Story: Government and industrial development
Page 3 – Intervention, 1960s and 1970s
Government intervention in industry was more ambitious in the 1960s and 1970s than before. This was in part driven by balance of payments crises (in 1957–58, 1961, 1966–67, 1974–75 and 1979), oil price and supply shocks (1973 and 1979), and the United Kingdom joining the European Economic Community (1973).
It was no longer practicable to manage the balance of payments by restricting imports. New export industries were needed. Governments encouraged major projects with export potential – an aluminium smelter, a steel mill and an oil refinery. Governments aimed to make manufacturing both more efficient and more export-oriented.
Programmes and organisations
Technical, managerial, advisory, design, research, finance and export facilities were all extended or set up. Among others, the Development Finance Corporation, Inventions Development Authority, Industrial Research and Development Grants Scheme and New Zealand Industrial Design Council assisted industry. Several joint conferences involving the government and industry were held in the 1960s and early 1970s.
Industry became increasingly diverse, and there was less need to import many industrial and consumer goods. In the 1960s and 1970s New Zealand began producing fractional horsepower induction motors, thermostats and cutouts, heavy-duty fuse switches and switchboards, spark plugs, automotive and industrial batteries, armoured underground power cables, self-adhesive tape, oil-fired kilns, porcelain-on-steel baths, drive shafts and propeller shafts for motor vehicles, television tubes, PVC compounds and products, formaldehyde resins, acrylic emulsions, synthetic detergents, weed killers and insecticides, synthetic yarns, sheet glass, gin and whisky.
Developing large industry
The government supported large industry by providing research, infrastructure and capital. It funded construction of the Marsden Point petrol refinery. New Zealand Steel’s Glenbrook mill was set up after years of government-funded research into use of ironsand. Comalco’s Bluff aluminium smelter relied on electricity from the Manapōuri power station, built by the government for that purpose.
‘All hell broke loose, chaos reigned’ at a 1960 meeting between industrialists and government officials.1 Discussion of a steel mill was broken up by shouting, yelling, a participant ordered from the room, and demands to see the prime minister at the earliest opportunity. Officials were determined to minimise the involvement of Fletchers and British interests; industrialists were enraged by the government’s intention to include an Australian company with no experience in steel milling.
Export incentives for industry
From the early 1960s the United Kingdom’s intention to join the European Economic Community challenged New Zealand’s reliance on agricultural exports. The government’s response included joint government and business trade missions, an export guarantee scheme, an export award scheme and export seminars. Trade commissioners based overseas provided information and advice about the countries they were located in. Back in New Zealand, export liaison officers helped individual manufacturers.
Export promotion expenses were heavily subsidised, and profit from increased export sales was tax-free. Investment and depreciation allowances covered the purchase of plant and machinery and employee accommodation, and offset the cost of research and development.
Although manufactured goods increased from 6% to 18% of New Zealand’s exports over the 1960s, manufacturers were generally reluctant exporters. The domestic market provided enough growth, and there was little competition. When the government negotiated the New Zealand Australia Free Trade Agreement (NAFTA) in 1965 it was seen as a threat rather than an opportunity by many.
A notable exception to this reluctance was the pulp-and-paper industry, in which the government had invested heavily. Paper provided 49% of manufactured export earnings in 1960, and 30% in 1970. It also allowed import substitution – locally produced newsprint became available once Tasman Pulp and Paper began production.
The government introduced regional development incentives in the mid-1970s. Loans made by the Development Finance Corporation jumped from $10.4 million in 1972/73 to $60.8 million in 1974/75. Of the latter amount, 40% went to regional initiatives in manufacturing, construction, transport, and related services (the corporation’s other funding focus was export incentives).
Import licensing and tariffs
Government commitment to import controls began to shift during the 1960s and 1970s. A World Bank report in 1967 recommended moving from import licensing to tariffs. At the time New Zealand was the only developed country which licensed imports. In other economies, licensing had only been introduced – if at all – as an emergency (often wartime) measure.
When the government floated this policy in 1971, it went nowhere – the importers and manufacturers’ lobby stopped it. Nonetheless, in the 1970s many items were withdrawn from the import licensing schedule. By the early 1980s only 23% of imports required a licence.