Story: Government and industrial development
Page 4 – 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.
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.
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.
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.