the australian war economy, november, 1944-may, 1945 : i. introduction: ii. production and supply...

THE ECONOMIC RECORD JUNE, 1945

THE AUSTRALIAN WAR ECONOMY, NOVEMBER, 1944-MAY, 1945

11. Production and Supply Problems. 111. Finance and Prices. IV. Planning f o r the Future.

I. Introduction.

I The conclusion of the war in Europe on 8th May, 1945, calls

for a new set of adjustments in the economies of the United Nations, and Australia is naturally very directly affected. In the h a 1 phase of defeating Japan this country is one of the natural bases of operations, especially fo r operations t o re- conquer the Netherlands East Indies. Already a combined Australian and Netherlands force has landed on the island of Tarakan, off North-east Borneo, and units of the British fleet are being supplied and repaired in Australian bases. Inci- dentally, some concern has been caused by water-front disputes in Australian ports, which have delayed loading and repairs of vessels. Perhaps partly as a result, but probably mainly because of the shortage of skilled men for repair work, the Royal Navy is bringing considerable numbers of British artificers to Aus- tralia for this work. It appears, therefore, that the importance of Australia as a source of supplies for the United Nations during 1945 will remain as great as ever, if, indeed, it does not increase. With the movement of American forces further and further north in the Pacific there has been some decrease in their demands, but any decline is being offset by increasing demands from British forces in the Pacific.

It is particularly unfortunate in these circumstances that the production of food, which is the chief demand: has been so badly affected by one of the worst droughts in Australian history. The whole of southern Australia has been smitten except the fa r south-west, and yields have been seriously reduced. In an attempt to meet our external commitments in meat exports a cut has been made in the meat ration, and so f a r there has been no relaxation in ratioging generally, despite the great improvement in the war situation. The defeat of Germany will, of

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2 THE ECONOMIC RECORD JUNE

course, make it possible to release a certain number of men from the fighting forces for the production of supplies, but so far as food production is concerned, though an increased labour force will bring some relief it cannot completely offset the effect of drought conditions, The shortage of fodder and water supplies have already had a serious effect upon food production, and there is little. prospect of overcoming the shortage by imports.

Although production problems have continued to cause anxiety during the last six months, the coal industry has not attracted so much attention. There has been some improvement in output, and the industry seems to have been less disturbed by temporary stoppages and disputes. This is not to say that the coal output is all that could be desired, or that there is any margin of stocks upon which we could draw in time of need. More attention has been concentrated, however, on the acute housing shortage that exists throughout the country, and efforts are being made t o relieve the position, though so far not much relief has been given. This is, of course, part of the problem of a change-over from a war to a peace economy, and the Common- wealth Housing Commission has been making its plans under the aegis of the Ministry of Post-War Reconstruction, Naturally, with the end of the war virtually in sight increasing attention has been given to the problems of the change-over to peace, both in the national and international sphere. Australia contiiiues to co-operate in the work of the United Nations Food and Agriculture Organization, as well as in that of the United Nations Relief and Rehabilitation Administration. The Far- Eastern Committee, of the Council of U.N.R.R.A., is now operat- ing in Australia, and in addition Australians are being recruited to help carry out the work of relief in Europe. Australia is also represented by a strong delegation a t the United Nations Security Conference, now (May, 1945) sitting in San Francisco. The organization of world security being essential f o r international trade and investment, the outcome of the San Francisco Conference will be eagerly awaited. Meanwhile, in the interest of national reconstruction, the Commonwealth has passed the Wool Use Promotion Act, and has. before Parliament measures t o strengthen the control of the central bank over the trading banks, and to alter the constitution and management of the Commonwealth Bank. Whatever may be thought about these measures they give evidence of the increasing attention being given to the change back t o peace conditions.

1945 THE AUSTRALIAN WAR ECONOMY 3

I1 (a) Manpower: The maintenance of production in many

important fields has continued to be hampered by shortage of labour, and the Commonwealth Government has reviewed the allocation of these scarce resources from time to time. On the 14th September, 1944, Mr. Forde announced the Government’s decision to ask the Army to discharge 4,000 men whose release for dairying had previously been refused because they were in operational units. A little more than a month later Mr. Forde announced that the wider scheme for the release of 30,000 men from the Army was under way; some 12,500 recommendations for release had been made by the Manpower Directorate, and by 14th October 3,430 had been approved. On 15th November Mr. Forde, as Acting Prime Minister during Mr. Curtin’s illness, made further announcements on the subject. Australia’s obligations as a supply base called for a further expansion of production which required 119,350 men and 25,500 women. Of this number, routine discharges and releases from the services, together with diversion of workers from munitions works and other forms of production, promised to supply only 81,650 men and 15,600 women. The anticipated shc-tage of labour during the remainder of budget-year 1944-45 was, therefore, nearly 50,000 persons, and so we were not able to look forward to any immediate easing of the position. On the labour resources available it was intended that rural industry and housing should have first; claim-21,500 persons for food production and 30,400 men for building and associated industries. On 2nd December, 1944, Mr. Makin announced that the net releases from munitions works in the year, July, 1944, t o June, 1945, mould be 9,200 men and 2,000 women. While it would be possible to release 17,000 men and women, the fulfilling of export orders for Britain, India, New Zealand and Netherlands Indies would require the employment of another 5,800 men and women. The Government also decided soon afterwards (11th December, 1944) to undertake a “comb-out” of temporary public servants in the new war-time departments-but not much can be expected from this source.

In reviewing the situation on 9th February, 1945, the Prime Minister answered the numerous demands for the release of more men from the Forces, as follows: “I do not see, a t present, that the allocations of manpower can be altered. . . . The economic requirements of increasing the pressure against Japan from Australia as a base are very considerable. I refuse to


believe that the Australian people have suffered unduly. They have been free from bombings and the like, and have been fortunate people. All they have had to do during the war is to work a little harder.” Mr. Curtin elaborated this argument in a statement to Parliament on the 28th February, and pointed out that these demands could not be met “without prolonging the agony of the war.” He went on to add, however : “I undertake that by June,’1945, there will be a revision of the manpower allocations of this country as between the Services and industry, because by then, I believe, certain events will have transpired which will warrant adjustments. ’’ The following day Mr. Dedman, as Minister for Post-Mar Reconstruction, had thc disagreeable job of making known that the allocations of labour decided upon in the previous October for building and rural industries could not be met in full. This was due to a number of reasons, including I ‘ additional commitments in respect of the basing of Royal Navy forces on Australia.” The end of the war in Europe now promises to bring some relief for the labour shortage, as the Prime Minister hinted i t would at the end of February. A Canberra message (Age, 11/5/1945) suggests that an additional 30,000 men will be released from the Services as a result, while according to a much more optimistic estimate (Melbourne Herald, 12/5/45) “it is expected that 100,000 men and women might be released by December.” An official statement on the subject is still awaited (18/5J45).

(b) Coal Production: Coal output a t the end of 1944 was unsatisfactory, and insufficient to meet urgent needs ; rationing had been introduced on 2nd September. On 16th November Mr. Forde, as Acting Prime Minister, announced that coal production for the third quarter of 1944 was 366,000 tons less than for the same period of 1943. Conferences were held with members of the Government of New South Wales, and with representatives of the miners and the mine-owners in an effort to improve the situation. The Commonwealth Government could not agree to some of the demands made by the miners’ representatives, e.g., to cease the practice of collecting Gnes for absenteeism by garnishee of wages when fin= were not paid, in accordance with the magistrate’s order. Other demands were that the Commonwealth should take control of the J. and A. Brown-Abermain-Seaham group of collieries and introduce a Commonwealth scheme of miners’ pensions. The first was refused, whilst the second was deferred until a report was received on the operation of the N.S.W. miners’ pension scheme.


Miners’ annual holidays were also fixed by a National Security regulation for the period, 22nd December, 1944, to 2nd January, 1945. A serious situation developed as a result, and the leaders of the miners’ union informed the Government that its members could “no longer agree” with its policy, and they would be told to extend their annual holidays by a week. The Government in reply pointed out.that it had done all in its power to remedy the legitimate grievances of the miners, and to maintain1 production. It claimed that Mr. A. C. Willis, a former presiderik of the miners’union, had pointed out that “88 per cent. of recent stoppages have not had their origin in disputes between employer and employee.” To avoid an open show-down between the Government and the miners’ union, the Government conferred with the Australasian Council of Trade Unions, and a conference of Federal trade unions was held in Sydney on 19th-20th December. As a result the Commonwealth agreed to appoint a commission of inquiry “to examine and report on any matters affecting the efficiency and continuity of coal production,” with the least possible delay. The executive of the miners’ union for their part withdrew their earlier instruction to their members, and the threatened clash was averted. On 23rd December i t was announced that Mr. Justice Davidson (who had been chairman of the fCoyal Commission on the Coal Industry in 1930), bad been appointed chairman of the commission of inquiry. Two representatives, one of the mine-owners and one of the miners’ federation, were appointed on 12th January, 1945- Mr. T. Armstrong and Mr. I. Williams. As part of the commission of inquiry, a national survey of health in the coal industry is also being carried out by Sir Raphael Cilento, assisted by Mr. D. T. Brewster, the Chief Inspector of Mines for N.S.W., and Dr. H. D. M. L. Murray, of the Commonwealth Department of Labour.

In the present year the coal industry has been more peaceful, and production figures for the first quarter of 1945 have shown a slight improvement over those for the same period of 1944, although below those for 1943. The official figures (for New South Wales) for 1945 were 2,768,000 tons, an increase of 165,000 over the figures for the first quarter of 1944. About 100,000 tons of this increase came from open-cut, which produced 124,500 tons, compared with 25,700 tons for the corresponding quarter of last year. There are now four open-cut mines being worked in N.S.W., a t Cessnock and Muswellbrook in the north, and a t Wallerawang and Lidsdale in the west; there


are further big deposits in the western district suitable for open-cut working, according to Mr. Mighell, the Coal Com- missioner. The Commonwealth in March made an additional grant of $50,000 towards the cost of a crushing and drying plant for the open-cut mine at Leigh Creek in South Australia. Indications so far are that we may hope for better coal production in 1945 thap in 1944; whether we shall reach the targets set, however, is impossible to say a t this stage.

(c) Food Production: As a result of &ought it was quite clear towards the end of 1944 that Australia would not be able to keep up the output of food produced in the year 1943-44. A conference of Commonwealth and State Ministers early in October, 1944, agreed on proposals for relief of farmers in drought-stricken areas. As a result, on 15th November a bill was introduced to provide S3m. “for relief to cereal farmers,” the sum to be provided in equal proportions by the Common- wealth and the States affected. (In March, 1945, the amount was raised to S3,710,000.) It was pointed out by Mr. Scully in introducing the bill that “the drought is so severe and extensive that it ranks with those of 1902 and 1914 . . . . a disaster hitting the three chief cereal-producing States”-N.S.W., Vic- toria and South Australia. Not only the wheat crop, but oats, barley and hay crops were almost a complete failure in these three States. The drought has been relieved since to a certain extent in New South Wales, and the coastal areas of South Australia and Victoria, but the inland wheat areas still await adequate falls to ensure successful planting for nest season’s crop. The failure of fodder crops in the three south-eastern States has naturally reduced milk production in a disastrous fashion, and meat production has also been seriously affected. Fortunately the carry-over of wheat stocks, estimated at 75m. bushels at 1st December! 1944, has enabled a certain amount of wheat to be used as stock feed. It is somewhat amusing, however, €or the Prime Minister to attribute our accumulation of wheat stocks to our L1proVidence’’! The failure of the 1944-45 crop, which realized only about 53m. bushels, and the record rate of wheat consumption as fodder, made it necessary for the Government to introduce a quota scheme for wheat-purchasers on 16th January, 1945. In the same month the Commonwealth arranged fo r the import of meadow hay from New Zealand, and for the import of hay and chaff from Western Australia to the eastern States. Mr. Scully also announced in January that the Commonwealth was arranging for the importation of 25,000


tons of oats (largely for breakfast foods), and for several million bushels of maize. A t the end of April it was reported that the Commonwealth was hoping to import 6,000,000 bushels of grain before November next, but it is difficult to relieve the situation by imports, because of shortage of shipping space. F o r the 1945-46 wheat crop a target area has been set of 11,500,000 acres-3,000,000 acres more than last season. The cropping of this brea will be greatly'helped by the import of more than 7,300 farm tractors during 1944, and of another 4,000 in 1915. In spite of these abnormal imports (the figures for 1938-39 were about 3,500) they were still insufficient to meet the demand, and production of agricultural machinery is being expanded. Annual peace-time output was valued a t about 26m.; the production for 1944-45 is planned at E7m., and for 1945-46 at over S9m.

In contrast with the prospects for meat and dairy production, the sugar and potato crops present a brighter picture. The output of sugar for the 1944-45 season was 640,000 tons, which was 135,000 tons above the previous season, while our potato crop, at 805,000 tons, was the biggest in our history. Production of vegetables a3d eggs does not seem to have been badly affected, though egg production may be a little below the target set, and a priority distribution system was introduced' in February to cover the lean period from April to July. Wool production for the 1944-45 season will be about 15 per cent. below the figures for 1943-44, but considering the state of wool stocks this is not serious; the worst feature is the serious loss of stock in drought areas. The export of wool-fells to France is being renewed and will give a market for sheepskins. Wine and dried fruit production are also down on account of the drought, the former by 50 per cent. and the latter by 40 per cent., while the tobacco output is expected to be less than one-third OP the 1,000 tons of cured leaf produced in 1941-42. Some offset to the disastrous effect of drought may be seen in the new contracts entered into with the British Government for butter and cheese, announced in April, 1945. These contracts give a substantial increase in the price for butter and cheese exported, e.g., 184/84 (Bust.) per cwt. for choice butter, an, advance of 4l/lO$. This should considerably reduce the amount of subsidy which the Commonwealth will have to pay to butter producers. The Wine Export Bounty Act, which expired in February last, has a1.w been renewed f o r another two years ; this has no immediate effect, since them has been no export trade for some years past.

8 THE ECONOMIC RECORD J U N E

But there are ample credits in the trust fund t o pay the bounty of 1/- per gallon on any wine that may be exported in the next two years.

(d) Secondary Produetiom: The numbers employed in factory production continue to decline slowly from the peak figure of 751,700 reached in April, 1943. The last figures, given in April, 1945, show a decline to 115,400, nearly all of which is accounted for by the fall in numbers employed in government munition factories and annexes, from 56,800 to 26,700. These latter figures do not, of course, represent the total employment in munitions production, which in the April-June quarter of 1943 was over 156,000. By September, 1944, this number had been reduced by 63,000, and nine of the 48 government factories had been put to other purposes. In making known these latter facts on 19th September, 1944, Mr. Makin also claimed that most kinds of ammunition were being produced below their landed price from Britain. However, the landed cost from Britain presumably includes heavy war insurance charges, and does not necessarily indicate the normal landed price. No similar com- parison was possible, Mr. Makin said, so far as gun production was concerned, but he claimed that guns were being produced “most economically and at a progressively lower cost.”

Many of those who have left munitions work have been diverted to ship-building and repairing, and Mr. Makin reviewed the progress in these fields on 9th February, 1945. Six merchant ships of 9,000 tons had been built by the Australian Shipping Board for the Department of Shipping and were in commission; another three were to be launched within a few months. In addition, a considerable number. of smaller vessels had been built. Though ownership was vested in the Depart- ment of Shipping, they were being operated by various Aus- tralian shipping companies. Orders had been placed for eight “D” class freighters of 2,500 tons, and contracts had been let for seven 550-ton freighters fo r the intra-state trade. Mr. Makin claimed that “the merchant ship-building industry could be regarded as having been placed on a permanent basis in Aus- tralia, with costs favourably comparable with those in many countries in which the industry had been carried on for a long time. ” The resources available for building merchant ships have been seriously curtailed by the need for building naval vessels (some 80 ranging from 500 to 1,850 tons), and for repairing and docking Australian and Allied ships. The latter demand


has been very heavy, about 2.5m. tons a month requiring at tention.

The production of aircraft in Australia continues to expand. The decision to produce Lancaster bombers in Australia was announced last June, and later it was announced that the Mustang, “single-seat pursuit plane,’’ would also be built. The decisions to prodqce these two types of aircraft followed upon the report of experts who visited both America and Britain to select two most useful types of aircraft to be built in Australia. The Mosquito was already in an advanced stage of production when these decisions were made. These “three types of aircraft may be considered essential for an effective air force under present-day conditions, ” Senator Cameron claimed (26th November, 1944), and it was intended to maintain the production of these three types in peace time.

(e) Supplies and Rationing: The position with regard to supplies for the civilian population in Australia has improved in some directions, but has grown worse in others, and rationing has become a little more severe. That rationing has achieved a substantial reduction in civilian consumption was revealed in figures given by the Prime Minister to Parliament on 26th Sep- tember last. Australia’s meat consumption in 1938-39 had been 722,000 tom, and the estimated figure for 1944 was 540,000 tons (excluding 124,000 tons for the Australian services). This had enabled Australia to provide 178,000 t o w for export to Britain, and 158,000 tons for the United States services ; total production actually exceeded the 1,000,000 tons thus allocated, by 35,000 tons. The d’rought will probably reduce this year’s production to about 900,000 tons, and, accordingly, the meat ration has been reduced. In February, 1945, coupon ratings were raised f o r various kinds of meat, to correspond with a reduction of 40,000 tons in the civilian allocation for the year. At the beginning of May adult meat rations and commercial users were cut by 124 per cent., while a reduction of 25 per cent. was made in supplies to cafes. In many cities the reduction in milk supplies will be even greater during the winter months. In the absence of an official rationing system milk retailers in many cities have reduced supplies to households, and supplies to milk bars have ceased. The chairman of the Melbourne Milk Board, Mr. Packer, estimated early in May that by the middle of winter Melbourne’s milk supply would be only half of normal requirements. Mel- bourne is also threatened with rationing of gas and electricity and may be in for a hard winter.


Although food supplies are short, easily the most serious shortage is in housing. In February last Mr. Thomson, secretary of the Building Trades Federation, claimed that of our population, of little over 7,000,000, more than 1,250,000 are inadequately housed, and the shortage of houses in Australia amounts to 280,000. The shortage of labour in the building industry is due to the fact that between 1939 and 1943 some 112,000 tradesmen went in€o the Services or the Civilian Construction Corps, which is claimed to be a higher percentage than for any other industry, and so fa r only 3 per cent. have returned. The Government’s plans to release men for housing work have been frustrated to a large extent by the demand for building workers, to provide accommodation for British forces in Australia. How- ever, both Commonwealth and State Housing authorities have made plans to step up the building of houses to relieve the acute shortage (see section IV below). After housing, perhaps the most acute shortage is in transport services, although here there has been some relief as a result of the improvement in coal production. At the beginning of April it became possible to make considerable increases in country passenger-train services, and to restore sleeping cars to interstate expresses. There have been improvements elsewhere also; in September, 1944, the emergency food reserves scheme was completely withdrawn in Victoria and New South Wales, and largely withdrawn in South Australia. This made more abundant supplies available to the public, and in the same month increases were granted in the amounts of paper made available for printing newspapers, periodicals and books. The work of the Commonwealth Dis- posals Commission has not so f a r done much to relieve civilian shortages, since Commonwealth and State departments have the first offer of any surplus Commonwealth property. Motor vehicles, therefore, have not so f a r been offered for sale to civilians, but some Rolls-Royce Merlin aero-engines offered to the public a t E12/10/- each found ready buyers ! In December it also became possible to buy heating and cooking appliances without a permit, and in March, 1945, a further increase in the use of newsprint was granted. The production of household utensils from aluminium has also been allowed‘; there has been no improvement in the supplies of clothing, however, except that since 8th March, 1945, textile mills have been allowed to produce an increased quantity o f better quality woollen and worsted cloth for men’s clothing; the manufacture of a limited quantity had been allowed since July, 1944, but now it is expected worsted production will rise to about pre-war levels. M i . Beasley, the


Minister for Supply, reviewed the situation on 24th January last. He expected that civilian supplies would be “slightly easier in several directions in 1945.” But he d’id not expect much improvement in clothing stocks, since “the quantity of textiles manufactured in Australia is not sufficient to meet civilian and defence needs.” He also emphasized that strict economy was necessary in the use of tyres and other rubber goods, as “the stbck of crude rubber in hands of the Allied nations is lower now than a t any time during the war.” The Australian rubber industry will begin to use synthetic rubber this year. More motor parts were available in 1944, and the supply should improve further in 1945. Civilian supplies, therefore, present a varied picture, but in spite of some quite serious shortages people are generally aware that their sufferings have been slight compared with those of many other countries.

I11 (a) Fhance : The cost of the war on the budget continues

to decline (see also Economic Recot-d, December, 1944, p. 197). Early in May it was estimated that war expenditure for 1944-45 would be about f30m. below thq budget estimate of $505m., and possibly even lower. The necessity for Treasury Bills, which the Treasurer wished t o avoid as much as possible, will, therefore, be correspondingly reduced. The final results of the Second Victory Loan, which was extended for a week and closed early in November, 1944, were 418,610 subscribers and &113,840,000 in new subscriptions. The loan, therefore, was filled, but not without some difficulty. The Third Victory Loan was floated on 12th March, 1945, to raise $loom. within six weeks. It was easily filled within the prescribed period, being over-subscribed by nearly S7m. The Treasurer’s objective for loans and sale of War Savings Certificates for the current year, viz., $265m., as in 1943-44, should not be beyond achievement. Revenue returns should also yield the S325m. estimated‘ in the budget, and since total expenditure may be BOm. to aE40m. less than the E653m. budgeted for, the “gap” will not be at all serious.

The easier budgetary position encouraged the Treasurer to make some small taxation concessions in April, 1945. Optical expenses are now allowed as a deduction as well as medical and dental expenses, but the total dedhction allowed remains a t $50. The chief concession, and a thoroughly justifiable one, was that income less than $156 per annum should pay no income tax. These concessions together, however, will not cost the Commonwealth more than E2m. This year the Commonwealth


has the option of redeeming S94m. of London loans, and it has decided to convert S60m. from 5 to 3 i per cent., and to redeem the balance of S34m.

(b) Pdces and Prke Control: Pressure on prices has eased a little during the last six months following upon the departure of American forces from Australia. The note issue has fallen from the record figure of E202.5m. in January last to about 3187m. in April, and, with the decline in government spending, may be expected to fall further. However, bank deposits continue to rise, and at the end of March were E598m. in trading banks and di540m. in savings banks. The trading bank deposits represented an increase of S42.5m. since 31st December, 1944, while savings banks showed an increase of S7.7m. in the month of March.

In a statement in Parliament on 23rd March, 1945, Senator Keane reviewed the action taken by the Prices Branch, thc Rationing Department, and the Special Investigation Section of the Customs Department, to check “black market” practices. To the end of January, 1945, some 3,000 convictions had been obtained f o r offences against rationing (706) and price control (2,296). In 125 convictions imprisonment had been imposed--- in 32 cases for price offences, and 93 for rationing offences. There had been 59 appeals, of which 27 had been upheld, o r had led to the penalty being reduced. In addition, another 1,240 prosecutions were pending. Senator Keane’s comment on the record was that “in numerous instances, owing to the incredible leniency displayed by the courts, the final outcome of the department’s efforts has been most discouraging . . . monetary penalties, unless substantial, prove no deterrent to ‘black market’ operations, either in respect of the parties involved or others inclined to similar activitias.” For this view there is much justification, and as a result the authorities continue t o be hampered in their efforts to check “black market’’ practices. Efowever, there is no reason to believe that law-breaking of this kind has become more extensive during the last six months, in spite of the recent exposure by a Melbovrne newspaper of

black market” practices. On the whole, price control continues to be effective. In his speech on the Budget in September last the Prime Minister d’rew attention to the fact that the price-level had been held steady in Australia since the price stabilization policy was adopted in March, 1943. Favourable comparisons were made with Britain, U.S.A. and Canada so far as price control policy was concerned-Canada having, perhaps, the best achievement of the four. These results have only been achieved


by paying subsidies to producers who, for no fault of their own, have been obliged to work under cond5tions of increasing cost. In 1944, for example, it cost the Commonwealth about 535m. in subsidies to keep prices pegged. Butter fJ“75m., tea &2.3m., potatoes f,2.8m., milk Sl.7m., stock feed E3.3m., and fertilizers f3.3m., were some of the chief items in this cost. However, Professor Copland,pointed out on his return from Britain and America that the British Government is paying about 5200m. stg. a year to keep prices stable; relatively, therefore, we are paying a t about the same rate in Australia. In both cases there can be n o question that the value of the policy in preventing severe inflation is enormous.

One of the chief difficulties that the Prices Commissioner has had to contend with has been the pressure of various groups to obtain price increases by direct action, o r by threat of direct action. In December and January last milk proaucers in the Sydney area pressed strongly for a rise in the sGbsidised price of whole milk from 1/69 to 1/8 a gallon. They claimed in support that a mistake had been made by the Prices Commis- sioner in assessing the cost of production for the Sydney area. The question was referred to it Treasury costing accountant, who confirmed the estimate made by the Prices Branch. Thereupon a milk strike was threatened in the Sydney and‘ Newcastle areas. The Commonwealth Government refused to pay the increased price demanded, but referred the claims t o a special committee. The committee unanimously recommended that as costs of production had been raised as a result of drought a payment, as drought relief, should he made to cover the period, December, 1944, to February, 1945, to ensure milk producers an income equal to 75 per cent. of their income for the corresponding period of 1943-44. These recommendations were accepted. In Queensland soon afterwards the bakers resorted to direct action also, in support of their claims for an increased price for bread. The Commonwealth Government ordered them to return to work before any consideration would be given to their claims, and eventually the matter was satisfactorily settled. It is clear, however, that price stabilization is no easy business, and if various groups of producers were allowed to obtain higher prices the position would soon become chaotic. More recently the milk producers in the Melbourne area have also been demand- ing a higher price for milk, whilst promising that if i t is granted they will ask f o r no further increases in price. This is very reminiscent of Hitler’s “last territorial demand’’ in Europe !


(c) Lend-Lease and Mutual Aid : The Treasurer estimated in the budget last September that reciprocal aid was expected t o be approximately the same for the year 1944-45 as it had been for the previous year, viz., about EllOm. At discussions in Washington in December, between representatives of the United States, Britain and Australia, it was decided that the United States w o 4 d continue to supply “ a substantial measure of lend-lease aid to enable Australia to maintain a full war effort during the second stage,” that is, in the stage between the end of the war in Europe and the defeat of Japan. On his return from the United States, Senator Keane announced in Parliament on 1st March, 1945, that he hoped Australia would receive lend- lease aid to the total value of about $500m. during the current year. He added that “an unofficial provisional estimate” put the total f.0.b. value of lend-lease supplies to Australia to 31st January, 1945, at $977m.-or S303m. at our present rate of exchange. W6 had supplied reciprocal aid to the United States to the total value of S223m. to the end of December, 1944. The British Government has recently arranged for the bulk purchase of machine tools supplied under lend-lease, and Senator Keane hoped to make a similar arrangement for this country. He also pointed out that we had received considerable assistance from Canada under the Canadian Mutual Aid Act of May, 1943. Canada has paid the whole cost of training Australian airmen in Canada since April, 1943, and in addition supplied Australia with goods and services to the value of $60m. to the end of November, 1944.

IV There has been great activity in the last six months in

planning for the future in both the national and international spheres. This change in emphasis from organization of resources for total war’ to planning the return t o a peace economy was symbolized by the disappearance of the Department of War Organization of Industry, which descended to the status of a mere directorate within the Department of Post-War Reconstruction. Mr. Dedman appropriately became Minister for Post-War Reconstruction on 2nd February last, thus reliev- ing Mr. Chifley, who had formerly held the post in addition t o his duties as Treasurer. Bills have been passed dealing with the establishment of new industries, or the assistance of old ones ; measures are before parliament to nationalize interstate air services, to reform the constitution of the Commonwealth


Bank and to give it wXe powers of control over trading banks, and for the rehabilitation of service men and women. New economic developments have been decided, plans laid for settling ex-service men on the land, housing schemes started, and migration discussed. In the international sphere Australian representatives a t San Francisco are assisting those from the other United Nations in . trying to found an international security organization, whilst the Commonwealth has also co-operated to the fullest extent possible in the work of U.N.R.R.A. and the United Nations Food and Agriculture Organization. The record is one of great activity in nearly every sphere.

(a) I n t e r n a t i d Co-operation : In November the House of Representatives passed the Relief and Rehabilitation-United Nations Agreement, Bill, and so ratified Australia’s membership of the organization and her liability to contribute S12m. per annum for the relief of such liberated countries as should require it. A number of Australians have been appointed to the staff of U.N.R.R.A., and in January last Dr. E. R. Walker left his position as Deputy-Director of the Department of War Organiza- tion of Ind’ustry to join the U.N.R.R.A. headquarters staE a t Washington. Numbers of Australians continue to be recruited for relief work in Europe. In February this year the meeting of the Far-Eastern Committee of U.N.R.R.A. was held a t Lapstone (N.S.W.), under the chairmanship of Dr. Tingfu Tsiang, of China, to plan the organization of relief for the countries of Eastern Asia as they are liberated from the Japanese. A t the opening of the conference Dr. Evatt outlined the difficulties that U.N.R.R.A. had so far met, and made suggestions for more effective work in future. He gave assur- ances that the Australian Government and people would co- operate fully in carrying out that work. Closely akin to the work of U.N.R.R.A. is that of the United Nations’ Food and Agriculture Organization. But while the work of the former is temporary, that of the latter is contemplated as long-range permanent work. IQ is intended to raise levels of nutrition and health throughout the world and to improve agricultural methods, thus embodying the ideas of the “Bruce Report” to the League of Nations before the war. The cost to Australis in the first financial year will be only about 226,000, and obviously Australia should be one of the main beneficiaries if the rest of the world “eats more food.” The bill to ratify Australia’s participation was also passed by the House in November, 1944, without any opposition. In short, “isola-

16 THE ECONOMIC RECORD J U N E

tionism” is now a thing of the past, and the Commonwealth has fully shown; in recent months its readiness for international co-operation.

(b) New Projects: Most of the projects f o r new industries have been in the field of secondary industry, though by no means all of them; several of those completed will be of great future imporkmce; e.g., the Sydney graving dock opened by the Duke and Duchess of Gloucester on 24th March, 1945, and named after Captain Cook. It may prove of first-rate importance in the final phase of the war against Japan. This work, planned for August, 1944, was made available to the Royal Australian Navy on 20th February, 1945. Its cost, originally estimated at &3m., will eventually be about E9m. The original estimate was made in 1939, but subsequent alterations and additions, as well as increased costs of labour and materials, caused the original estimate to be greatly exceeded. On September 16th, 1944, the Cairncross graving dock was completed in Brisbane, large enough to provide repairs for any vessel capable of navigating the Brisbane River. It was built by the Allied Works Council in less than two years.

In November, 1944, parliament passed the Aluminium Industry Bill to establish the aluminium ingot industry in Tas- mania. The Act sets up an Australian Aluminium Production Commission of four members, and the Commonwealth and Tasmania share equally the cost of establishing the industry- estimated at a m . The bill met heavy criticism in parliament, includhg the charge that the Government had agreed to buy obsolete plant from overseas; whether this is true is impossible to say at present. The Commonwealth has already built an aluminium factory at Wangaratta a t a cost of Elm., and it owns two annexes at Granville, N.S.W., all of which are at present operated by the Australian Aluminium Co. Pty. Ltd. Whether any o r all of these will be operated by the Commonwealth after the war is a matter to be decided after report by the Secondary Industries Commission. The object is to make Australia self- sufficient in supplies of aluminium, especially for aviation and defence purposes.

Another industry which the Commonwealth is determined to develop is the complete manufacture of motor vehicles in Australia. Accordingly, it repealed the two previous measures passed for this purpose in 1939, in order to clear the way for new proposals. On 22nd March, 1945, Mr. Dedman announced that the Government had received a specific offer from General


Motors-Holden’s Ltd. to undertake manufacture in Australia, and that two more offers were expected. These have since been received from the Ford Motor Co. and the Morris Motor Co., and it is probable that agreements will be made with all three companies. The principle underlying the proposals by General Motors-Holden’s Ltd. is that they should manufacture two standard types of vehicles, a family car and‘ a utility truck, and that other type$ should be imported for ’assembly as before. It would clearly be uneconomic to undertake manufacture of all types of vehicles for such a limited market as we have.

The Commonwealth has also decided to persevere with the Glen Davis shale oil undertaking which has had many setbacks. It is now believed that it will be in full production by the end of 1945; in 1944 it produced only 4m. gallons of crude oil, instead of the 17m. gallons anticipated. Water-shortage, owing to drought, reduced the operations of the cracking plant, and only lm. gallons of petrol were produced instead of 2.5m. gallons as planned. The estimated‘ cost of the undertaking is 22-36m., and we are assured by Mr. Beasley that the directors of National Oil Pty. Ltd. are convinced that “Glen Davis will be a source of pride to the people and the Government of Australia.” Cer- tainly, with the development of the shale oil industry, ship- building, aluminium ingot manufacture, and complete car production, Australia looks like securing a considerable expansion of secondary industry as a result of the war. But while new industries have had most of the limelight, old ones have not been forgotten. On 1st November last the Prime Minister announced the Government’s intention to provide about &600,000 a year “fon research and publicity for the wool industry.” The Wool Use Promotion Bill was accordingly introduced on 15th March, 1945, by Mr. Dedman, and has since been passed. A former Act had imposed a levy of 6d. per bale on wool to provide a fund for advertising purposes; this yielded 282,000 in the last financial year, nearly half of which (239,000) was paid towards the maintenance of the International Wool Secretariat in London. This left only about 216,000 for research in wool problems and about the same amount for publicity in Australia. The new measure repeals the former Wool Publicity and Research Act and provides for a much more active policy. The levy is t o be increased t o 2/- per bale, and the Commonwealth is to give a sum equal to the proceeds of the tax. This is expected to provide 5650,000 a year for a much more vigorous programme of research and publicity. The Australian Wool Board is re-

5


constituted and will have charge of publicity and advertising, while the research will be carried out by the Council f o r Scientific and Industrial Research and the Department of Com- merce and Agriculture. The latter department will appoint a Commonwealth Wool Adviser, and a Wool Consultative Council has been set up on which all interested organizations are represented; the latter will advise the Ministers responsible for administering the funds and weighing the claims of research and publicity. I n this way the wool industry hopes to counter the competition of synthetic fibres. It is to be hoped that those responsible will remember that the best possible publicity for woollen textiles is that they should be more satisfactory and economical than those made from other fibres. But in addition to competition the wool ind‘ustry is also worried about the war-time accumulation of stocks. To deal with this problem discussions began in April last in London between representatives from Britain, Australia, New Zealand and South Africa; so f a r no report has been published, but we may expect that a wool- marketing organization similar to B.A.W.R.A. will be set up.

(c) Housing and Bocial Services : Efforts have been made over the last nine months to build more new houses. In Sep- tember last building materials were exempted from sales tax, a concession valued at 5500,000. The Commonwealth Housing Commisions’s second report was released in October, with recommendations that Commonwealth and States should hold a conference as soon as possible to reach agreement about the conditions on which the Commonwealth would subsidise State housing schemes. In November the full Cabinet authorized the Minister for Post-War Reconstruction to prepare legislation necessary to give effect to such an agreement, and in December it was announced that “increasing numbers of houses were being built by State Housing Authorities.’’ For the last quarter of 1944 a quota of 1,750 had been approved, and for the next two quarters 1,850 and 2,300 respectively. The cliBculty of getting sufficient building workers (see section 11 (e) above) has, however, prevented even these modest plans from being carried out in full. The Victorian Housing Commission has done its best in these difficult circumstances. In April it announced that it was acquiring 5,000 acres of land at Heidelberg on which it would build 5,000 houses, with community centre, school and all amenities. A little later it was announced that two further suburban areas in Melbourne were being acquired for housing estates, the Commission’s aim being to build 6,000 houses a year.


Houses built by the Commission are balloted for by eligible applicants.

Prom the beginning of this year the Commonwealth Un- employment and Sickness Benefits Act comes into effect. Also, in the present financial year, 1944-45, the National Welfare Fund receives its present maximum contribution of BOm. from the budget to meet these and other L‘social welfare” charges. The charge on the’ fund this year is estimated a t only S12m., which will leave a useful balance to carry forward. But the charge will become much heavier next year when these new benefits will be paid over a full financial year. The importance of a high level of employment for the solvency of the fund is very clear. The States, of course, can still give unemployment relief in addition t o the Commonwealth benefit if they so wish. It is worth noticing that the Commonwealth Serum Laboratories have extended their activities to include the production of penicillin on a large scale, and the Prime Minister has expressed his readiness to recommend subsidles “for a national theatre, a national orchestra, and encouragement of cultural development generally.” He hinted broadly that municipalities and State Governments should share in any such venture, and i t appears that “culture” might get a New Deal if its supporters grasp their opportunity.

(d) F u t w e Pdicg : Many matters of economic policy have been discussed over the past six months, and important decisions have been made on questions of post-war policy. Some proposals have aroused strong opposition and so have come well under public notice; in other cases decisions have been made which, though important, have attracted little attention. In the latter class have been decisions on the subject of soldier settlement and also of immigration. Following the recommendations of the Rural Reconstruction Commission, the Commonwealth and States have agreed to assist soldier settlement, but only where there are reasonable economic prospects and the applicant has qualifications and experience. The terms of the agreements between the Commonwealth and the States last October show that the authorities have learnt something from their experience after the last war. The agreements are still to be ratified by legislation. Again, in the field of immigration policy some wisdom has been shown in decisions already made. The Com- monwealth bas arranged to waive formalities as far as possible for American service men who wish to remain in Australia o r to return after their discharge. Discussions have been going


on with the British Government for some time, and an announce- ment is expected soon of a scheme of assisted immigration from Britain. The principle is apparently accepted, for on 2nd February Mr. Curtin announced that Cabinet had agreed to include Maltese ex-service men in the proposed free passage scheme for British ex-service men and women. It was also announced in December last that Cabinet had approved a Government scheme for bringing children from Britain and Europe; the objective iv an average of 17,000 a year of “suitablc orphans and other children” between the ages of 6 and 14 years. The decision to bring children is a sensible one, since they are adaptable and likely to become permanent residents, and it is gratifying to see that the authorities now realize that Britain alone is unlikely to be able to provide the numbers we are looking for. European children should prove very good immigrants if we do our part in their education and training; it is to be hoped that we are not bringing children in the hope of providing domestic servants and farm labourers (as in the past), but that they will be given a training according to their inclinations and capacities. The Commonwealth has made it clear that the numbcr of assisted migrants we p!an to take will depend upon our ‘‘absorptive capacity, ” and upon the successful “rehabilitation of ex-service men and women, and war workers,” although i t considers that “we can do this in addition to carrying out n migration policy. ” To carry out the Commonwealth’s plans for the return of service men t o civil life Mr. Dedman introduced the Re-establishment and Employment Bill on 23rd March, 1945. The provisions proposed, especially those for training, seem quite generous, but the Opposition has criticized the measure very ahersely, especially the seven-year limitation on the operation of preference. From the point of view of the community this seems a reasonable limitation, and if we succeed in keeping employment at a high level it should involve no hardship to the individual. The bill is still before parliament.

If the “Soldiers Preference” Bill has caused some contro- versy and opposition, it has been mild compared with that aroused by the Government’s introduction of its proposed new banking legislation, and its proposal to nationalize interstate airways. Mr. Drakeford announced on 29th September last that the Government favoured international ownership and operation of overseas services, but this seemed unlikely to be achieved. Therefore, it favoured “as a second choice, the control and operation under government ownership of a system of air trunk


routes by governments of the British Commonwealth. ” On 22nd November it was announced that a statutory authority would be formed “to take over, operate and maintain all interstate airlines,” and legislation is to be passed f o r that purpose. The proposals have, of course, aroused the usuaI opposition to “socialization,” but because it is a “natural monopoly” this is certainly a case where public ownership and control is appro- priate. Provided the statutory authority is given the necessary degree of freedom from day-to-day political interference, the community should gain by public ownership and control. The new banking measures introduced on the 9th March have excited even stronger opposition and criticism. One measure proposes to recognize the d’ivision of the Commonwealth Bank into three distinct departments-the central bank, the general trading bank, and the savings bank department. The con- tentious part of this bill is that it proposes to abolish the Commonwealth Bank Board (containing representatives of industry)’ and put the management of the bank in the hands of a Governor, assisted by an Advisory Council consisting of Treasury representatives and bank officials. This change is singled out €or special criticism, though whether the change is open to objection from the point of view of the public welfare is open to question. The bill also embodies the majority recom- mendation of the Banking Commission in 1937, that in the event of a difference of opinion between the bank and the government on policy the government’s wishes will ultimately prevail and i t will take full responsibility for the policy adopted. The Banking Bill proposes to give the Commonwealth Bank effective powers to control the genepal policy of the trading banks; in short, to make permanent the war-time controls. The opposition of special interests is vocal and ignores the emphasis in modern economic theory on the possession by the central bank of effective control over the general banking policy of the country; this is necessary to maintain employment and national income at the highest possible level, and to prevent avoidable %uctuations in national prosperity.

More serious, however, than the opposition of special interests to the airlines and banking legislation is the irresponsible attitude of a section of business towards government inter- vention in economic matters. At a conference between the Commonwealth and the Associated Chambers of Manufactures a t Canberra in February the Prime Minister and Mr. Dedman clearly outlined the Government’s policy and intentions with

22 THE ECONOMIC RECORD JUNE, 1945

regard to industry. Mr. Curtin emphasized the need f o r main- taining price controls and priorities for materials in the transition period, and the need for industry to co-operate with the Government. He also emphasized that “rates of taxation after the war must necessarily be higher than before the war.’’ Mr. Dedman gave a clear statement on the Commonwealth’s post-war trade and t a r 8 policy, and an assurance that “at the end of the war manpower control will be removed.’’ The conference ended with expressions of mutual satisfaction, and a statement that “the conference was in general agreement with the outline of controls regarded as necessary in the transition period,” though the manufacturers’ representatives wished to see some modification of the form of price control. Professor Copland on his return from Britain and the United‘ States also emphasized the need to continue price stabilization in the transition period. In spite of this agreement of responsible people, a statement (Melbourne Herald, 16/5/45), purporting to come from the Associated Chambers of Manufactures, opposed the continuation of controls “into the indefinite future, ” and claimed that they were “of Germanic origin” ! In this unworthy attempt to profit by anti-German feeling the authors probably overlooked that the whole Anglo-Saxon race, probably including themselves, is also of Germanic origin. So where does this line of argument get us? The Taxpayers’ Associations in the same irresponsible manner are already beginning to clamour for the reduction of taxation, even before the war is won. Fortunately the more responsible elements in the business community have a more just appreciation of the needs of the situation. They appreciate the opportunities that are opening for them in the Netherlands Indies largely as a result of Government action in accepting orders from the Netherlands Indies Government. The visit of the Indian industrial and trade delegation has also made them conscious of possible markets in India, especially the statement that India proposes to spend S10,OOOm. in 15 years on expanding her industries and will require huge imports of machinery, some of which Australia can supply. In short, responsible leaders of industry realize that the important question at issue is not government or private enterprise, but whether there will be more effective co-operation between them than in the past, with the public interest as the main object.

HERBERT BURTON. University of Melbourne.

the australian war economy, november, 1944-may, 1945 : i. introduction: ii. production and supply...

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