THE BUILDING OF A WAR ECONOMY

THE BUILDING OF A WAR ECONOMY I. Introductory. II. Man-power requirements, especially in South Australia.

III. Ileserpes of labour in South Australia. IV. Need to reduce and reorganize civil industry and trade. V. Economic .consequences of interstate specialisstion on defence VI. Methods of efFecting the required transfer of man-power:

(a) The fiscal method. (b) Rationing of consumers. (c) Rationalization. (d) Compulsory regulation of labour supply.

VII. Choice of industries to restrict.

productaon.

I The efforts of the Government to secure the release of the

man-power necessary for the execution of the defence programme-especially the etrorts of the Department of War Organization of Industry, as the co-ordinating body-seem to be hampered by a failure to conceive the problem, and the various methods by which the release of man-power from civil employments could be effected, in their correct perspective. The object of this article is to examine the part which must be assigned to each of these methods in a unified scheme if the existing man-power problem is to be handled effectively. Partly because man-power needs in South Australia are particularly urgent, and partly because South Australian experience therefore indicates the problems which lie ahead of the rest of the country, the potential sources of labour for the defence production programme in South Australia, and the kind of action which is required if these source8 are to be tapped and the consequential adjustments made in the South Australian economy, wi l l be examined in some detail.

In a sense, therefore, the article is a critical estimate of the measures adopted, since last October, for harmonizing civil production with the defence programme-that is, of the measurea described in Section I11 of Mr. Wilson’s article in this issue. But it comments not on the machinery, as such, erected €or the purpose of giving effect to this policy, but on the use which is being made of that machinery; and it is cast in the form, less of direct criticisma than of concrete proposals: proposals for doing, within the limits of the existing controls, what is required for enabling the defence programme to be carried out rapidly and aectively.

The article discusses, in Section 11, man-power requirements, 68

JUNE, 1942 BUILDING OF A WAR ECONOMY 59

especially in South Australia; next it examines the sources of man-power in South Australia, occupied as well as unoccupied (Sections 111, IV and V), and proceeds, with a special eye to conditions in South Australia, to a general discussion (in Section VI) of the methods by which man-power in civil industries and trades can best be mobilized for defence production. The conclusion of these sections is that rationing of consumers would be an indective way of dislodging the man- power required from civil occupations, and that, if the execution of the production programme in South Australia, and later in the other States, is not to be seriously held up, both civil and defence industries must be deliberately r a t iona l id -and rationalized a t once. The final section discusses the principles by which the Department of War Organization of Industry should be guided when choosing which industries and trades to draw on most heavily at this stage.

I1 The number of additional workers who wi l l be required for

the defence production programme in South Australia during the next twelve months-in carrying out various plans-may be estimated as: males, 10-15 thousand; females, 8-10 thousand. These are the additional numbers required for the production programme as it exists at present (May, 1942), and exclude the additional numbers which it may be presumed wi l l be required for the armed forces and the labour battalion.

For the most part, this programme was laid down several months ago, when it was reasonable to assume that Anstralia’e main job was to act as an arsenal. How far Japan’s entry into the war has changed that conception of our function in Allied strategy is probably not yet fully known, even by the Common- wealth Government, and is certainly not known by the Australian people. But it would be unreasonable to suppose that it has remained unchanged. Formerly, as a benefactor, Australia was able practically to determine for herself what role she would play; now, as a beneficiary, she mast be prepared to have her function very largely determined for her by her benefactors; and it seems likely that h e r i c a will choose, in the interests of grand strategy, to concentrate on eending 8 1 ~ 1 8 rather than armies, and wil l therefore expect Australia to increase her kh t ing forces substantially. But because of the imminent danger of invasion and the risk of an interruption of supplies

60 THE ECONOMIC RECORD JUNE

from America, the importance (at any rate to Australia herself) of her function as an arsenal has also been increased.

Hence the man-power needs for the production programme and the armed forces taken together are sure to exceed the above mes by a very substantial number. In short, the practical aim, at any rate in South Australia, must be to achieve virtually a maximum war effort within months rather than years. It is therefore not merely a question of absolute numbers required, but of the rate of increase: man-power must be made available as fa& 88, with e5cient organization, it can be absorbed into war jobs. As we shall see below, this need to expand the defence programme at the maximum speed is an important factor to take into account in deciding how to bring about the necmry release of labour from civil industry.

111 There are no longer in South Australia any appreciable

reservea of labour-unemployed or “unoccupied”-available to be drawn upon.

(a) Umm&ycd.-Males registered as unemployed : August, 1939 .......... 18,500 November, 1941 . . . . . . . . 500

Mast, if not all, of the 500 remaining are in fact un- employable.

(b) U ~ ~ c c u p k d males.-The number of occupied males (including unemployed) increased from 202,000 in August, 1939, to 212,000 (including enlistments) in November, 1941. On the basis of increases in male population in South Australia since the 1933 Cenws, it may be taken that about 1,700 of the 10,000 increase represented the normal net addition to the employable popuIation (that is, the normal excess of new recruits over retire- menta), and the remaining 8,300 constituted the net i d u x from the unoccupied males.

The following approximate mes indicate the size and compoSition of this reserve in August, 1939:

Totot tndw unoccupkd: Total males in S.A. . . . . . . . . . . . . 298,000 LGSS occupied ( inc luw unemployed) 202,000

Unoccupied . . . . . . . . . . . . . . . . 96,000

1942 BUILDING OF A WAB ECONOMY

Clrrssijieation of unoccupied :I At school . . . . . . . . . . . . 49,000 Under 5 years old .......... 22,000

71,000 Over 65 years old, and others . . . . 25,000

61

96,000

The total number of males 65 and over may be put at approximately 22,000. No doubt an appreciable number of these (business men, farmers, professional men, etc.) were, in fact, occupied, a t any rate in name. ’Nevertheless, a large proportion of the 25,000 in the composite group-over 65 and others-are certain to have been over 65. The signiscant fact is that between August,‘1939, and November, 1941, this composite group, which includes the halt, the blind and the sick as well as the aged, yielded up about 8,300 of its members, or about one-third of the total? It is therefore obvious that it wil l not be possible to get from this source more than a smaU proportion of the additional numbers required, even for this year’s production programme.

( c ) Umcupied females.-The same conclusion applies, though with perhaps less force, to “unoccupied” females. Unoccupied spinsters under 50 number between 5,000 and 7,000. But this number includes-indeed, is largely composed of- women of independent means, daughters of the well-to-do, and those, especially in the country, helping with domestic duties in the homes of their parents. It appears that none of these groups can be drawn upon to any considerable extent without powers of conscription, which it is highly desirable, therefore, should be introduced. More use (without powers of conscription) could be made of married women than is being made at present. But for the most part, since many married women are precluded by home duties from working the fall length of a factory shift, that presupposes such reorganization of civil industries and trades (especially the latter) as wil l make employers glad to take on married women on a part-time basis.

1 Tb. under4 8nd the over46 -9m were d & k d bT 899lTing.to the fi-. of tow nulea in South A w W L the 8ee dLtribution for Austmlm U 8 rrhd.. and b mb- 2.OOO Porn the 5me fm the 5mt -9 and ddiw ~ O O O ta th.r for * in order to m h rough d-m th. &Q-t age diatributior~ in k t h A e i ~

L It is pmsihle tlmt dace the Wnnlns of the war the number of new .a-b to c m 9 ~ e n t bu been 8bme the n& owing to a reduction in the a- mge of luring Khool 01 UnIvWaW. No 8llowmnee h u been nude for thb i.ctot. But I t w u 9robbl~ of ne01- h9ostrna up to lut NoTember.

62 TEE ECONOXIC BECORD JUNE

Iv It follows from this cursory examination of labour reserves

in South Australia that ma& of the men and women required wil l have to be obtained--if they are t o be obtained in South Australia at all-by means of a net reduction in civil employment Hence civil indnstry and trade must be conducted either on a greatly reduced d e or nnaer methods which greatly economise the nse of man-power. Since it is highly desirable that any given amount of labour should be released from civil emplopenta in such wise as to cause the minimum reduction in the output of civil necessaries (indeed, that is an essential condition of a maximum war effort), it follows that, when employments in suchwise as to cause the minimum reduction to make man-power available for defence, the reduction should be associated with, and be made possible by, an appropriate reorganization of the methods of production and trade, and in the framework of industries and Grma in which that production and trade are carried OR Thus we must be prepared not only to accept a substantial reduction in the volume of civil employment, but also deliberately to overhaul the existing industrial mechanim-th e eriSting set-up of industries and fhu-tso aa to ensnre that the reduction in output of goods and ervicea caused by the withdrawal of a given number of men and women from civil employmenta shall be the minimum.

This r d t wiU not be achieved automatidy-through the action of employers in following their own interests-by the mere act of imposing a given cut in consumption or in output. For in the last resort it is in the interests of each and every employer to maintain his own h n as a going concern with goodwill intact; and generally this would mean that a given reduction in output would not yield the.maximum release of man-power of which it wae capable. Hence, in seeking to get the necessary man-power, it ie not enough to compel employers to cut down their outpnt or their trade by a given percentage; it is necessary that this cut should be accompanied, and indeed be brought about by, a reorganization of the industries concerned In other words, it is a question not of whether we can or cannot provide in South Australia the men and women required for the defence production programme, but of whether we are prepared to take wfaoiently drastic action to mobilize m man-power resonrcea and to aceept the economic consequences Of doh6 SO.

1942 BUILDING OF A WAB ECONOMY 63

V Although the withdrawal of the necessary man-power from

civil employments is bound to cause the output of civil goods and services to decline, however efficient the accompanying reorganization may be, this in itself does not necessarily involve an accompanying fall in South Australian standards of living. For in 80 far as the need to withdraw man-power from civil industries in South Australia arises from the fact that there is a greater degree of specialization on defence production here than in other States, the reduction in output of ci-d goods may be accompanied by a corresponding increase in imports from other States; the increased income earned in the production of armaments providing the means with which to pay for them. International and inter-regional specialization in the production of armaments for sale is similar in principle, and in its effects on the real income of the nation or region concerned, as is specialization on any other commodity.

Armament factories have presumably been located where they can be operated most economically or in greatest safety from enemy attack. At any rate they have not been apportioned between the m e r e n t States in proportion to population. For this reason the requirements of labour for armaments production are much greater per head of population in some States than in others; they are much greater in South Australia than in, for example, Queensland. In view of this fact a maximum war effort for the whole Commonwealth will be impossible if the separate States insist on producing for themselves all the necessaries they require. Having decided to locate armament factories according to the plan adopted, the rest of the production programme in the m e r e n t States must be brought into harmony with this plan. That is, the various State economies must be integrated into a U e d and self-consistent war economy for the whole Commonwealth. South Australia must in any case stand or fall with the eastern States.

From this consideration it follows that, in examining the possibilities of drawing labour for defence production from South Australian civi l industries, it must not be assnmed as a matter of course that it is either essential or desirable to retain, aa component parts of the integrated war economy, even those industries which produce absolute necessaries. When it was decided that South Australia should be a relatively large producer of armaments, it was implicitly decided also that she

64 TEE ECONOXIC ICECOED JUNE

should give up, or greatly cnrtail, other forms of production, even to some extent the production of necessaries. Just how far the production of absolute necessaries can be dispensed with in South Australia can only be decided with reference to the integrated production programme. But in any case it is evident that South Australians should not feel outraged at the idea of having substantially to reduce the scale of industries formerly regarded as essential, even primary industries. In fact, however, it wiU not be possible for Sonth Australia

to import from other States all the things which the transfer of additional men and women to war industries and the armed forces compels her to cease producing for herself. There are three reasons why this should be so. Firstly, however much labour may be available in other States for producing the things which South Australia hae to stop making for herself, only a limited supply of such goods could be imported into South Australia owing to the war-time scarcity of transport facilities. Moreover, secondly, many of the things whose production South Australia will be forced to give up or curtail, cannot in practice be produced for the South Australian market except in South Australia itself. This is true, for example, of certain perishable foodstntEs and all forms of personal service, which must be supplied on the spot or not at all. Owing to these first two reasons South Australia may have to accept a somewhat larger cut in her average standard of living than other States less occupied with war work. This necessity follows from the decision to locate a relatively large proportion of armament production in South Australia, and should be accepted grace- fully. But in any case, thirdly, with the expansion in the whole defence programme during the next twelve months, the shortage of labour is bound to increase in other States as well; with the resnlt that the supply of goods which can be imported from other States wil l be strictly limited, quite apart from dii3iculties in transport.

VI The expansion of wax production (at any rate in South

Australia) has already gone so far, and has to be continued so fast, that the various separate methods by which man-power can be detached from civil employments must all be used to supplement each other in a co-ordinated scheme. The practical h e , therefore, is not so much which method should be used, as what place in the general scheme should be given to each, and,

1942 BUILDING OF A WAB ECONOMY 65

in particular, which method should be made the active agent, the cutting instrument, for the work of actually detaching the labour. So far as can be judged from public announcements and from action already taken, the Government is placing much greater reliance than is warranted on the efficacy, as a cutting instrument, of the method of rationing consumers. The object of the present section is briefly to examine this matter in order that the dif€erent methods may be seen in their true perspective.

The measures taken to detach labour from civil employments must take account of the two following facts: (a) Action by which private interests are damaged unnecessarily, or by which individuals are called upon to bear unnecessary sacrifices, causes resentment, and this reacts unfavonrably on efficiency and, therefore, output. Besides, it is desirable in the interests of post-war reconstruction not to damage the farmework of industry unnecessarily. (b) The action taken must be such as to produce the required number of suitable workers and, a t the same time, to get the maximum output from those retained in civil employments and those at present unoccupied. The various methods must therefore be examined from these two points of view.

The practical methods can be grouped into the following four kinds:

(1) Fiscal measures designed to reduce consumers' expenditure to an amount just sdicient to buy, a t present prices, the goods and services which can be produced with the labour left over after meeting the needs of the defence programme;

(2) Rationing of consumers so as to bring about a reduction in the output and therefore employment of specific industries, and to prevent expansion in the output and employment of others;

(3) Reorganization (or rationalization) of specific industries so aa to enable some specifled number of workers in each to be transferred to defence production, to ensure that the best use is made of those' remaining, and to make use of unoccupied persons, especially married women, who cannot accept, or are unsuitable for, full-time emplopent in armament factories ;

(4) Government monopoly of placement of labour and compulsory recruitment of labour for defence production.


(a) The jiScaE method-The &cal method operates too slowly to secure by itself alone the rapid transfer of man-power now required, and during the reaction period it causes labour to be used uneconomically. But there is no question of its being used as the main instrument. The real danger is that it w i l l be used not too much but too little. I f expenditure is not reduced to the above extent (and it is not so reduced at present), the efEectiveness of the various direct methods wil l be seriously reduced by the resulting efforts of employers in civil industries to retain, or secure, more labour than can be spared from defence work. The place of the fiscal method, then, is to supplement the direct methods.

(b) Ratwning of comumers.-If, as. appears to be so, the &venment has decided to rely on the rationing of consumers as the principal means of dislodging workers from employment in civil industries and trades-so as to secure their transfer to war industries-it will be causing a needless reduction in the standard of living and (what is even more important imme- diately) a needless delay in the expansion of defence production. Though rationing has an important function to perform, it is too slow and ineffectual in forcing employers to relinquish workers for use in this capacity.

Firstly, it wodd be too slow in freeing workers because there would be nothing to show any particular producer how far, if at all, the general decline in sales due to the rationing was going to fall on him personally; the different producers in each industry being left to fight it out among themselves in the normal way to see whose output was going to be reduced. Secondly, until the decrease in profits resulting from the decline in total sales cawed some h n s to close down-which they would naturally avoid doing as long as p&ble--the production and sale of the reduced output would occupy a needlessly large number of people. In the end, of course (if the war lasted long enough), the reduced production would be concentrated in the more efiicient units, and the workers employed by the others would be freed for war work Thirdly, the particular people eventually disgorged would not be selected for dismissal because of any special aptitude or training for work in armament factories. FourthIy, rationing would give employers in civil industries no incentive whatever to employ, on a part-time basis, married women and others not competent or available for work in

There are several reasons why this should be so.

1942 BUILDING OF A WAR ECONOMY 67

defence production. Finally, unless accompanied by a oorr~e& ponding reduction in spendable income, rationing would have to be applied to the vast majority of commodities or many of the displaced workers, notwithstanding man-power regulations, would be lost by the wayside, down the by-ways of non-rationed civil industries. Moreover, even if i t were applied generally (and not accompanied by a corresponding reduction in spendable income), there would be a considerable dispersal of labour, either through the production of rationed goods for sale in black markets or through the provision of hosts of inspectors to prevent this.

Thus if used as a means of bringing pressure to bear on employers to relinquish workers, and on workers to transfer to defence production, rationing of consumers would be. either otiose or ineffective. If, on the one hand, fiscal measures for reducing spendable income were such that consumers would not elect to buy at ruling pricea more than their rations, then rationing mould not add to the flow of workers to defence production. If, on the other hand, consumers were left with more income than this, rationing would not be an effective way of dislodging workers from civil employments. In other words, it should be regarded as a method not of speeding up the flow of workers to defence production, but of distributing the reduced output which would be available after the transfer of workers had been brought about in other ways. As a method of bringing about the transfer itself it has the disadvantage that, for obvious political reasons, it must be applied with equal severity to the whole of Australia, and therefore cannot take account of the varying needs for man-power in the different States.

It is possible, however, that the Government does not intend to use^ rationing in place of industrial reorganization, but only as a way of making its imposition easier to justify. Much of the earlier rationalization in England was preceded by control of raw materials. When, in consequence, producers were unable to get suf6cient raw materials to enable them to keep working full time, it was easy for the Board of Trade to step in and insist that the industries concerned should rationalize. Possibly the Commonwealth Government intends to use rationing of consumers to achieve this result. But in that case the objection is that, in view of existing man-power requirements, the reaction will be too slow.

68 THE ECONOYIC BECOBD JUNE

(c) B d M i z a t h . - B n industry’s optimum structure alters with its scale. Hence each of the industries from which considerable numbers of people are to be withdrawn, and each of those (armament works, etc.) to which they are to be transferred, must be reorganbed in such a way as to enable the altered number in each industry to maximire their output. Indeed, when the stage has been reached (as it has in South Australia) at which the provision of the additional workers needed for defence production implies a very heavy drain on civil industriea, the requisite number may not be obtained at al l unless both classes of industries (civil and defence) are reorganieed in this way. That is why rationalization must be regarded as the principal means of effecting the release of man-power from civil employments. Unlesa carried out in South Australia both extensively and soon, the execution of the defence production programme will be seriously hampered and delayed, and needless sacrsce will be inflicted on business men, workers, and the general public. It should, of course, be applied to the wholesale and retail trades as well as to manufacturing. And it should also be applied to the defence indnstries-both to the things produced, in order that labour and materials should not be wasted in producing things which, in the new circumstances, either are inappropriate or could be better imported from hnerica (aeroplanes, for example, probably fall into this class), and also to methods of production, in order that labour a d materiala should not be wasted through production in uneconomically mall and disparate units.

The importance of concentrating production in the more dcient Grms when the total output of an industry is reduced, which ia what rationahtion involves when applied to civil industries whm scale is to be cut down, can be illustrated from the British cocoa and chocolate industry.* That industry is at present carried on by about 100 factories Partly beeause of the varying degree of mechanization (and partly because of difEerences in the product), the number of operatives required to produce a ton of output varies, as between the merent factories, from three to twenty. If concentration in the more efficient factories involved the installation of additional machinery, it would be out of the question. But the entire present output could be produced in a mall number of the factories with the least number of operatives per unit of output.

1. See recent hma ef thw EeoMni.+


A similar illustration nearer at hand is provided by bread- making in South Australia. In this industry there are at present 114 bakeries, and their average weekly output per worker (allowing for the saving due to zoning) varies from

loaves in the largest ones to 340 in the smallest. The present output could be produced, without additional machineq but with some additional workers, in the 25 largest bakeries, whose average weekly output per worker (after zoning) is 900 loaves. In circumstances such as these, which are not unusual, the case for concentration is unanswerable.

It is true that the problem how best to compensate the bns closed down, and of giving them a chance to reopen after the war, is very di5cdt. Nevertheless, deliberate rationalization- deliberate concentration-would probably cause much 1- sacrifice of private interests, and less permanent damage to the framework of the industries concerned, than would be caused in the long run if the only action taken were to ration con- wmers; and ench changes as were made would be made more expeditiously and more fairly. Whereas producers would be left to bear the consequences of rationing as though they were acts of God, rationalization could be planned, as for the most part it has been in England, in suchwise as to distribute the loss more or less fairly over all the &nu, and to preserve the identity of those closed down, or otherwise to facilitate their reestablishment after the war.

Since workers can generally be transferred from civil to defence industries without much loss of efficiency (in many cases without any loss), while existing machines cannot, the need to expand defence production alters the criterion of dciency in those civil industries which must be reduced. In those whose machines are of little or no use in defence industries, the sole practical test becomes the amount of labour used in producing, a t the margin, a unit of output. Now, generally speaking, the less the existing degree of mechanization of a W, the more wi l l iWoutput be reduced by a given decrerrse in the number of its workers. Hence the rationalization of such industries, if it is to serve the best interests of the nation during the war, must almost invariably take the form of a concentration of production in the highly mechanized establishments, which are, in general, the largest.

In the absence of deliberate rationalization, thia concentration of production in the relatively a c i e n t W s ( ac i en t

70 TEE ECONOMIC RECORD JUNE

in relation to present conditions) wil l tend to come about by the less eficient being eventually knocked out, in a haphazard kind of way, through the slow and painful process of attrition. This is our present way. But not only is it slow and uncertain in causing man-power to be released from civil employments (many of the doomed firms d e r i n g a lingering and painful death, but stubbornly refusing to lie down and die), but it has other serious disadvantages. Firstly, it is extremely unfair. For though some of the firms are eventually forced out of business, they are forced out without compensation either from the Government (the general public) or from their surviving competitors. Secondly, the firms which thus go out of production without compensation are, for the most part., the least highly mechanized ones; so that the uncompensated loss falls mainly on the small man. And thirdly, these firms are bludgeoned out of production for the duration of the war only by being bludgeoned permanently out of existence. This may be undesirable; for it does not follow that because they are relatively inefficient when man-power is very scarce they will continue to be so when it again becomes abundant.

What deliberate rationalization of the shrinking industries implies, therefore, is concentration of production in the highly mechanized firms during the war, compensation of those closed down, and a chance to reestablish themselves after the war. Actnal schemes of rationalization must comprise arrangements for dealing with all three of these related problems. Although the codicting aims cannot, in every type of industry, be harmonized completely, much can be done by deliberate planning when it is understood what is required. If, for sentimental or other reasons, the Department of War Organization of In- dnstry continues to boggle a t the idea of taking deliberate action to cause the less d c i e n t firms to close down, under rationalization schemes which safeguard their interests, it will not only be leaving many of them to perish ultimately without compensation, but will be doing the nation a disservice by failing to secure the necessary speed of transfer of man-power to defence indnstries.

Failing action by the Department of War Organization of Industry, dective rationalization of civil industry is impossible unlesa the administrative organization is fundamentally changed. But it is within the present powers of the Director of Man- power to take action which, by hastening the downfall of the


least capitalized firms, would speed up the concentration of the declining production in the most efficient firms--the most heavily capitalized-and thereby speed up the release of workers for the defence programme. He could do this by protecting the larger establishments in an industry from transfers and military call-ups, until replacements were available, and (in co-operation with the military authorities) by calling up all fit men in the others. This would have the effect of putting many of the smaller establishments out of business. Fit men in the pro- tected establishments could then be called up and replaced by skilled men thrown out of work by the failure of the unprotected establishments. In this way he would be doing something to relieve the shortage of man-power. But it would not be a really satisfactory way of doing even that; for it could only be effective where a considerable proportion of a firm’s staE consisted of men eligible for military service, and even such a fkm might obstinately refuse to succumb; and it would do nothing whatever to safeguard the legitimate interests of the smaller firms. Such action would be better than no action, but it would not be a substitute for genuine rationalization.

Along with rationalization should go standardization of products. This would yield an important additional saving of labour, and it would reduce the post-war handicap of those firms which are kept working during the war. By means of standardization the largest firm in the British chocolate industry, for example, has recently, while reducing its output by only 13 per cent., reduced its labour by 40 per cent., the faetory space used by 20 per cent., and the paper and card used by 50 per cent. More- over, rationalization would need to be supplemented by an increase in taxation corresponding to the resulting decrease in the output of civil goods and services, and (or) by ratiohing of consumers. This would be necessary both in order to distribute the reduced output equitably, and also in order to prevent labour from being lost to defence industries through illicit production and through the expansion of industries not rationalized.

(d) Compulsory regtilation of labaw supply.-If the optimum use is to be made of a l l man-power resources, it is necessary to effect not only the quantitative adjustment of the supply of labour to the demand, but also the qualitative adjustment. For this reason the Director of Man-power must possess a monopoly of placement of labour and powers of compulsory recruitment for essential work. Such powers (which should only be


used after consultation with trade unions and employers’ organi- zations) are necessary at the present time not only on account of the qualitative problem, but, especially in South Australia, on account of the quantitative problem as well. For rationalization, though much quicker in producing its effects on labour supply than either taxation or rationing, cannot in South Australia now be carried through quickly enough to yield a d c i e n t supply of workers to meet the needs of the defence programme dnring the next few months, since for that purpwe the appro- priata action by the Department of War Organization of In- dustry would need to have been taken already. It wil l therefore be necessary for the Government to tackle the immediate problem in South Australia by operating, through the Director of Man- power, directly on labour supply.

If the Director of Man-power is to secure the most suitable workers, and not merely the required number, he must be given powers of compnlsory recruitment and powers of compnlsory transfer. But even with his present powers he can take action which, though not securing the qualitative adjustment of supply to demand, will at least cause workers to be displaced from civil industry very quickly. He can do this by prohibiting the employment of specifled age groups in specifled occupations, and by refusing to allow the displaced workers to take jobs except in industries where they am urgently needed But such action, though useful in dealing with the immediate problem, does nothing to reduce the need for rationalization. Indeed, it is best taken in conjunction with rationalization in order to define the particular classes of workers fa be released. However, in present cirenmst ances, the prohibition must precede the rationalization because that has been too long deferred But unless each prohibition is followed up by rationalization of the industries concerned, its effectiveness in adding to the number of workera in defence industries wil l continuously dimhi&; for employers who have been thereby forced to dismiss particular workem will gradually replace them by others, drawn mainly from the ranks of the unoccupied, who might otherwise have taken j o b in defence industries. Thus in present circwtancea the appropriate course of action in South Australia is to prohibit the employment of specified age p u p s in specified oeenpatione and industries, and to follow up this d o n by rationalking thecw and other industries as quickly as possible.


VII In deciding which industries and trades to draw on mwt

heavily for this year’s requirements of man-power, the Departc ment of War Organization of Industry (and at the outaet the Director of Man-power) should select those which, first, are least essential for the welfare of consumers, and, second, could moat easily be restored after the war. For this purpose a dis- tinction must be drawn between two Werent classes of industries and occupations-namely, those (such as the distributive trades and service industries generally) which are sheltered from competition from firms outside South Australia, and those (such as many primary and manufacturing industries) which are unsheltered from such competition.

Bs between the different sheltered industries, and also as between the Merent nnsheltered industries, the second consideration can be ignored; for there is nothing to show that it would be harder to restore one sheltered industry than another or one nnsheltered indnstry than another. To this extent the choice will therefore depend on how large a fall would be caused in the standard of living. Hence, to this extent, it will fall mainly on the following groups: Firstly, it will fall on service industries and trades, since these minister to our convenience and comfort rather than cater for essential needs. Secondly, it wil l fall on the distributive tradea (especially the retail trades) rather than on manufacturing industries, since we can greatly curtail the retail trade and still get the goods we need, even though with somewhat more bother-that is, we can still get the goods, but with fewer services attaching to them. Thirdly, it will fall on the manufacture of luxuries (for example, biscuit and confectionery manufacture), though this source is not very large in South Australia. And fourthly, it *.fall on any other industry which, if appropriately reorganized, could produce (or sell) almost as much as a t present with considerably less labour (as, for example, wheat production and bread-making).

In choosing between sheltered and unsheltered activities account must be taken of the relative ease with which they could be reestablished after the war as well as the effect on the standard of living. That may make the decision m c a l t . For in so far as the need to draw additional workers from civil occupations is wholly the outcome of the greater degree of specialization on defence production in South Australia than in other States, these two considerations will pull in opposite

74 THE ECONOMIC RECORD JUNE, 1942

directions. To that extent it would suit consumers better to cut down unsheltered production (largely manufactnring), since if the reduction were in sheltered gooda (mainly serpiceS, including distribution), South Australians would have to go without them altogether, whereas if it were in umheltered production these could be imported from other S t a b with the additional income earned in defence production. But from the point of view of the post-war restoration of the restricted industries, it would be better (so far as the above assumption applies) t o retain unshdtered production and let much of the sheltered lapse; since if the former were lost to South Australia now it might be lost permanently or be re-established only with diSculty, whereas the latter would spring up again for sure.

In fact, however, the other States also will have to transfer man-power to defence work and besides, transport difaculties will make it i m p d b l e even to maintain the existing volume of interstate trade in consumers’ goods. Hence consumers will have to do without the goods whose output is restricted whether their production in South Australia is ordinarily sheltered or unsheltered. It follows that the conclusions set out in the paragraph before the last, are valid for the whole field of choice : namdy, that the main categories of industries and trades which must be mesely restricted by rationalization are : (1) services, (2) the distributive trades, (3) the manufacture of I d e s , and (4) indnstries and trades in which a large saving of labour could be made at the cost of a relatively small reduction in their output, and industries which are uneconomically large even in relation to peacetime conditions.

K. S. ISLES. lhiversity of Adelaide.

Documents

THE BUILDING OF A WAR ECONOMY