as it has already done in New Zealand and Queensland. Yet it is exceedingly probable that it will do so. Last year the two colonies named between them paid away for interest charges, through the medium of exports, as much as five millions sterling, whilst in Victoria, on the other hand, at least four millions, and in New South Wales one million of new capital was received, If Victoria has without assistance to pay her own interest charges, then her trade, like that of New Zealand and Queensland, must soon show further heavy reductions in imports, until they leave the exports in excess by the amount of Victorian interest charges. In two years the excess of imports in Victoria has fallen no less than six millions. The difference between last year's figures in Victoria and the point at which that colony would be paying her own interest charges means a further fail of probably eight millions, and a considerable portion of this fall will evidently be accomplished this year. It is this mighty change—for mighty it is—which is the principal cause of tie collapse at present existing in Victoria. It is five years since New South Wales showed any actual importation of new capital on a heavy scale—and then it was only one-half of the extraordinary Victorian figures of 1888-89—and she has been able to keep up her imports by largely increasing her exports. Yet in 1891 even New South Wales must have obtained nearly six millions of new capital, the bulk of which was required to simply balance her interest payments. It will therefore be seen that if New South Wales ceased to obtain new capital it will, as compared with 1891, make a difference of six millions. Hitherto as the stream of new capital has failed in some colonics, it has continued—even increased very greatly—in others, and population thrown out of work where the supply has failed has proceeded to where the supply was continued. It is noteworthy, in illustration of this fact, that in 1888, that extraordinary year page 41 in Victoria, the excess of immigrants over emigrants for all Australasia was only 17,580. yet in that year Victoria alone showed an increase of population from this source of no less than 25,757. This was made possible by an exodus of population from four of the other colonies—10,548 from New Zealand. 8477 from South Australia, 1053 from Western Australia, and 383 from Tasmania. Clearly, the Victorian "boom" year afforded considerable relief to the congested labor market of Australasia generally. The lesson seems to be that if all the colonies have to pay their way without supplies of new capital, the congested labor market of one colony will find it unusually difficult to obtain relief in any other colony.

The Necessity of the Hour.

In, with this article, drawing to a conclusion these notes on capital and finance in Australasia, we would most earnestly, most emphatically point out what is the necessity of the hour, a necessity which is almost daily becoming more and more imperative. If we would find work for our population, if we would maintain wages, if we would recover and then continue a satisfactory degree of prosperity, we must give more attention to the great producing industries of these colonies. We must seek to increase the quantity of our produce which we can sell to the rest of the world. If in our laws or habits of life there are impediments to an easy settlement of population on the soil, we must sweep away those impediments, We must seek development by labor instead of development by finance. We have expended too much energy in attracting and fighting over the expenditure of external capital, and too little energy in the work of production—work which lay ready to our hands. By our neglect we are allowing the bounty of Nature to become a curse instead of a blessing; the wonderful increase of our flocks and herds has actually led to depression through the whole pastoral industry of Australasia, when enterprise, aided by nineteenth century science, might have turned that increase into gold. We let fruit rot when millions of people on the other side of the world would gladly pay good prices for it. We shut our eyes to the fact that we have summer in this southern hemisphere when winter reigns in the northern, instead of recognising that in this reversal of the seasons has the certainty of an almost unlimited commerce. There is little doubt but that we have entered upon a grave crisis in the financial and commercial life of Australasia page 42 as a whole, and it is desirable that we should meet it like men. In all the colonies to-day there is depression, and it is—with a touch of shame that we observe that every one of them—, believe there is no exception—is a suppliant in the London money market for money for the construction of more public works, and that on this policy the various Governments are mainly relying for the removal of the unemployed difficulty. It will not do. There must be a change. Borrowing cannot at once be wholly suspended, but it must be curtailed—vastly curtailed—if the future of these colonies is not to be seriously imperilled by a great burden of interest. The intimate connection that exista in Australasia between politics and public expenditure is a grave evil, and if greater production from our industries is the first necessity of the hour, certainly economy stands only second, The extraordinary growth of public expenditure, the multiplication of offices and of new departments, make it plain that the old British cry of "retrenchment" is needed in Australasia, Depression, time after time, has driven various colonies, as it is driving Victoria to-day, to reduce expenditure; but when prosperity returns economy is thrown to the winds and extravagance again reigns supreme. Strict economy in a time of surplus revenue is a virtue as yet unknown in Austral asia, and yet it may be said that there is not one colony out of the seven that does not feel its interest payments a burden.

In New South Wales.

As far as the colony of New South Wales is concerned, it is gratifying to know that she holds the premier position in the matter of production, and that her surplus for export is, as we have seen, a very large one. It is also satisfactory to know that for the past five years she has been making headway with lessened supplies of new capital. It ought now to be the object of all political parties to encourage the expansion of the natural industries of the colony, to keep down debt, and to insist on rigid economy. On these lines, and on these only, can permanent prosperity be obtained. The reaction from the colony's heavy, borrowings is not yet complete, the consequences are not yet all manifest; but it is well to know that New South Wales is stronger than any of the other colonies; that she has made by far the greatest progress in the path of profitable industry.

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The World's indebtedness to Great Britain.

In concluding we may be pardoned for referring to a matter which, though somewhat beyond the scope of our inquiry, is yet one of remarkable importance. It is the financial position towards the refit of the world which Great Britain holds to-day, and the position she will hold in another twenty-five or fifty years. It has been computed that already Great Britain has financial interests in the rest of the world to the extent of £2,000,000,000. At an average of 3½ per cent, this represents a yearly income of £70,000,000. This alone is a wonderful position, but the position is strengthening with every day that passes. What will it be in a quarter of a century? If the accelerated speed of recent years be continued, it may be that in that time Great Britain may have financiad interests in the rest of the world aggregating £5,000,000,000. What would such a state of affairs lead to? Is something in progress very much He the financial conquest of the world by Great Britain?


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