Industrial Development Policy Needs Revision

Press, Volume CIV, Issue 30736, 28 April 1965, Page 10

Industrial Development Policy Needs Revision

(The second and final article by

DR. W. B. SUTCH)

The broad aims of more diversification and balance in the New Zealand economy have received a wide measure of acceptance.

There is still a minority that regards almost any industrialisation with suspicion, but its voice is seldom heard now.

We saw in the earlier article that these aims have been pieced together in answer to specific and urgent needs; the most urgent need giving rise to a new emphasis on manufacturing development was a chronic shortage of overseas funds that suddenly became acute in 1958. Some still see industrial development only as necessary to provide jobs for the future labour force. This reasoning is subsidiary: our need is rather for a larger population to support more mature industries. Assured Market What are the aspects of an industrial “policy” that have received wide acceptance? These include the desirability of greater production in New Zealand of capital goods and components; the fact that domestic manufacture should replace imports where the former is reasonably comparable in quality and cost; and that, whether by import licensing or tariffs, domestic manufacturers should be assured of a share of the market. None of these aspects has grown into a generally accepted “philosophy,” or total policy, of development. It is mistaken even to talk of an “industrial policy” standing by itsglf. Development' of industry should be seen as part of total development. The questions should be: How can New Zealand use all its resources, and economise on scarce resources, to the best advantage and how the development of all parts of the economy (all parts of economic activity as well as all regions of the country) can proceed in a balanced way. The answers to these questions point to several needs. One is the need for broad planning, in the sense of forecasting and influencing—as government inevitably influences, whether or not it seeks to do so. More Analysis Another is the need for more analysis of where our resources are best directed: the weighing of the broad economic and social advantages of investment in farming, forestry, fishing, manufacturing, transport and distribution, recognising that

development in any one of these must involve investment in others.

The weighing of advantages in this way is a complex process. It is not only a matter of comparing the productivity of one industry with another: it means the evaluation of new investment “at the margin,” the using of potentially abundant resources (such as skills) and the saving of scarce resources (such as labour and overseas funds), the potentiality for further development evoked by the investment, and the social values promoted. Present opinions on the advantages of investment in one industry or another are varied: none can be based on facts as we do not know the facts; we know only fragments of facts. Even this kind of analysis would not be fully valid because the investment advantages that, say, manufacturing could offer have not had a chance to be tested: there has, for example, been insufficient support for manufacturing from research and technical education. What we would have to assess would be the potentiality in manufacturing compared with that of other industries. Farming Priorities In fact, New Zealand’s basic assumption is still too often that farming is the best use of our whole resources—that even expensive new development of land is a better investment than almost any other form of economic activity. This assumption is based on an ancient marriage of a resource we discovered in the 1880 s with the northern hemisphere’s demand of that time for food. We have since failed to make an adequate, conscious re-assessment of our resources in terms of the real demands of the present day. There has been some reassessment in recent times. We have by force of events discovered a demand for capital equipment in New Zealand that we can supply from our own industry; a demand for meat exports that are more fully processed; a demand abroad for types of industrial equipment built for New Zealand’s smaller market. New demands on the domestic market were to a large extent forced on us through a scarcity of overseas funds. The potential demand and the resources had always been present, but it took external pressures, not our own conscious policy, to oblige us to recognise their existence. Export Failure

Assuming as we do that the rest of the world demands only our food exports and our wool, we have failed to explore seriously what more of our resources might be useful, and saleable, to other

countries. There could be wide potentialities. Asia’s present need is not for our luxury products, apart from our sales to Japan: it is for the development of its own agriculture. This could entail a demand for equipment that is light, manageable by a single worker, and simple in operation and maintenance.

In some respects, too. New Zealand could help in the industrialisation of the developing countries. 1 have already referred to the possibility of exporting factory plants that have been adapted to meet the need of a smaller market. New Zealand could supply industrial products involving skill and precision—scarce elements in the developing countries. Similarly we should consider the use of our resources more in terms of the developing demands of the richer countries: processed foods for sophisticated palates: new designs in furniture and ceramics (the resources are, present in New Zealand in! sufficient quantity; the design is not); new fashions in clothing; pleasure boats for markets in the United States and Australia.

For exports, imagination, adaptability and quality are the ingredients, together with a marketing policy that seeks what the rest of the world really wants and relates this to our resources. We are not lacking in the resources; the deficiency lies in our attitude. Selective Approach

These needs could mean In the long future a more selective approach to development. Broad development is necessary to get a balanced economy, but we have yet to discover—as we discovered with our farm products eighty years ago when meat and dairy produce replaced wheat and vegetables—what we should emphasise as our specialties. The first change that is needed is a change in our attitude: an open-minded reassessment of the best allocation of our resources and of our potentialities in terms of our own and the world’s demands.

I have already referred to the institutions that have been set up in the last seven years, or are soon to be established, to help our manufacturing development. Welcome as these initiatives are, they are still small and tentative.

; Even with the new institutions, there are still impor- ; tant gaps and deficiencies. There is no machinery for the assessment of, and planning for, New Zealand’s needs in technical education. There is no co-ordinated programme [for industrial research which is oriented towards our broad aims in development. There are other examples of gaps. Unaltered Course And although there have been changes in our more traditional institutions, they have not altered their basic course. The trading banks, the merchants, transport and the taxation system still serve primarily a farming economy. A short term money market comes into being, but few of its resources are directed towards manufacturing.

We have no coherent investment and takeover code that is integrated with our development needs. We have yet to define the best roles for capital from abroad, and for our own capital, and how the two might best be mixed.

I have commented on a number of lacks: our failure to evolve a total development policy; our inadequacy in arriving at the best allocation of our resources; our failure to re-assess the relationship between our resources and the real demands for them: and deficiencies in the institutions serving manufacturing. There must be continued self-criticism. This need not obscure the fact that there have been worthwhile changes in New Zealand’s development over the last seven years. i