IDC impact ‘psychological’

Press, 21 April 1984, Page 22

IDC impact ‘psychological’

PA Dunedin Recent industry studies by the Industries Development Commission have had a “profound psychological effect” on New Zealand’s manufacturing decisionmakers, according to the commission’s chairman, Mr A. E. Tarrant. Such effect has been one of the main benefits of the IDC industry reports, Mr Tarrant told the second national conference for business economists in Dunedin. Questioned by economists after an address, Mr Tarrant said that at this stage, considering the lag between “gestation and performance it would be untrue to say that the plans have had much documentable effect.” However, in his address, Mr Tarrant said restructuring of New Zealand was necessary “now in 1984.” Closer economic relations with Australia was one reason for this. Other reasons included an inability by taxpayers to sustain the cost of SMPs and tax

incentives, and an inability to keep up overseas borrowing to sustain consumption. The necessary introduction of new technology would be expensive in foreign exchange, but New Zealand would otherwise be left further behind any world economic recovery. In particular, as Australia recovered, New Zealand would lose some domestic markets to that country. Mr Tarrant identified “basic elements in remedial action”: encouragement of a shift of production from activities with a low contribution to the economy or the balance of payments, and a reduction of costs beyond the control of producers, such as tax, transport, power and so on. Unit costs of labour, as distinct from wage rates, had to fall also. With these aims in mind, the IDC had tried to lower costs to exporters so they could sell profitably with less need for taxpayer assistance. It had also tried to ensure

the domestic market was supplied from local production with less need for support in the form of duties or licensing.

Its third aim had been to ensure that local industry had conditions from which it can get most benefit from free trade with Australia through CER.

From the experience of the 12 industry studies made by the IDC, Mr Tarrant said, the commission had identified several local constraints. Investment uncertainty had too much influence with management, which tended to invest in less preferred options. “You can’t expect performance to be first-rate if you take the third-rate investment choice,” he said.

The low return on risk capital was also a constraint. The people making money were “the people who are buying and selling money.” A rejection of change also “permeated” the national attitude and this meant a

resistence to competition, to CER and to changing distribution and pricing Other main constraints are problems of distribution and transport, overmanning in key transport areas, and a lack of focus of training on necessary skills.