Economist Foresees Need To Reduce N.Z. Imports

Press, Volume XCIX, Issue 29224, 7 June 1960, Page 19

Economist Foresees Need To Reduce N.Z. Imports

The future structure of New Zealand industry—and employment—may, in the long term, need to adapt to a relatively lower capacity of the economy to provide imports, in the view of Mr P. R. Coney, acting economist to the Reserve Bank of New Zealand.

In a background paper prepared for the industrial development conference, Mr Coney discusses the factors likely to affect New Zealand’s balance of payments for the next 20 years. “It may be that the pressure of demand for all goods and services has in recent years masked price-cost disparities between New Zealand and overseas suppliers. It is fairly generally believed (perhaps rightly) that these are serious enough to require protective measures such as quantitative import controls or an appropriate tariff. “However, during the years 1955-57 when limited import control was in operation. New Zealand manufacturers, as a whole, did not appear to come under a pressure sufficient to cause widespread adjustments in employment and output. . . . Structurally, industry was not greatly affected. Since 1957 New Zealand’s industrial costs have continued to rise, thus perhaps putting New Zealand manufacturers at a more serious disadvantage than hitherto.”

Mr Coney says that the “only reasonable assumption” concerning New Zealand’s terms of trade is that they will remain constant in the long run, and he emphasises the importance of this assumption. Some fluctuations, “perhaps of the order New Zealand experienced in 1956-58, are inherent during the process of growth in the rest of the world.” New Zealand has probably had an unfavourable balance of exchange transactions on invisible items, and would probably have a rising deficit on such transac-

tions. in Mr Coney’s view. Expenditure on shipping _ services, etc., would rise as trade increased, as would New Zealand residents’ expenditure on travel abroad. “A strong upward trend in our deficit on account of income due to overseas residents has occurred. This will continue while exchange control limits New Zealand private investment overseas.”

Exports "Prior Claim” A “main condition” of New Zealand’s future rate of growth was a growth in export receipts. The use of resources in producing for export yielded a high return in output. ‘‘Consequently, the development of farm exports, new export industries, and export markets should have a prior claim

on New Zealand’s future resources.”

Marketing of these products might be handicapped by: Strong agricultural protectionist policies in potential markets. New Zealand’s internal trade policies, such as. the use of quantitative control of

imports. The slow rate of growth in the poorer countries in the world.

Discussing trends in imports, Mr Coney says that some factors may operate automatically to reduce the demand for imports relative to total output “The final effect of these factors in the balance of payments is uncertain, but there is little evidence in recent years to suggest that import-substitution in particular cases reduces the total demand for overseas exchange.”

Balanced growth of the economy will ensure the most efficient use of the country’s resources. ‘‘This means that the long-term aim of New Zealand’s development should be to bring domestic industries into competition with overseas suppliers on terms of reasonable protection, e.g., by a general tariff, or by exchange rate policy. A special degree of protection to particular industries might be needed in their early stages of development, and this level could be decided after individual inquiry,” Mr Coney says. New Zealand’s production should be concentrated in directions “where advantages over overseas industries are the greatest and disadvantages the least. . . . The solution might lie in fewer and larger industries rather than many small ones.” Mr Coney’s paper concludes with a warning on inflation. “It is common experience that the scarcity of resources never appears so great, nor their misuse so widespread, as in a period of sharp inflation."