Export attempt, 1970s
In the 1970s regular trade missions overseas by leading manufacturers attempted to increase the export focus of domestic producers. Despite some success, most manufacturers continued to produce primarily for the protected domestic market.
The moves toward exporting were partly triggered by a recognition that New Zealand could not maintain its high standard of living by relying solely on overseas earnings from primary produce, such as dairy products and meat.
Recession and response
The rapid rise in oil prices in 1973 imported inflation into the New Zealand economy, sparking a recession that lasted into the 1980s. In response, the government attempted to reduce dependence on oil imports. ‘Think Big’, a series of industrial projects including manufacturing facilities, was an important element of this. The initial investment in these projects was very large, and might not have been feasible without government support.
There were considerable extensions at the Glenbrook steel manufacturing plant, the Tīwai Point aluminum smelter and the Marsden Point oil refinery. The Mobil synthetic petrol plant at Motunui, a methanol plant at Waitara, and an ammonia-urea plant at Kapuni were built. The synthetic fuel, methanol and ammonia-urea projects introduced new industries to New Zealand, while the steel, aluminium and oil refinery projects increased capacity.
In 1982 the government imposed an across-the-board wage and price freeze, in an attempt to control inflation. This reduced profitability in the manufacturing sector, which found that while some costs such as overseas inputs increased, they could not raise their prices.
In the late 1970s the government had begun a cautious and limited liberalisation of the import licensing system. The 1983 the closer economic relations agreement (CER) with Australia provided for the removal of most tariffs by 1988 and the removal of import licences and quotas by 1995.
Permission for peas
Confronted with a free trade agreement signed by the Australian and New Zealand governments in 1965, local manufacturers read the fine print about exemptions and developed their use of trade barriers. They were so successful that Australian manufacturers joked about needing cabinet permission to get a shipment of frozen peas into New Zealand.
Manufacturers had opposed CER, but in 1986, three years after it came into force, Australia had replaced Japan as the largest market for New Zealand goods. The trade balance had moved from almost four to one in Australia’s favour to near equality. Manufactured goods were the most important part of that increase.
Loss of protection
By the time CER was introduced manufacturers had accepted that protection was going to be dismantled. The pace of change was not decided, but manufacturers expected it to be gradual.
The Labour party, previously the initiators of industry protection, won the 1984 election and rapidly deregulated. Manufacturing was a primary target. The CER timetable sped up, with targets reached five years early. The immediate effect of the freeing up of imports and deregulation of the financial and transport sector was that the cost of goods to New Zealand consumers was reduced.
Manufacturers whose business model relied on the ability to pass costs on to the buyer faltered. Many, including clothing, electrical goods and home appliance manufacturers went out of business. Within 10 years, no cars or television sets were manufactured in New Zealand.
New Zealand also lost some manufacturing capacity through businesses moving production to Australia or elsewhere. Much of New Zealand’s clothing industry transferred its manufacturing to Asia or Fiji where labour was cheap.
Many areas were hit by a triple whammy of recession, manufacturing withdrawal and state restructuring. The West Coast, for example, lost jobs in manufacturing, coal mining, forestry, telecommunications and roading.
Some regions were particularly hard hit. Between 1987 and 1990 Northland lost 18% of its manufacturing capacity, Whanganui 20%, Horowhenua 18%, Wairarapa 25%, the West Coast 19%, South Canterbury 21%, and Clutha and Central Otago 35%.
The effect of the loss of protection was compounded by a deep recession which lasted from 1987 to 1991, affecting the profitability of many firms.