Faced with declining export returns and a foreign exchange crisis, a Labour-led government introduced foreign exchange controls and import licensing regulations in 1938. The regulations prohibited the import of any goods except under licence or where exempted.
Importers had to apply to government for both an import licence and the foreign exchange needed for purchases. The quota – the amount that could be imported with a licence – was set on the basis of imports the previous year.
Although the import licensing system and foreign exchange controls were supposed to be temporary, they remained in place for 50 years. Scarcity during the Second World War further restricted imports of finished consumer goods in the 1940s. While other countries introduced such measures in wartime, New Zealand was the only developed country to maintain comprehensive licence controls of manufactured imports long into peacetime.
Import controls were reduced during the 1950s, but a further balance of payments crisis in 1958 saw them reimposed. Import restrictions remained in force, in part to ensure full employment, through the 1960s, 1970s and into the 1980s.
As a result of protection from foreign competition, import substitution became a driving force in New Zealand manufacturing. Factories were set up to make goods that had previously been imported. For example Childswear produced children’s clothing, and HMV (NZ) and Fisher and Paykel both produced appliances and whiteware. Many of these new manufacturers had previously been importers, including Fisher and Paykel.
Important in the post-war period was the demand for electrical and large appliances. Disposable incomes were rising rapidly in New Zealand. Consumers demanded a range of appliances that during wartime had been difficult to come by or not affordable.
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Amongst themselves, manufacturers described possession of a licence as a licence to print money. Any reasonably useful or attractive item was virtually guaranteed a market.
Manufacturers, some working in collaboration with overseas concerns, filled this gap. Radios, powered lawnmowers, fridges, cookware, electric stoves and bicycles were produced in increasing numbers. Clothing manufacturers and textile firms also increased in scale.
Benefits of protection
During this period local manufacturing proliferated and broadened. Protection encouraged the development of new manufacturing technologies using synthetics and electrical technologies, as well as the expansion of existing sectors. Plastics manufacturers, toy manufacturers, textile firms, battery, rubber-compound, and electronics manufacturers, clothing producers, tobacco manufacturers, and construction component manufacturing firms all grew in number.
These products continued the pattern of import substitution, replacing imported items with locally manufactured goods. Manufacturing flourished – output rose 30% in 1949/50.
Market structure under protection
The government policed costs, profitability and pricing of manufactured and retailed goods. During and after the Second World War price rises had to be approved by a pricing tribunal, and increases in profitability were closely monitored.
Despite such measures, New Zealand consumers paid excessive prices. Though New Zealand producers could manufacture goods, often the imported version would have been cheaper if allowed in.