Farm and station Way to a more efficient economy in N.Z.

Press, 22 October 1976, Page 14

Farm and station Way to a more efficient economy in N.Z.

That the growth of manufactured exports, spectacular as it has been, in no way offers the complete answer to New Zealand’s balance-of-payments problems is stressed by Mr M. J. L. McDougall, a research economist of Federated Farmers, in a paper on “restructuring towards a more efficient economy.”

He concludes: “Obvious priority areas to assist New Zealand’s balance of payments are the agriculture industry and efficient manufacturing industries, These industries make the real contribution to our economic well being, and once the cost pressures of protection are eased their contribution will increase accordingly. . .” Mr McDougall recalls that in a recent address the Depu’y Prime Minister, (Mr Taiboys) had suggested that over the next 25 years New Zealand would have to reorganise its economy to break free of the gradually tightening circle of boom and bust and to improve access for its products in overseas markets. The important issue, as he saw it, was between those who exported and those who did iot, and that most of the growth in export income would have to come from the manufacturing and service industries within the economy.

But by analysing New Zealand’s export statistics alone Mr McDougall said that there was a danger that a person could be dazzled by the extraordinarygrowth in manufacturing export figures. Hence it was important that any such figures were properly defined and related to the growth potential of other sectors.

Taking Reserve Bank figures, he showed that over the period from 1970 to 1976 agricultural export earnings had increased by 90 per cent but had declined from forming 87 per cent of all export earnings to 78 per cent, forest products had increased by 194 per cent to rise from 6 to 8 per cent of total export earnings, and manufactured exports had increased by 393 per cent to form 14 per cent of all earnings compared with 6 per cent at the beginning of the period. But Mr McDougall hastens to point out that about 30 per cent of the increase in manufactured exports between 1970-71 and 1974-75 was contributed by aluminimum exports based on the smelter at Bluff. Furthermore the export of manufactured products has been actively encouraged by Government incentives in the form of tax concessions on increased exports and, more important, by the relaxation of

import licensing restrictions where it can be shown that imports of raw materials and intermediate products are used as inputs for manufactured exports.

On the other hand Mr McDougall makes the point that the 90 per cent increase in agricultural exports has taken place in a period when agricultural incomes were decreasing as a percentage of total incomes in New Zealand, due to a redistribution of income away from agriculture towards other sectors of the economy.

It is unfortunate that Mr McDougall has not been able to come up with some really up-to-date figures on the extent of imports needed to support the growing volume of manufactured exports. The latest available input-output table (1965-66) from the Monetary and Economic Council Report No. 29, he says, indicates that imported' inputs into agriculture amounted to less than 10 per cent of value added by this sector, while the figure for manufacturing in that year was 55 per cent. “The point is that in an analysis of efficient export industries, the proportion of net value added to total export value will be higher in the low import content industries — it therefore follows that the relative contribution of the latter industries will be correspondingly of greater value to our balance of payments position,” he says. The New Zealand economy, he says, is structured in such a way that almost all manufacturing industries enjoy some level of protection against imports of cheaper overseas products. The costs of this protection are being paid by the efficient exporting industries, as well as the New Zealand consumer to a lesser degree. First there were the direct additional costs that arise from protection to suppliers of inputs or equipment used by exporters. But much more important were the indirect costs of protection, with most other groups in the community, including labour, being able to pass on to the export industries the costs of the subsidy being provided to importcompeting industries. Thus the prices of virtually all the inputs, including

labour, used by export producers reflected the costs of protection given to other sectors in the economy. The Government had formed a review committee to report to the Cabinet Economic Committee early next year with recommendations for tariff changes. It would be of major benefit to the country if this committee was to expose the strengths and in-built advantages that many New Zealand manufacturers had over their foreign competitors.

If New Zealand was to make a positive attempt to correct its balance of payments and promote longer term economic welfare, it was essential that a review of economic structure was undertaken with the aim of increasing exporting efficiency by lowering the costly levels of protection now applying to New Zealand manufacturing. This would lead to a more stable economy which relied predominantly on efficient, lower import content exporting industries.

“The main course of action for restructuring would be to gradually lower protective barriers and to adjust the exchange rate consistent with the maintenance of full employment. This would mean that industries with a low or medium level of protection would get the same or more protection from a devaluation. The disadvantaged would be the highly protected industries which would be encouraged to undertake the necessary structural changes towards alternative, more efficient forms of production. “If the alternative form of production requires a structural change in the labour component and our objective is full employment, then a labour market policy will be required which provides a more flexible means of coping with economic and technical change as it affects the labour force. Structural unemployment cannot be removed by macroeconomic techniques alone. Hence the unemployed need positive assistance and must be given new levels of training and skills in those areas of industry where there is effective demand. . . “In this context the Government must not only assure full employment, but also provide the necessary’ incentives to management and union alike to undertake the transition.

“By this process it will be possible to identify the more efficient industries and to encourage the growth of these, resources and assistance must be made available and some protection given, at least during the changeover period. “In this way protection and assistance will be used in their proper capacities. “Obvious priority areas to assist New Zealand’s balance of payments are the agriculture industry and efficient manufacturing industries.”