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War Economy

The Economic Stabilisation Commission

page 298

The Economic Stabilisation Commission

OUTSTANDING as a wartime economic achievement was the comprehensive economic stabilisation scheme introduced in December 1942.

For the first half of the war, the objective of price policy had been to ensure that cost increases and the rising level of demand did not lead to disproportionate increases in prices. For the second half, policy shifted to preventing cost increases altogether, or, where that was impossible, preventing them from affecting prices. This attempt at detailed stabilisation of the economy was a much more formidable administrative task, but it was one which offered some hope of success if tackled with sufficient determination. This was more than could be said of attempts to stabilise prices alone or even to stabilise prices and wages. Such limited attempts were doomed to failure from the start, because the attempt at stabilisation was undermined by the infiltration of cost increases in items which escaped the net of price and wage control. Sharply rising costs of imported goods, for example, had helped to defeat stabilisation plans in the early war years.

From December 1942 until the end of the war, and for some time after, a new organisation, the Economic Stabilisation Commission, became responsible for maintaining New Zealand's economic stability. Set up by the Economic Stabilisation Emergency Regulations 1942, the Commission consisted at first of six members, all of whom had acted on the earlier Economic Stabilisation Committee, which had drawn up the detailed stabilisation scheme.1

The regulations defined functions as follows:

1 Mr A. T. Donnelly, CMG (Chairman), Mr F. D. Cornwell, Hon. Angus McLagan, MLC, Mr William Marshall, Mr C. V. Smith and Mr F. P. Walsh.

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‘The Minister1 shall be charged with the general function of doing all things that he deems necessary or expedient for the general purpose of these regulations, and in particular for the stabilisation, control, and adjustment of prices of goods and services, rents, other costs, and rates of wages, salaries and other incomes, and for the direction and coordination for the general purpose aforesaid of the activities of all other persons or authorities having any functions in relation to any of those matters.’

‘The principal function of the Commission shall be to make recommendations to the Minister, after inquiry and investigation, in relation to the economic stabilisation of New Zealand and the functions of the Minister under these regulations.’

The Economic Stabilisation Emergency Regulations also set out the plan for a co-ordinated attempt to stabilise costs, wages and prices, and can be regarded as the culmination of a struggle for stability which had gone on over the first three and a quarter years of war. These were three and a quarter years in which prices and wages had both risen by 14 per cent. The struggle to achieve economic stability had been hard-fought, against considerable odds. At the outbreak of war an attempt had been made to stabilise the prices of all commodities and services at the levels ruling on 1 September 1939. Unless costs could be kept fixed, this was an impossible task.

Costs in fact tended to rise, and it had soon become apparent that, without much more powerful controls, any attempt to do more than restrict increases in prices to the actual increases in costs due to war was unrealistic. A policy so confined could act only as a brake on the general upward trend of prices; a trend which was influenced by wartime supply difficulties, by the vast increase in the overall level of demand as a result of the Government's war expenditure, and by unavoidable cost increases such as the rise in prices of imports. Once any persistent increase in internal prices was allowed, wages could not long be held, and rising wages became yet another cost influence tending to raise prices.

Central to the new stabilisation scheme was the Wartime Prices Index, which was to record price changes in 238 items. Wages were to remain fixed at December 1942 levels for so long as the Wartime Prices Index did not rise by as much as 2 ½ per cent. The fixing of wages in its turn would remove one of the major causes of the cost increases which had given rise to previous

1 Hon. D. G. Sullivan, Minister of Industries and Commerce, became Minister in Charge of Stabilisation.

page 300 wartime price increases. If wages and prices could be held, there might at last be some hope of achieving economic stability. But other costs entered into prices, in particular, increases in costs of imported goods which could not be prevented by New Zealand action. These would have to be offset in some way if the scheme was to succeed.

The Economic Stabilisation Commission would have to keep guard over all costs entering into prices, with the objective of making sure that the Wartime Prices Index did not rise sufficiently to justify a wage increase.

The first Director of Stabilisation was Mr B. C. Ashwin,1 then Secretary to the Treasury. These two posts were separated in 1945, and Mr L. C. Webb became director. Writing in 1946, Mr Webb said:2

‘The Economic Stabilisation Commission was created in 1942 as an instrument for carrying out the government's wartime policy of stabilising wages, salaries, farm payouts, commodity prices, and rents at the level of December 15, 1942. The policy depended on coordination of the work of all departments whose activities affected the economic life of the country.

‘In the brief period of its existence the Commission has passed through many changes. Originally it consisted of six members, with the permanent head of the treasury acting as director of stabilisation. Later its membership was reduced to three: the permanent head of the treasury who acted as chairman; a representative of the employers; and a representative of the trade unions. At present there are five members. Its staff, which for the sake of convenience is a sub-department of the treasury, consists mainly of cost accountants, economists, and research workers.

‘The importance of the part played by the Economic Stabilisation Commission in the domestic life of New Zealand in the past three years would be hard to exaggerate. Almost every economic issue which has arisen has been referred to it for investigation and report; and the occasions on which the government has acted contrary to its advice have been infrequent. Another function of the Commission has been of great value in easing the pressure on the political executive: it carries out negotiations on prices and payouts with representatives of the farming industries, the manufacturing industries, and other economic interests.’

1 Later Sir Bernard Ashwin.

2 In ‘Politics and Administration’ in the United Nations publication, New Zealand (edited by H. Belshaw), p. 287.

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