‘Think big or sink big for N.Z.?’

Press, 12 November 1981, Page 8

‘Think big or sink big for N.Z.?’

NZPA staff correspondent London Consumer prices in New Zealand are soaring, protection has caused a maze of distortions in the economy,' much of New Zealand business has a siege mentality, and some of thb Government’s “think big” plans are running into snags, but farming is looking better, the- “ Economist” reports in a recent issue. In a report from Wellington headed “Is it think big or sink big?” the “Economist” says “think big” is the economic prescription the Prime Minister (Mr Muldoon) is offering in. his campaign' for re-election. “Big new industrial projects are being bruited as a solution to the country’s three main economic problems: indifferent growth, heavy dependence on imported oil, and chronic current account deficit,” the three-page report says. But it adds: “Awkwardly for Mr Muldoon, three of his four largest ‘think big’ projects were shelved last month. “An aluminium smelter project was stopped when Alusuisse pulled out, leaving the rest of the consortium without the necessary technology. “Mobil is waiting until

after the election betore agreeing to be a partner in a large plant for turning natural gas into petroleum. Plans to expand the country’s largest oil refinery have been delayed by fears of escalating costs. “Expansion of New Zealand Steel is going ahead, but thanks more to the Government’s capacity to influence such decisions than any likelihood of profits. “The opposition Labour Party has taken up the cry of ‘sink big?’” Noting that New Zealand’s current overseas deficit was $725 million in the June year and that the deficit on invisible trade rose from 15 per cent of visible export earnings to 25 per cent, with the Government’s foreign debt now at $4.9 billion, the report said the fall in the price of commodities threatened to make things worse. The ' New Zealand dollar had depreciated by about 6 per cent a year for the last |wo years, it said. “New Zealand is cursed with elections every three years,” the “Economist” reported. “Mr Muldoon is . spending freely on his way to the polls. The budget deficit rose from 5 per cent of G.D.P. in the year to June, 1980, to 6.3 per cent in June this year

and is forecast by the Bank of New Zealand to reach 7 v z per cent in 1982. “The money supply has zoomed up from an annual growth rate of 16 per cent in the first quarter of this year to about 25 per cent now. The country’s Reserve Bank cannot easily control this. The Government can borrow as much as it likes from it, on whatever terms it sees fit.” The report said consumer prices were soaring. “The Bank of New Zealand’s economist, Mr Len Bayliss, predicts an annual rate of inflation of 20 per cent, within a year, much to the fury of Mr Muldoon, who wants to shut him up,” it commented. Mr Muldoon was nowtrying to "jawbone” interest rates down and "cowed by threats of fresh controls,” banks and other financial institutions had reduced their rates. Protection had caused a maze of distortions in New Zealand’s economy, the report said. Describing the car industry as a “nightmare,” the report said a Toyota Corolla in Auckland cost more than double the same model, better assembled, on sale in San Francisco. "This car industry, which keeps over 10,000 people at work, is supposed to save foreign exchange,” the “Economist” reported. “The Government's Treasury says that it actually saves nothing and the Treasury has asked the Industries' Development Commission to study the motor industry. “But the commission’s terms of reference rule out the obvious conclusion: that the car industry should be made to compete in an open market. Some people hope that the commission’s inde-pendently-minded chairman, Mr A. E. Tarrant, may say it anyway.” Much of New Zealand business had a seige mentality, the report said. “Despite a tiny home market of three million people, businessmen tend to use geographical isolation as a cue for taking on everything alone, whatever the cost, too often with the aid of subsidies.” The report said the Development Finance Corporation was putting up the money to develop from scratch a small computer for educational use. “Such investment in inevitably high cost machines, when standard ones can be imported at a fraction of the price, has broad unthinking public support,” it said. “There was great unhappiness that a unit for premature babies that won a Duke of Edinburgh design 'award could not be built in New Zealand. Somehow it was seen as shameful, instead of economic and glorious, that it had to be licensed to be made abroad.” Commenting that new export markets were heavily subsidised, the report said some of the Government’s plans, such as that to Expand steel production, depended heavily on export subsidies. “They are running into snags,” it said. “As the price for agreeing to let in imported New Zealand lamb, the Reagan administration insisted that. New Zealand sign the

G.A.T.T. code on subsidies. New Zealand had to comply, knowing that this code could soon be turned against many of its exports." The “Economist" said the “think big" prescription aimed both to reduce New Zealand’s dependence on imported oil and to increase its energy-related exports. New Zealand had plenty of electricity to spare because it was not using as much as it once expected. But the report said the Government s thinking on the aluminium project seemed to be “in a twist.” “ ‘Think big’ projects like the aluminium smelter were supposed to be needed to use up spare capacity,” it said. “They would also stimulate faster growth — and hence bigger demand for power — in the rest of the economy, requiring further spending on generating capacity. “This year’s official energy plan suggests that if the big projects are built, electricity supplies could be squeezed in the early 19905. With supplies running short, the price must rise — a poor prospect for energy-hungry aluminium smelters." On the expansion of the steel mill, the report said scientists had devised a clever adaptation of direct reduction steel-making which should allow it to exploit New Zealand's own lowgrade iron sands and coal. But plans for manpower in the expanded plant suggested that its productivity would be well below par for a modern mill. “The best in New Zealand’s economy is down on the farm,” the report said. There were typically 3300 sheep to a one-man farm compared with an average 1200 20 years ago. “Farming is much less coddled than industry, although roughly 10 per cent of the farmers’ $4 billion annual turnover still comes from the Government in subsidies," the report said. New Zealand’s dairy industry had found new markts away from a protected E.E.C. and a sometimes still more protectionist . United States. The country was the world’s third largest exporter of wool and was finding new business in China. If Mr Muldoon won the election he might pursue talks on a form of common market with Australia, the “Economist” said. “Negotiations have been difficult so far, in part because the boisterous Mr Muldoon gets on badly with Australia’s icy Mr Malcolm Fraser,” it said. “Nevertheless, preliminary agreement could be reached early next year if Mr Muldoon returns to power.” The report concluded; “New Zealand’s protectionist wrapping would be loosened by a common market with Australia, so the scheme is being pushed by free marketeers and opposed by most manufacturers (and some in Australia too). “New Zealand would be hard pressed to compete internationally in any area of industry.. Its most heavily subsidised jobs are labourintensive tasks in engineering. “New Zealand’s real industrial future lies instead in an open economy, telecommunicating with dynamic East Asia.”