Modern war, by diverting towards military objectives plant, materials and labour—energies and activities that would, ordinarily, be employed in producing food, clothing, fuel, houses, etc.—leads necessarily to a curtailment of all these necessities of life. As the war progresses, the reserves of commodities accumulated at its start become exhausted. Factories that were left in production get destroyed and the means of transport and distribution become disrupted. Disorganisation steadily increases and the shortages grow more acute. Whilst all this is happening, money is being poured out at an ever-increasing rate, through wages, salaries and other channels, till the balance between the money available for the purchase of commodities and the quantity of commodities available gets completely upset.
In an endeavour to maintain equilibrium, and to prevent prices from soaring—as at an auction where the bidders have plenty of money and the goods auctioned are urgently needed and avidly desired by all of them— resort is had to various devices. Such devices are: the imposition of maximum or of fixed prices, curtailment of profits, rationing, subsidies, centralised purchasing and distribution, and, side by side with these, heavy taxation and enforced savings to draw off the surplus of active purchasing power.
None of these devices can, however, be entirely successful. There is but one real remedy, viz., such a substantial increase in the quantity of goods as would be sufficient to meet the active money demand. War conditions, and the conditions obtaining for a considerable period after a war, put, however, that remedy altogether out of question. All such devices as these to which I have referred can, consequently, be palliative only.
During the war, the several sections of a community, through discipline and the unifying will for victory, patiently submit to the hardships which the shortages entail. But, when hostilities are over and fervour cools and discipline is relaxed, all sections of the community, forgetful of the fundamental causes at work, seek, each one, to evade the hardships they have hitherto patiently endured. But these hardships can be evaded only by transferring them and putting additional burdens on to the shoulders of other sections. Internal conflicts are, naturally, the result. Each section seeks to have back again immediately its old standard of living, and some want even more. They want to improve upon these standards.
They are looking for the impossible, who seek that the standard of all sections should go up, and, by causing internal conflicts they stop production and postpone the day when what they seek might be attainable.
We, like other nations in Europe, have for the past couple of years been passing through this post-war phase of sectional conflict. It is vital that we endeavour to bring it to an end as quickly as possible.
During the war in order to encourage the maximum production of food here, higher prices had to be paid for homeproduced agricultural commodities, such as wheat, sugár beet and milk. Supplies from abroad could be obtained only at prices far above the normal levels. The shortage of industrial raw materials led to a diminution in manufacturing output, with a consequent tendency towards higher prices for manufactured goods. As a direct consequence of the war, there developed an excess of exports over imports, so that there was an inflow of money without any counterbalancing supply of goods or services.
The problem was, therefore, to regulate prices and to ensure, as far as we could, that the goods and services available would be distributed as equitably as possible among the different sections of the community. Since the pool for distribution was smaller, it was physically impossible to regulate matters so that everybody would have as much and be as well off as before the war. It was obvious, therefore, that each individual's income could not be increased so as to offset completely the rise in the cost of living.
The measures we adopted, in this situation were these: We controlled the prices of all important commodities and the profits of manufacturers, importers and distributors; the prices of certain essential goods, and of fuel, were subsidised; scarce goods entering into the ordinary household budget were rationed—for example, tea, sugar, butter, margarine and, later, bread. In 1941, an absolute standstill was imposed on the wages of persons employed in essential services and in the manufacture of certain essential commodities. The control of remuneration was, later, extended to other classes of employees and regulated increases by way of bonus were permitted. These various measures were so far successful that the cost-of-living figure remained stable from November, 1943, to February, 1947—a remarkable result.
Control of remuneration in the form I have mentioned was maintained for a year after the end of hostilities. There then appeared to be a prospect of the return of more normal conditions, and it was inevitable that workers generally would seek a readjustment of remuneration and conditions of employment. So far as the indications at that time served as a guide, it seemed reasonable to expect that the cost of living might become fairly stable at about 40 per cent. above the pre-war level and that an increase in the general level of remuneration up to, say, 40 per cent. over 1939 would be fair to the general body of salary and wage earners. To enable the necessary readjustment to be effected smoothly, the Industrial Relations Act was passed in September, 1946, and the control of wages, in the form in which it had existed up to that time, was abolished. Deputies are familiar with the provisions of the new measure. It was designed to deal both with the immediate difficulties of the transition period and with long-term industrial settlements.
The general purpose of the Industrial Relations Act was to promote harmonious relations between workers and their employers. The Act embodies the minimum of compulsion, and resort to the Labour Court which it established is, in general, voluntary. While I do not propose to quote figures in this regard, I may say that the machinery provided by the Act has worked successfully in the great majority of cases in which it has been invoked. In a certain number of cases it has not prevented open conflict or secured an immediate resumption of work when a strike had already taken place. Unfortunately, however, these are cases of very great public importance, such as the beet sugar dispute of last year, the turf dispute early this year, the dispute in the Cork gas undertaking and the present banking and road passenger service disputes.
As I have already said, the Industrial Relations Act was passed at a time when there appeared to be a prospect of the return of more normal conditions. That prospect has not, unhappily, been realised. The improvement in world conditions which was taking place in 1946 has not been maintained. Supplies of fuel, food and other essential commodities have continued to be far below requirements. The prices of primary products have increased. The consequences of the war, aggravated by unfavourable weather, have been to leave not merely this country but the world as a whole in a worse position now than that of a year ago. Between August, 1946, and August, 1947, our cost of living, as reflected in the index figure on the existing basis, rose by no less than 10.8 per cent.
The Government has decided that the general line of policy in regard to the rising level of prices and wages should be: Firstly, to maintain such control over prices as would be effective in ensuring that only such variations occur as are justified by variations in costs; secondly, to offset higher costs of essential commodities by means of subsidies, as far as it is practicable to do so; and thirdly, to acquire, either by agreement, or by legislation, such control over wages as would be effective to keep future wage variations in relation to future variations in the cost of living. So far as it is practicable to limit the rise in prices by price-control methods, this will be done by means of the existing powers, which will be continued by the Industrial Efficiency and Prices Bill, at present before the Dáil. Any suggestions for the strengthening of these powers that may be made during the passage of the Bill will be carefully considered. As regards agricultural prices, it is the intention that these should be increased, as far as possible, only in relation to proven increases in agricultural costs.
The method of price subsidy is applicable only to certain products, and, wherever used, has reactions on demand and supply which are sometimes undesirable. Nobody could devise a satisfactory method of subsidising liquid milk in this country. Eggs could not be subsidised without a most elaborate and costly system of administration. There is no practicable method of controlling, much less subsidising, vegetable prices—and no country in the world has done it. In applying subsidies to foodstuffs, there are certain essential conditions which must be fulfilled, namely:—
(1) The foodstuffs must either be strictly rationed or in such abundant supply that increased demand will not inflate prices and defeat the subsidy; and (2) the whole supply must be capable of being brought under control, so that effective administration is possible.
In addition to the above, a further condition is desirable, namely, that subsidies should be confined to goods the prices of which are expected to fall at some time in the foreseeable future. It is also, obviously, desirable to select for subsidisation such commodities as will yield the maximum return in the form of a reduction in the cost of living. The Government has decided, therefore, to confine the additional subsidies to flour, tea and sugar. These commodities are rationed, they are all handled by organisations associated with the State, and their world prices are certain to decline.
In the case of food products for which higher producers' prices may in future be regarded as necessary the Government will endeavour to deal with the situation as far as possible, by subsidising production costs rather than by raising selling prices.
The Government is not giving any guarantee that the cost of living may not rise. It is proposing to reduce it now and will endeavour to keep it down by subsidising certain products, but it cannot commit itself indefinitely that there will not be a rise or that any rise that may occur will be completely compensated by way of increases in remuneration.
In proposing that wage rates established by existing agreements should be regarded as applicable to the present cost of living, as reduced by the proposed subsidies, and that future increases should have a relation to increases in the cost of living, the Government is making a proposal which is fair in all the circumstances now prevailing. It is the Government's view that this proposal should be accepted voluntarily, that trade unions should agree not to support demands or strikes to enforce wages higher than would be justified by that proposal, or to support demands which would have an equivalent effect on the total labour cost of any industry. The Minister for Industry and Commerce will enter into discussions with the trade union organisations with a view to having such an agreement defined and recorded. It is recognised that there may be anomalies in the present wage structure which should be removed, or inequalities which require to be smoothed out, and the agreement might provide for such cases, it being the Government's view that the Labour Court affords a suitable instrument for their consideration. The Government regards this temporary limitation of wage increases as vitally necessary in present circumstances, and if the trade unions cannot undertake such an agreement as I have outlined, either because there is not unanimity amongst them or because their rules prevent the union executives entering into firm commitments of this nature, then the Government will produce proposals for legislation to the same effect. To avoid possible misunderstanding, I should say here that, if such legislation is necessary, it will relate to wage rates prevailing on this date, October 15th.
The additional subsidies will, as I have already mentioned, be on flour, tea and sugar.
The flour subsidy will reduce the price of flour supplied by millers to bakers and to retailers for sale for household use by 19/3—from 63/6 to 44/3 a sack of 280 lbs. This reduction in the price of flour to bakers will make it possible to reduce the price of batch bread by 1½d.—from 1/1½ to 1/- a 4-lb. loaf and to reduce the price of fancy bread from 4d. to 3½d. a 1-lb. loaf and from 7½d. to 6¾d. a 2-lb. loaf. The reduction in the millers' price for flour will also be reflected in the retail price of flour sold for household use by an average reduction of 1/- a stone These reductions in the prices of flour and bread will cause a reduction in the cost-of-living index figure of 4.34 points. In reducing the price of flour the opportunity will be taken of abolishing the batch-bread subsidy, as such, and of merging it in the flour subsidy. The cost of the flour subsidy will be about £2,250,000 in a full year, or about £940,000 in the current financial year.
The subsidy on tea will reduce its price by 2/2 a lb. from the present price of 4/10 a lb. to 2/8 a lb. It will cost about £1,775,000 in a full year, or about £740,000 in the current financial year, and will cause a reduction of 6.58 points in the cost-of-living index figure.
The subsidy on sugar will reduce its price by 2d. a lb. from the present price of 6d. a lb. to 4d. a lb. It will cost about £1,060,000 in a full year, or about £440,000 in the current financial year, and will cause a reduction of 2.28 points in the cost-of-living index figure.
The Government have decided that the cost of these additional subsidies will be met in full by taxation, and the Minister for Finance will announce in a few moments how he proposes to raise the necessary funds to meet those subsidies.
As will be clear from the references I have made to it, the cost-of-living index figure has a very close bearing on the problem with which we are now dealing. As Deputies are, probably, aware, the present cost-of-living index figure is designed to show the cost of maintaining unaltered the 1922 standard of living of the wage-earning classes, no allowance being made for any change in the standard which may have taken place since 1922. This cost-of-living index number has for many years past, been subject to criticism on a variety of grounds. In the first place, the standard of living to which the index number relates is a quarter of a century old and partly due to the drastic changes brought about by the war and partly due to the trends of such things as fashions and habits, great changes have taken place in the standard of living since 1922. Other grounds on which our index has been criticised are that the number of families included in the original household budget inquiry of 1922 was too small, having regard to the variability to be found within such data, the fact that wide classes of goods are not taken into account at all in the computation, and the artificial seasonality that was introduced into some of the computations of the present index.
Now, during a period of stable prices or during a period when the price trend of all items is, more or less, the same in magnitude and direction, the weighting used in the computation of a costof living index is of secondary importance. During the period of three and a half years, extending from, say, about the last quarter of 1943 to the first quarter of 1947, retail prices in Ireland were remarkably stable, and the question of revising the weighting system did not present itself with any particular urgency. Having regard to the magnitude of the task of revision and the abnormality of the times, there was a strong case for postponing a new budget inquiry. During the last six months, however, prices have shown a marked upward tendency. For all the reasons I have mentioned, the institution of a new index number has now become a matter of real urgency. The computation of a new index, however, is going to take time if it is to be done properly. A new family budget inquiry would have to be conducted throughout a period of 12 months in order to take into account the changing pattern of consumption throughout the year, and it is not anticipated that the necessary weights would be available for the new computation until about two years from the present date. It has, therefore, been decided to set up an interim series of cost-of-living index numbers while we are taking the necessary steps to compile the new index. In the preparation of the new index, and, particularly, in the determination of the consumption standards on which it will be based, we will be glad to consult with trade union organisations and other interested bodies.
The Minister for Finance will give you, in much greater detail, the picture of our economic conditions in relation to general world conditions. At this stage, I shall merely sum up by saying that our position is serious and calls for grave thought and well considered action, not by the Government only, but by all sections of the community. There is good reason, however, for confidence that, with goodwill and hard work, we will overcome our difficulties, which are far less grave than those being encountered at present by other countries.
As I say, the position is a serious one. In some respects, the dangers and difficulties are greater than they were at any time during the war. There is no ready-made solution, no rule-of-thumb method of preventing hardship. Our immediate task is, as it was during the war, to reduce to a minimum the burden which the community as a whole must bear and to distribute it as equitably as may be humanly possible among the different sections of our people. The long-term task is to increase our production, our output of food and manufactured goods, and to make all our services efficient to the maximum extent. This can only be accomplished by hard work and willing acceptance of the sacrifices which, in the present circumstances, are inevitable.