F.O.L. paper on economic policy

Press, 7 May 1981, Page 16

F.O.L. paper on economic policy

By

BRIAR WHITEHEAD

in Wellington

A discussion paper on an alternative economic policy for New Zealand has- been prepared for consideration at the Wellington Federation of Labour conference. It will be discussed at branch levels this year, and a document formulated from feedback will probably be adopted by next year’s conference.

The 30-page paper says that the Government’s export, private enterprise, foreign investment, and “think big” strategies cannot work, given existing philosophies.. Increased exports would not generate internal growth and . more employment while more imported componentry and . materials were being brought in to produce them, the report said. In New Zealand the proportion of local production used in the manufacturing sector was less than 10 per cent, compared with up to 50 per cent for other industrialised countries.

The paper says: “More exports will tend to reinforce present problems rather than relieve them.” By "profitability of the export sector” the Government meant giving a greater portion of income to business engaged in exporting. The Government’s' emphasis on private enterprise was based on the premise that competition’would make New Zealand more efficient.. But about half all production and employment in industry in New Zealand was in the hands of- three large firms which controlled more than one third of all sales.

Ownership and control of New Zealand public companies , was highly concentrated. In 40

companies surveyed in 1980 by the Investment Research Unit, the top 2(R>shareholders held more than 60 per cent of all shares. Large shareholders tended to be banks and insurance companies, foreign companies with a large shareholding in New Zealand, or founder families. This put decisionmaking in a few hands, and provided larger companies with greater and probably preferential access to institutional finance.

It was a mistake to believe that foreign investment would , automatically bring in more capital, technology, and give better access to international markets. Profits could be “transferred” out of New Zealand to avoid tax;acquisition of shares need not bring capital in; costs of servicing invest- • ments could be higher than dividend' returns.. The right to use technology often carried a royalty payment to be remitted overseas. Because of the size and power of multi-national companies, they were very mobile, and could wield “tremendous political power.” It was essential for the Government to take a strong negotiating, stance with multi-national companies. The difficulty with National’s thinking big was not the scale of proposed projects but the danger that they womd. reinforce the present structure of the New Zealand-economy by having a high import content, being capital intensive,and not generating employment in a proportionate rate to the investment involved. The discussion . paper said that capital had been substituted for labour. Between 1950 and 1974 manufacturing output

in New Zealand increased by 313 per cent; the labour force in the manufacturing sector by 77 per cent; and plant and machinery in the sector by 147 per cent. Sectors of the New Zealand economy were becoming so capital-intensive that greater inputs of capital were needed to create jobs. The paper identified immediate causes of the “current crisis” as deterioration in the terms of trade, protectionism ,on overseas markets, the invisible deficit and the' Government’s domestic policy. Between 1974, and 1976, New Zealand’s terms of trade fell by 36 per cent. Although export prices had improved since then, terms of trade were still 25 per cent down on 1973 figures. International freight, overseas travel and interest payments (invisibles) had risen in the last decade from 15c in every dollar to 25c.

The Government’s domestic policy had concentrated oh cuts ,in consumer spending by reducing the real wage. The methods were strict wage controls under the Wage Adjust-J ment Regulations, income tax scales not adjusted' for inflation, increases in state; sector charges, and a system of price adjustment which allowed the general level of prices to run ahead of wages. The Government had also tightened credit and raised interest rates. This cut spending by making borrowing expensive. < ' In the paper, delegates are ; asked 36 open-ended questions on monetary policy,, business ownership and' control,' trade and development, employment incomes policy, industrial development, and the public sec- , tor.