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Government and industrial development

by Megan Cook

In colonial times New Zealand’s government encouraged industry by providing infrastructure – wharves, railways, roads and electricity – and bonuses to manufacturers. Protective tariffs and, later, import licensing helped local industry compete with international imports. However, by the 2000s most protection for industry had been removed.


Encouraging industry from the 19th century

Local, provincial and central government in colonial times and the early 20th century had an interest in encouraging industry – it was an essential element of a thriving, productive society. Government support for industrial development took a variety of forms. The provision of infrastructure, bonuses, tariffs, and structuring of the labour market were all used in 19th-century and early 20th-century New Zealand.

Infrastructure

The provision of infrastructure was the most important way in which the government encouraged industry. Harbour improvements, better roads, telegraph and postal facilities, railways and electricity all supported industry, and were funded from customs duties, land sales and loans.

International connections

 

Skyrockets, gun salutes and loud cheers greeted Wellington’s Provincial Superintendent Isaac Featherston when he returned from Melbourne in 1858. He had organised a greatly desired direct steamer service between the two cities. Local businessmen agreed that the £3,000 annual cost was worth it. But the service didn’t last long, ending when the Victorian government refused to pay their share of the subsidy. Wellington’s boosters and businesses remained keen, and the search for an international connection began again. After vigorous scrapping with Auckland over which would be the destination port for a fortnightly service with Britain, Wellington won. The service began in 1866, when the SS Kaikoura left the city’s new wharf.

 

In the 1860s Wellington’s provincial government built Queen’s Wharf, with a steam crane, rails and turntables, goods sheds and bond store, after much harrying by local businessmen. Canterbury’s provincial government constructed the Lyttelton rail tunnel, linking the port of Lyttelton with Christchurch and the surrounding countryside.

The central government’s extension of the telegraph network in the 1870s, combined with a substantial reduction in the cost per word, allowed its use by industry to become commonplace.

Bonuses

Until the 1870s New Zealand industry was small-scale. Bonuses, an early form of government support for industry, were offered to encourage new and larger industries. The bonuses were substantial, offsetting the start-up cost of machinery and buildings required to win them. The sugar bonus of £5,000, for example, required the production of 500 tons of sugar, using machinery expected to cost £20,000.

Many bonuses were won, including those for paper, sugar and sulfuric acid; others, like that for fish curing, went unclaimed.

Employees

Industry depended on its employees, and the government shaped the structure of the labour market and the conditions of work. Legislation relating to the eight-hour working day and the employment of women and children limited hours of work. Particularly important was the Industrial Conciliation and Arbitration Act 1894. It provided a way of resolving industrial disputes which continued until the 1980s.

Tariffs

Competition from imported goods limited the market for local producers. In 1888 the government began a piecemeal introduction of protective tariffs (payments on imported goods), which were systematised in 1895. Tariff levels were limited by the opposition of the farming lobby and by imperial preference – a scale of tariffs that favoured British imports and, to a lesser extent, those from countries in the British Empire.

The government made small adjustments to tariffs relatively frequently, and held larger reviews of the system in the 1900s, 1920s and early 1930s. The attempts by manufacturers’ and employers’ associations and the Unemployment Board to get tariffs raised during the 1933 review did not succeed. The Unemployment Board’s argument – that properly protected industry could provide jobs – would shape later government action.

Department of Industries and Commerce

In 1894 the government set up an Office of Industries and Commerce to ‘find new markets for New Zealand produce and extend existing areas’ and to ‘give limited assistance to any branch of local commerce and industry requiring help’.1 The produce was agricultural rather than manufactured, and agriculture would remain the office’s main concern well into the 20th century.

In the course of its first 25 years, the office became a department, which at times had responsibility for agriculture, tourism, health resorts and publicity. In 1919 its focus became more firmly industrial. For a period a Board of Trade reported on supply and demand, made inquiries when prices seemed too high, and investigated undesirable trade practices.

Monopoly and efficiency

In the early 20th century the government became concerned that businesses were combining to control prices and supply. Legislation designed to prevent or control monopolies or ‘trusts’ was passed in 1905, 1907, 1908, 1910 and 1919.

Overseas monopolies were seen as the greatest threat, with the dumping of cheap goods on the New Zealand market identified as a particular problem. In an instance of favouring local industry over agriculture, government made provision for tariffs on farm equipment produced by overseas trusts.

In the 1920s the government tended to ignore or favour amalgamation of New Zealand businesses, even when this would reduce competition, on the grounds of greater efficiency.

Footnotes
    • Christchurch Press, 4 July 1893, p. 4. Back

Protection and development, 1930s–1950s

Towards a balanced economy

During the economic depression of the early 1930s, prices for New Zealand’s primary products plunged. Income and employment in industry were not so badly affected. The depression emphasised the vulnerability of the New Zealand economy’s narrow commodity base, and politicians recognised the need for a balanced economy – one in which industry complemented agriculture.

Politicians and bureaucrats

 

Bill Sutch, head of the Department of Trade and Industry from 1958 to 1965, was described by Minister of Trade (later Prime Minister) Jack Marshall as ‘in a class by himself: highly intelligent, very able, positive, imaginative, enthusiastic, dogmatic, arrogant, provocative, controversial, devious, politically suspect and not to be trusted.’1 Sutch was an ‘economic nationalist’, who believed strongly in the importance of developing New Zealand industry and retaining ownership of it.

 

Development of New Zealand industry would reduce British manufacturers’ access to the New Zealand market. New Zealand needed to maintain unrestricted access to the British market, which bought 80% of the country’s exports in the early 1930s. Through talks at the empire economic conference in Ottawa in 1932 and New Zealand’s 1933 tariff review, British business lobbied to keep opportunities for ‘reasonable competition’ in the New Zealand market.

Labour and import substitution

The Labour government which took office at the end of 1935 was aware of the need to keep access to markets in Britain, but was also determined to develop local industry. Legislation was passed to encourage new industries and concentrate plant, equipment and expertise in existing industries. Industrial planning was also undertaken.

The Industrial Efficiency Act 1936 controlled entry to industries producing goods such as cement, tyres, and pulp and paper. The Iron and Steel Act 1937 provided for a state-owned iron and steel industry, seen as fundamental to industrial development. In 1939 the government began planning the use of the maturing state-owned and private plantation forests.

Import licensing

A balance-of-payments crisis in 1938 led to a further step. Imports were restricted and became subject to licensing. British opposition led to provisions favouring imports from the UK. Manufacturers were not expected to export, but were encouraged to produce goods that would otherwise be imported. It was much easier to get a licence to import raw materials and plant than to import finished goods, and manufacturers also had a protected market in which to sell their output. In this way manufacturing overcame the limitations of plant, firm and market size. Licensing promoted industrialisation and provided employment.

When coupled with the restrictions caused by the Second World War, the result was a manufacturing boom. Many existing businesses expanded, and new ones were set up to take advantage of gaps in the market.

Import substitution in action

 

When their supply of imported washing machines and refrigerators abruptly dried up in early 1939, Woolf Fisher and Maurice Paykel approached Auckland manufacturers to see what could be done. Mason and Porter, makers of Masport lawn mowers, agreed to make motors, and packaging company Alex Harvey and Sons said it would make the cabinets. Fisher & Paykel Ltd was transformed from an importer to a successful manufacturer.

 

Manufacture of building materials, two-way radios, knitwear, crockery, chemicals and home appliances, and food processing, all began or expanded while protected from competition.

Post-war rebuilding and development

After the Second World War, the government helped industry rebuild and then develop. Materials in short supply were sought out by trade commissioners and politicians, and imports of raw materials and equipment were a high priority in the allocation of overseas funds. The Department of Industries and Commerce set up an information service for manufacturers, and, with the Department of Scientific and Industrial Research (DSIR), began issuing a technical advisory bulletin.

Industrial zones

Industrial zones were created in or near new housing areas in the Hutt Valley, Porirua and Auckland. Manufacturers of corrugated cardboard, motor bodies, joinery and toys leased areas in Tāmaki, Auckland; steel fabricating and galvanising workshops, production machine shops and a chemical factory opened in Hutt Park Road, Lower Hutt.

Research and development

The government also directly undertook or funded scientific and industrial research. In 1945 the DSIR set up an industrial development laboratory. Work relevant to industry continued to be done in its other labs. By the late 1950s research on fertiliser, leather and shoes, pottery and ceramics, wool, meat and dairy was also taking place in joint government–industry research associations, and in universities.

Labour

During and after the Second World War, industrial development was held back by a labour shortage. In the post-war years, the government set up immigration programmes focused on both skilled and unskilled workers, and encouraged married women to join the workforce.

The timber industry

After the war ended, local and central government upgraded roading and provided housing and port facilities for the central North Island pulp-and-paper industry. The industry included private sector companies, such as New Zealand Forest Products, and a mixed public–private company, Tasman Pulp and Paper.

Footnotes
    • John Marshall, Memoirs. Volume two: 1960 to 1988. Auckland: Collins, 1989, p. 13. Back

Intervention, 1960s and 1970s

Government’s aims

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.

Diversification

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.

Shouting match

 

‘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.

Regional development

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.

Footnotes
    • Quoted in D. A. Bold, ‘A vision unfulfilled: the iron and steel industry in New Zealand, 1842–1975.’ PhD thesis, University of Auckland, 2001, p. 176. Back

Ending intervention, 1980s and 1990s

The government’s approach to industrial development shifted radically in the mid-1980s, and the new direction was maintained through the 1990s. A controlled economy was dismantled in favour of a market-led economy. This meant far less government intervention or assistance in industry development.

For a few years before this radical shift, government industrial-development policy stalled, going in the direction of both more and less intervention.

Protection dwindles, 1980–84

In the early 1980s the government had removed some of the protections sheltering industry. The meat-freezing industry was de-licensed in 1980. Restrictions on road transport (in place to protect the rail freight business) were softened.

Reform of the import licensing system had started, with the unenthusiastic agreement of the Manufacturers’ Federation. The Closer Economic Relations treaty with Australia, which came into effect at the beginning of 1983, set a timetable for full liberalisation of trade between the two countries by 1990. Tax incentives were scrutinised to see if they were really incentives, or just a form of subsidy.

Creaming it

 

In 1980 New Zealand’s largest corporation, Fletcher Challenge, received $30.65 million in incentives. The payments reduced the company’s effective tax payment from $32.04 million to under $1.5 million. A 1982 government taskforce pointed out the lack of exact figures on the cost of industry incentives (or the return on them), but suggested $470 million per year as a likely figure.

 

‘Think big’

At the same time, the government’s ‘think big’ projects continued the tradition of providing industry with infrastructure, capital and protection. The Clyde dam was built to provide electricity for a proposed second aluminium smelter, and an extension to the New Zealand steel plant required a massive injection of capital.

‘Think big’ was partly a response to the 1978–79 oil shock, and some of the projects continued the tradition of import substitution. The synthetic petrol plant at Motunui and the electrification of part of the North Island’s main trunk line were in part designed to reduce the need to import oil.

Radical change, 1984–1990

The Labour government elected in 1984 was committed to ending government support for industry. With strong backing from officials, it was prepared to do so without industry agreement. The policy consultation process that had involved sectoral interest groups like the Manufacturers’ Federation was abandoned.

Intervention, incentives and support were removed or substantially reduced. The Department of Trade and Industry was dismantled. A complete phase-out of import licensing by 1992 was announced in 1988. A programme of tariff reduction, over a longer time frame, also began.

A much-reduced responsibility for industrial development shifted to the Ministry of Commerce. Overseas trade development was taken over by the Ministry of External Relations and Trade (later Foreign Affairs and Trade). The Ministry of Works was also dismantled. Any government agency or arm of agency engaged in business activity was ‘corporatised’ and, in many instances, sold.

More change, 1990–2000

National won the 1990 election, and continued to deregulate and reform, including major readjustment of the labour market. The new administration’s aim was the development of an ‘enterprise culture’ which would provide the platform for an internationally competitive business sector.

The new industrial policy direction was based on a belief that growth would result if markets were not regulated. The government’s role was to create a ‘level playing field’ in which consumers, employees and businesses would respond to price signals.

Developing new businesses

Some new programmes of the 1980s and 1990s focused on new businesses. Unlike the programmes being dismantled, which provided ongoing or open-ended support, these initiatives were targeted, and comparatively inexpensive. In the 1980s investigation grants were introduced for regional development and new businesses, and in the 1990s a business development programme and grants were instituted. In both cases the total amount of money given out each year was very small, ranging from less than $1 million to $20 million.

High-tech electronic exports increased rapidly, supported by research and development grants from Technology New Zealand (set up by government in 1990). The government also focused on electronic commerce. It was expected to be the 21st century’s ‘freezer ship’ – like the refrigerated shipping that created a booming export trade in the 19th century, electronic commerce would eliminate distance between businesses and customers, and bring prosperity to New Zealand.

Industry training

In the 1990s a network of new industry training organisations addressed training for industry. An industrial supplies office was set up to encourage public-sector agencies to buy New Zealand-made goods and services, and to help New Zealand businesses win public-sector supply contracts in Australia.


Industry in the 2000s

Expanding industry support

In the early 2000s government support for industrial development expanded and then contracted. The expansion was not on the scale of the mid-20th century period, remaining a stimulus rather than a control of the market. There were no ‘big’ projects, no return to import licensing or border protection, no export incentives and few tax breaks.

Government involvement in industrial development grew after the election of a Labour administration in 1999. The Ministry of Commerce became the Ministry of Economic Development, signalling a change of emphasis. Industry steering groups were convened, advisory councils met and conferences were held.

Types of support

Government spending on research increased, an apprenticeship scheme was set up, and business incubators were formed. A tax credit was introduced for private-sector research (but was scrapped by the National-led government elected in 2008).

Regional development was encouraged through grants for region-wide plans. Entrepreneurs and small businesses could apply for development grants and access training and assistance when seeking venture capital.

Education for industry continued to be run by industry training organisations, but polytechnics and institutes of technology also became involved.

Throw money away

 

Even limited government industry-support schemes provoked vehement discussion between politicians. ‘It would be better to go to the top of the Beehive and throw the money off there,’ was one comment.1

 

The aim of the new programmes was familiar: regional development, encouraging business and creating jobs. For most of this period of expansion, the economy was booming and industry flourished.

New Zealand Trade and Enterprise

New organisations were set up to provide some of these programmes, and then merged in 2003 into one national economic development agency, New Zealand Trade and Enterprise (NZTE).

NZTE ran many of the government’s industry assistance programmes. Exporting was a major focus. Internationally based staff worked with buyers to source New Zealand products, services and investment opportunities, and assisted New Zealand exporters. Other programmes provided businesses with advice, training, mentoring, funding, and business and market development assistance.

Contraction

A new National government was elected in 2008, during a recession. The new administration’s industry-development focus included reducing regulation and supporting exporters.

Business support programmes were refocused on investment in firms with high export potential. Infrastructure development included the development of ultra-fast broadband internet, which was expected to enhance export opportunities. A business and entrepreneur migration programme was developed. The government also supported large one-off events like the Rugby World Cup, which included an element of regional support.

Footnotes
    • The Press, 12 March 2003, p. A15. Back

External links and sources

More suggestions and sources


How to cite this page: Megan Cook, 'Government and industrial development', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/government-and-industrial-development/print (accessed 11 December 2019)

Story by Megan Cook, published 11 Mar 2010