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|GDP (March 2008): US$135.7 billion.|
Real annual GDP growth rate (March 2004): .2%.
Per capita income (2008): US$27,900.
Budget: Income .............. $55.1 Billion
|New Zealand's economy has been based on a foundation of exports from its very efficient agricultural system. Leading agricultural exports include meat, dairy products, forest products, fruit and vegetables, fish, and wool. New Zealand was a direct beneficiary of many of the reforms achieved under the Uruguay Round of trade negotiations, with agriculture in general and the dairy sector in particular enjoying many new trade opportunities. The country has substantial hydroelectric power and reserves of natural gas, although the largest gas field -- supplying 84% of New Zealand's natural gas -- is expected to be tapped out by 2007. Leading manufacturing sectors are food processing, metal fabrication, and wood and paper products.|
Since 1984, government subsidies including for agriculture were eliminated; import regulations liberalized; tariffs unilaterally slashed; exchange rates freely floated; controls on interest rates, wages, and prices removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The restructuring and sale of government-owned enterprises in the 1990s reduced government's role in the economy and permitted the retirement of some public debt. As a result, New Zealand is now one of the most open economies in the world.
Economic growth has remained relatively robust in recent years (i.e., around 3%), benefiting from a net gain in immigration, rising housing prices, strong consumer spending and favorable international prices for the country's exported commodities. New Zealand did not experience the slowdown in growth seen in many other countries following the events of September 11, 2001, and the subsequent fall in overseas share markets. The prolonged period of good economic growth led the unemployment rate to drop from 7.8% in 1999 to a 17-year low of 4% in mid-2004. The growth has also helped to substantially narrow the current account deficit, which stood at 4.5% of GDP in 2003.
New Zealand's economy has been helped by strong economic relations with Australia. Australia and New Zealand are partners in "Closer Economic Relations" (CER), which allows for free trade in goods and most services. Since 1990, CER has created a single market of more than 22 million people, and this has provided new opportunities for New Zealand exporters. Australia is now the destination of 20.5% of New Zealand's exports, compared to 14% in 1983. Both sides also have agreed to consider extending CER to product standardization and taxation policy. New Zealand initialed a free trade agreement with Singapore in September 2000 and is seeking other bilateral/regional trade agreements in the Pacific area.
U.S. goods and services have been competitive in New Zealand, with the strong New Zealand dollar creating opportunities for U.S. exporters in 2003-2004. The market-led economy offers many benefits for U.S. exporters and investors. Investment opportunities exist in chemicals, food preparation, finance, tourism, and forest products, as well as in franchising. The best sales and investment prospects are for information technology, biotechnology, telecommunications, tourism, franchising, food processing and packaging, and medical equipment. On the agricultural side, the best prospects are for fresh fruit, snack foods, specialized grocery items such as organic foods, and soybean meal.
New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Commission (OIC) must give consent to foreign investments that would control 25% of more of businesses or property worth more than NZ$50 million, although the government has proposed raising that threshold to NZ$100 million. Restrictions and approval requirements also apply to certain investments in land and in the commercial fishing industry. OIC consent is based on a national interest determination. While no performance requirements are currently attached to foreign direct investment after consent is given, the government has proposed requiring foreign buyers of land to report periodically on their compliance with the terms of the consent. Full remittance of profits and capital is permitted through normal banking channels.
A number of U.S. companies have subsidiary branches in New Zealand. Many operate through local agents, and some are in association in joint ventures. The American Chamber of Commerce is active in New Zealand, with its main office in Auckland and a branch committee in Wellington.
Page 10. The European economy: a history
Like the first Polynesian settlers, 19th-century Europeans depleted various resources such as seals, whales, native timber, gold, and kauri gum. Major gold rushes in Otago, the West Coast and Thames in the 1860s stimulated development. Many of Dunedin’s fine buildings were paid for with Central Otago gold. Coal was also mined in Otago, the West Coast and Waikato, and kauri gum in Northland. It was an unsustainable economy, although some regions, notably the West Coast, remained important quarries of natural resources into the late 20th century.
The early European settlers mostly provided supplies and services. Pastoralism also developed in the 1850s and 1860s, with large sheep runs mainly on the east coasts of both islands. As the resources were depleted the settler lifestyle became more marginal, especially in the long economic depression in the 1870s and 1880s, when many went elsewhere. New Zealand’s economic destiny seemed to lie in large-scale sheep farming, and the export of wool, tallow and perhaps canned meat.
Refrigeration and the pastoral economy
The advent of refrigeration, which began in the 1880s, opened up a new economy based on family farms. Forests were felled. In 1861 there were 158,000 acres (64,000 hectares) of good pasture in New Zealand by 1881 there were 3.5 million acres (1,416,373 hectares) and by 1925, 16.5 million acres (6,677,188 hectares). There was innovation. New grasses were sown so that two blades of grass grew in place of one. Improved livestock were bred, and freezing works and dairy factories efficiently turned out meat and dairy products which were shipped to Britain. This ‘processed grass’ (including wool) made up some 90% of exports for the next 80 years – until the 1960s.
In the 1920s and 1930s the manufacturing sector expanded. The freezing-works chain replaced skilled butchers, and auto assembly plants appeared. Hydroelectric dams began to provide electrical power. Industrialisation was forced by government interventions (such as import controls from 1938) in order to generate jobs for a growing population. They were keen to reduce the dependence on exporting after the collapse in the terms of trade during the great depression of the early 1930s. ‘The slump’, as it was also known, brought widespread poverty, and the unemployed rioted in city streets. The Second World War brought recovery and a wool boom in the early 1950s. It was an economy sometimes described as ‘two-legged’, with the pastoral leg generating the foreign exchange the economy needed, and the manufacturing leg generating the jobs to maintain full employment.
The end of pastoral dominance
In late 1966 the export price of wool crashed by 40% as a result of increasing competition from synthetic fibres. The price never recovered for any length of time. Meat exports came under pressure from white meats – chicken, pork, and fish – and butter from other oils. Affluent countries limited access to their markets, and dumped their surpluses on other markets, further depressing New Zealand’s export returns. The dominance of farm goods in the export sector and the political economy came to an end.
‘Think Big’ referred to a bundle of energy-related projects promoted by Robert Muldoon’s government in the late 1970s. They were intended to save on imports and remove dependence on agricultural products. Several projects involved the use of Māui gas, which was used for methanol, ammonia-urea and synthetic petrol. The oil refinery at Whāngārei, the Tīwai Point aluminium smelter and the steel works at Glenbrook were extended, and there was electrification of much of the North Island main trunk rail line. With the fall in the world price of oil in the mid-1980s the programme proved less successful than promised.
Diversification: the 1970s
With the staple export of ‘processed grass’ under threat, the New Zealand export sector diversified into horticultural, forestry, fishing, energy exports, tourist and other services, as well as general manufacturing (mainly to Australia). Meanwhile, more sophisticated farm exports added value – for example, wool carpets were being produced. The new products also meant new markets, an effect reinforced when Britain joined the European Union in 1973, blocking off the traditional markets. It has been calculated that between 1965 and 1980, New Zealand achieved the greatest external diversification of all rich OECD countries, both by commodity and destination concentration. Nevertheless the exports remained specialised, and not all efforts succeeded. The Think Big idea of using gas from the Māui field as the basis for a petrochemical industry largely failed when the price of oil fell in the mid-1980s.
Liberalisation: the 1980s and 1990s
Changing global conditions meant that the high degree of government intervention was becoming ineffective. New lifestyles and greater social heterogeneity challenged old ways. For example, as women joined the workforce, the restricted shopping hours became unrealistic.
There were cautious changes up to 1984, such as the Closer Economic Relations initiative with Australia. But a new government in 1984 and another in 1990 unleashed vigorous liberalisation, promoting a freer market economy. Government withdrew from many businesses, tariffs were lowered, the currency floated. Some reforms were extreme and were later reversed, but the general principle of the market mechanism remains at the core of New Zealand economic policy.
An architect of change
‘Rogernomics’ was a term used by New Zealanders to describe the dramatic liberalisation of the economy which followed the election of a Labour government in 1984. The name derived from Minister of Finance Roger Douglas, considered by many to be the major force behind the controversial initiatives.
An unfortunate by-product was that for a time the economy stagnated, with per capita gross domestic product falling in the late 1980s and early 1990s. Another consequence was that manufacturing based on the desire to avoid importing components, such as car assembly, almost completely closed down.
The economy in the early 21st century
From the mid-1990s the New Zealand economy began to expand, and its gross domestic product (GDP) has grown a little faster than the OECD average. There are many possible reasons – the great diversification of the 1970s, the liberalisation of the late 1980s and 1990s (although some of the most extreme measures were reversed after 1999), prudent economic management, and export price gains from the reduction in world agricultural protection following the ‘Uruguay Round’ settlement of 1986–94. Whatever the reasons, New Zealanders know they will have to work hard, invest shrewdly, innovate creatively, and manage wisely to maintain a high standard of living and an improving quality of life.
A Brief History of the Māori Economy: How Things Change
Presentation to a Statistics New Zealand Seminar, 23 February, 2021.
Māori involvement in the economy has been an integral part of New Zealand’s story, even if we ignore the first 500 years when there was only a Māori economy. Unlike many of our histories, Not in Narrow Seas does not. There are about 40,000 words on the topic – a book in its own right – beginning with the societies that our first Polynesians came from. My book does the same for the British and Pasifika immigrants, because each migrant wave brought its cultural baggage for instance, the first proto-Māori shelters were modelled on their island equivalents.
The book calls them ‘proto-Māori’ because the first arrivals were not Māori but evolved into what today we call ‘Māori’. The answer to where Māori came from is ‘Aotearoa-New Zealand’. Their ancestors came from East-central Polynesia – say near Tahiti – and can be traced back to near Xi’an in inland China. No, they were not Chinese, but a different people who worked their way to the coast about 5000 years ago, learned how to sail and eventually explored most of the Pacific.
There is a lesson here central to the book. Māori proved to be a very adaptable people continually evolving as new opportunities and challenges arose. The European tradition recalls the Duke in the novel The Leopard, telling his nephew ‘If we want things to stay as they are, things will have to change.’ Māori have a parallel whakatauki ‘Me whati te tikanga, kia ora ai te tikanga’ there are times when tikanga (practices) needs to be broken for tikanga to survive.
Adapting means the present and future will be different from the past. We should not impose our current preoccupations onto the Māori past, a particularly tempting exercise where there is no written record.
The Origins of Māori
For instance, we do not know how the first arrivals 700 years ago, reacted for they came to a land mass far in excess of anything they were familiar with elsewhere in Polynesia. Yes, they ate moa but the evidence from the middens is they depended on fish, as had their Pacific Island ancestors, and continued to do so for the next 500 years.
In their sort of economy, about 80 percent of economic effort was devoted to feeding themselves – compared to, say, 10 percent today. Then the seas and shores were rich in fishes. The nutritional challenge was adequate energy – not protein. In the north it came from kumara, in the far south it came from seal blubber. That is why there were fewer Māori in the middle of the country.
There are many intricacies in their story – climate change has a role in at least two ways – but the basic economy was affluent there was probably a lot of leisure time except in the peak season. Hapu were largely self-sufficient. There was trade among them but generally it was for what amounted to luxuries. Their life expectancy was lower than today, but similar to the most robust European societies,
The rules for this exchange were rather different from today’s commercial format which focuses on the value of the product being exchanged, not those involved in the exchange. In traditional gift exchange economies the focus was on those involved in the exchange rather than the product.
The First European Impacts
Yet when outsiders turned up, Māori proved adept at bartering. The very first exchange – between Cook’s Endeavour off the Hawkes Bay shore and the waka that came up to investigate them – is instructive. Māori at the time were neolithic – that is, they used stone tools and gardened – although, as I have indicated, they were a sophisticated society. They proved much less interested in the iron nails Cook’s officers offered for fish, and more in the tapa cloth that the seamen did. However, by the time Cook got ashore, Māori had got the hang of metals and the spikes had become very attractive. We’ve just seen two adaptations. First, from gift exchange to barter and second, the introduction of new technologies.
Exchange involves two sides – two perceptions. In the early exchanges between Māori and visitors, the differences were large, quite unlike the equilibrium market transactions of economic theory. For instance, ‘the natives [were] eager to exchange a 10lb fish for a ten penny nail’ in 1815. The report has a European perspective that Māori were exchanging something valuable for something cheap. But they would have seen the value imbalance the other way around: as a part of a normal day’s catching, the fish probably cost them minutes rather than hours of labour. A metal implement was far more efficient – labour saving – than a stone one.
One of the complications of trying to understand the Māori economy is the very rapid change following the European impact. For instance, the missionaries brought literacy for Bible reading by the middle of the nineteenth century Māori were probably more literate than the Europeans. Europeans also bought diseases – dysentery, influenza, measles, STDs, whooping cough – to an immunologically virgin population. The resulting mortality and infertility seems to have resulted in a greater reduction of the Māori population than the fighting of the nineteenth century certainly it had a greater impact than the 1918 influenza or today’s covid pandemics.
The impact of new technologies was also mixed. To focus on just one – the musket – to illustrate how we can misleadingly impose a contemporary frame on a historical event. The Musket Wars – from 1820 to 1835 – were devastating and caused considerable death and turbulence to Māori society. It is from them that the latter-day perception of Māori as warriors arises. But it is not obvious that, before the musket, the inter-hapu fighting was particularly vicious. The fighting would have been hand to hand and the weapons not too destructive perhaps they were a bit like rugby matches, with similar injury rates and exaggerated memories of conflict.
The musket transformed the affray it was a bit like arming one team in a rugby match with flick knives, although hand-to-hand fighting became less important. Eventually, both sides became armed and by the mid-1830s Māori were looking for ways to reduce the tensions – that was a role of James Busby, the first British resident.
So were Māori a warrior culture? Possibly not, unless you think rugby is about war. While I do not want to minimise their warrior contributions in the twentieth century, recall that it is said of all New Zealanders – brown and white – that they were slow to wrath but stern in battle. Does that make us a warrior nation?
For another example of how easy it is to impose the wrong framework, consider how early relations between wahine and European males have been described as ‘prostitution’. However, the contemporary reports – and indeed most subsequent comment – evaluate the exchange from a (typically judgmental) European perspective. Almost certainly, Māori had a different account. We have very few indications of what the women’s attitudes were but one wahine had tattooed on her arm the name of each seaman she stayed with, which is hardly what a conventional prostitute would do. Perhaps the notion of ‘seasonal wives’ may be a better place to begin.
So the two peoples struggled to come together often with misunderstandings. Perhaps the greatest one was over land. It is a long story and takes up some space in the book. To summarise, after a generation of Māori bartering food and other resources for their commodities, it might have seemed obvious to Europeans, coming from their commercial backgrounds, that Māori would treat the exchange of land rights in the same way. But for Māori, land was very different from fish or nails it was a taonga. Cook regretted that he was unable to acquire other taonga, a greenstone mere. In return, Cook refused to give Māori guns.
Land belonged to this latter non-tradeable category. This may seem antiquated today or does it? If someone wants to export – that is, exchange with a foreigner – food or manufactures, we applaud their enterprise. But if someone wants to exchange (sell) land to a foreigner, as likely as not they will require permission from the Overseas Investment Commission.
To summarise thus far the two salient lessons. First, Māori proved remarkably adaptable to the new circumstances although they did not always get it right at first. Second, we must be careful not to impose our understandings – and misunderstandings.
The Arrival of the Commercial Economy
Māori proved adept at getting involved in the commercial economy, supplying settlers and provedoring visiting ships. Initially they kept some Māori ways of doing so, working in community groups and distributing the proceeds according to customary practices, say the way they allocated fish from an expedition.
However, there were various economic problems in the early exchanges. One was that the new technologies could require management outside their experience. For instance, they were horticulturists and not agriculturists. So they failed to introduce new seeds each season and so over the years the grains they harvested became infested with weeds. A second was that they built up stocks to supply ships, but when the ships did not come because of a commercial downturn in Europe, they found themselves overstocked with no buyers.
More subtly, they became major suppliers of European settlements. But the Europeans were borrowing offshore to establish their settlements and fund purchases from the Māori. This was unsustainable and the settlements had to turn to supplying themselves, thus reducing the demand from Māori.
At a very early stage then, the New Zealand economy faced today’s problems – the vagaries of the global economy and the risks of depending on overseas borrowing. Welcome to the globalised world.
I skip through the New Zealand Wars, except to mention a major misunderstanding. I was taught that they, then called the ‘Māori Wars’, were a conflict between ‘them’ and ‘us’. In fact Māori fought on both sides. It is not helpful to describe those on the Crown side as ‘loyalists’. There were deep political divisions in Māoridom and sometimes that led to warfare in which the Crown was involved almost as an adjunct.
Even so, the wars are an uncomfortable period in New Zealand’s history. They are associated with the confiscation of land but the whole story is more complicated.
The settlers were hungry for land recall Edward Gibbon Wakefield’s advice: ‘Possess yourself of the Soil and you are Secure.’ Before European arrival, Māori had possessed all the land but eventually most of that land came into European hands by fair means and by foul. Forgive me for skipping the details – the book does not – but as important as the change of ownership was, the mode of land tenure also changed Māori and English land tenure regimes were quite different.
English common law on ownership of land is based on William the Conqueror’s feudal doctrine that the sovereign was the absolute owner of all land and all others held interests directly or indirectly from her or him. The Saxon regime before him had been allodial (absolute) ownership those who owned the soil had no obligations to any higher authority. Māori ownership was closer to the Saxon doctrine. The British settlers, not understanding this, insisted on imposing the feudal regime which applies in today’s New Zealand.
Because land is integral to a society, the transfer of regimes – usually involving the individualisation of title – disrupted Māori society, changing it from a communal one to one which was more individualistic. Such a change may have happened anyway. The market economy is a ruthless individualiser, an issue with which Not in Narrow Seas is preoccupied.
The End of the Nineteenth Century
By the end of the nineteenth century, then, the typical Māori was on their own bit of land although they would have continued a rich social life based on whanau and marae. Little of their land was of high quality but, even more important, it was poorly connected to the market economy, since roading development was skewed towards linking up Pakeha farmers with ports.
Even more disastrously, the land was in the wrong places. We have to go into Pakeha economic development to explain this. Increasingly, from the middle of the nineteenth century the economy was founded on sheep – first wool and then, from 1882, frozen meat. (Dairy became important at the beginning of the twentieth century.)
The indications are that Māori could have become successful sheep farmers. However, the majority of them did not live on land where sheep prospered. In about 232CE – before there were any humans here – the Taupo super-volcano erupted. It was a huge one, the most violent known in the world in the last 5000 years. The caldera is Lake Taupo. Its ash, which fell mainly to the east and the north, lacked key trace elements needed for livestock to thrive, while the new course of the resulting Waikato River left swamps through the Waikato basin.
Because of bush sickness and footrot, sheep farming was not practical north of Taupo. It was incredibly bad luck that the majority of Māori lived in this area and so they were cut off from the sheep boom to the south. Thus they did not go though the economic transformation that Pakeha did.
For the early parts of the nineteenth century European small farms – excluding the great sheep stations which were almost feudal estates – were largely in a subsistence mode of production and consumption. They sold a little produce from the farm but largely consumed what they produced often their cash flow came from the men labouring off the farm so it was the women who ran the farm assisted by their men doing the heavy lifting.
Refrigeration changed this. You can track it in farm diaries. As the opportunity of farming crossbred sheep arose, the men moved back to the farms, which became more productive and more commercial, fully joining the cash economy. Thus evolved the family farm which was at the core of New Zealand’s political economy for a century.
Where they were on land where sheep could not thrive, Māori farms did not have that transformational opportunity. Six decades after the advent of refrigeration, Apirana Ngata observed that
‘There are Māori communities which are satisfied to live on minimal reserves, where they grow the vegetables they require, from which they make seasonal excursions into the labour field to obtain the minimum resource for the purchase of clothes and food, and where they rusticate [live a country life] between periods of employment.’
That was in a book, The Māori People Today, which is both an invaluable description of the state of Māori in 1940, and yet fails to forecast their future. For while its contributors were some of the most informed people of the times, they included no demographer and so did not see that while Māori were then mainly a rural people, the land they were on could not sustain their burgeoning population, especially if Māori farm productivity rose to Pakeha levels. After the war, there would be the great Māori migration into the cities, which is described in Not in Narrow Seas, and also in my Heke Tangata.
Heke Tangata: Māori Urbanisation
There had been some movement of Māori to the cities in the interwar period but it was a trickle compared with the flood of urbanisation after the war. Māori were 71 percent rural in 1951.By 2013 only 15 percent of Māori lived in the countryside. Around 10 percent of Māori lived in the main cities in 1926 by 2013 this proportion had grown to 66 percent, not too different from the non-Māori figure of 75 percent, which had crossed the 50 percent threshold before 1926.
There was both a push and pull to the great migration. Māori were pushed by the lack of opportunities in the countryside and pulled by the opportunities in the cities. Typically, those urban opportunities involved low and general skills but as the economy evolved towards high and specific ones – a trend which seems to have accelerated from the mid 1960s – opportunities for Māori became less available.
Māori were ill-prepared for urban living. They had little wealth to bring with them and they lacked education. Rural education tends to be inferior to urban education, but The Māori People Today was adamant that Māori rural education was even worse. The required skills for countryside farming, fishing, hunting and labouring are not those which schools teach easily. Modern education arose because industrialisation and urbanisation required literacy and numeracy. (Interestingly, Māori women seem to have adjusted to the urban economy better than men – presumably reflecting different skill sets and demands for female labour.)
It was a vicious cycle. Because a critical element in educational attainment and employment prospects is the transmission between generations, underqualified and underemployed parents means underqualified children who as adults have lower incomes and poorer employment prospects. Society needs to make an enormous effort to break the economic cycle. New Zealand did not.
You see this in the unemployment statistics where, even today, Māori do worse. I report the inferior employment a little differently from the conventional approach which looks at the unemployment rate an unemployed person is without a job but actively seeking one. That excludes the discouraged who are jobless but do not seek work because hard experience has shown that they are never successful. One of the ways of avoiding the psychological trauma is to give up looking.
To allow for such discouragements, my Heke Tangata looked at the employment participation rate: the proportion of those in a group who are in employment. Its complement provides a measure of all those who are not employed but might be, whether they are actively seeking work or not. (Various caveats and complications are reported in the book.)
Because of the different age structures of the various ethnic groups, it is better to compare the employment rates by cohort. Here is a tabulation: (Unfortunately there is no data by gender and age together.)
Employment Participation Rates by Age and Ethnicity (Percentage), 2013
65 years and over 22.1 26.2
TOTAL 62.3 56.5
(Source: 2013 Population Census)
The table shows that the employment rate for Māori is almost always lower than for everybody. In total it is about 10 percent lower – allow for age composition and it would be higher. This is a better indicator of the difference in relative unemployment rates between Māori and the population as a whole. The census reported rates were 10.4% for Māori and 4.8% for all, a difference of only 5.6 percentage points. However, if we allow for lower employment participation of Māori the difference is not quite double that. (The higher participation rate for Māori over 65 years old probably arises because they have lower levels of occupational superannuation and retirement savings, and Māori elderly are younger.)
The evidence is that there has been a very slow socioeconomic convergence between Māori and Pakeha. If the trend continues it will be decades before they will be close to equality.
The Meaning of Māori and Pakeha
However the meaning of Māori and Pakeha will be very different by then. Indeed, as a consequence of urbanisation, that is already happening. ‘Māori’ no longer has the meaning that it had when they were primarily a rural people.
This is nicely captured by a decision that Statistics New Zealand made in the early 1980s. Up to then, it had used what was jokingly called a ‘hydraulic’ definition: the proportion of Māori ‘blood’ (or descent) compared to proportion of non-Māori ‘blood’. This objective descent measure has been replaced with a subjective ethnicity measure of how an individual wishes to describe themselves. People often mix the two notions up but formally, data is usually collected on an ethnicity basis. (The Population Census asks a question about people’s ethnicities, although there is also a question about Māori descent – but for no other descent group. This is necessary for calculating the number of Māori electorates subjective ethnicity would be impracticable for legal purposes.)
New Zealand artist, Peter Robinson, confronts us with the problem when his works displays ‘3.125%’ That is one thirty-second and referred to the fact that one of Peter’s thirty-two great-great-great-grandparents was Māori. At the time – he was in his late twenties – Peter was being provocative about racial issues, ethnicity and identity. Not wanting to be pigeon-holed as an identity artist he has moved on, but the figure leads one to muse about how he, or someone like him, might classify themselves.
Presumably Robinson ticks the ‘Māori descent’ box in the census, but what might he do to the ethnicity question: ‘Māori’? ‘Pakeha’? or both? About half of those who give a Māori ethnicity also give a second one. Let us call those who tick both boxes ‘Māori-Pakeha’ to distinguish them from sole Māori who tick only one. (A few tick other ethnicities such as Māori-Pasifika.) In which case those of Māori-Pakeha ethnicity would be our third largest ethnic group they may be second largest in 2023.
A person of one thirty-second Māori descent may choose to register on the Māori electoral roll or he or she may not. Only about a half do.
Once we move outside the statistical data base, our knowledge is even murkier about what – and how – people classify themselves. Some may do so differently in different circumstances and their classification may change over time. For instance, the Health Inequalities Research Programme at the University of Otago’s Wellington School of Medicine found that the ethnicity on a death certificate did not always correspond to the census-reported ethnicity. The discrepancy was sufficiently large to modify some of their findings.
One further research finding which adds to the puzzle is from comparing socioeconomic status between those who report ‘sole Māori’ and those who report ‘Māori-Pakeha’. Here is an example using employment participation rates by ethnicity and gender. The female participation rates are just over 10 percentage points below the male ones for all ethnicities. The ethnic differences are much the same as in the earlier table although the data comes from a different source.
Employment Participation Rates by Ethnicity and Gender (Percentage), 2007/17
(Source: Household Labour Force Survey, average 2007Q4–2016Q2)
Strikingly, those who classify themselves as ‘Māori–Pakeha’ have employment responses similar to Pakeha. They may be slightly higher because of different age profiles. (The database does not allow us to explore this.) One is left with the uneasy feeling that subjective ethnicity may be influenced by objective socioeconomic characteristics.
What we cannot be sure of is how these definitional issues play out. But evidently there is a disconnect between the public perception, which is still too dependent upon the rural Māori of a century ago, and the reality of a socially and economic diverse urban population, as survey responses show.
This paper has travelled over some 700 years. It is a story of Māori economic development evolving of tikanga being broken in order for tikanga to survive. Māori have adapted to new opportunities in difficult circumstances extremely well. But the urbanisation of the last half century has proved a challenge which has not been fully met, in part because it has happened so rapidly but also because the nation was so unprepared for it.
Too often we impose our uninformed prejudices on Māori prejudices which are often based on historical misunderstandings and do not allow for Māori adaptation. Māori are not living fossils but, like Pakeha, evolving and adapting. We need to keep our thinking evolving and adapting too.
Growth and Depressions in New Zealand’s Economic History
I originally said I would recycle the paper It’s the Same this Time? which I gave in November 2008 shortly after it became evident to everyone that the world economy was about to enter a severe recession – if it was not already in it. At that time some people were trying to draw comparisons with earlier downturns. Most of them had little economic history and, other than a vague notion there had been the ‘Great Depression’ of the 1930s, were depending on their experiences of the last decade or so, when there had been business fluctuations which seemed mild in comparison to what this one seemed likely to be.
That is why the earlier paper began with a discussion on the post-war business cycle. To cleanse the young’s minds from the view that this was the only kind of fluctuation that this time – 2008 and after – it was going to be different..
The paper’s title, ‘It’s the Same this Time?’, refers to what are said to be the four most dangerous words in banking ‘this time it is different’. My conclusion was ‘yes this time it is the same yes, this time it is different’. I cannot simply recycle the paper because it is too long. Moreover in the fifteen months since I gave it, I have collected more evidence and had more time to think about the issues. In November 2008 we were scrambling around, even for those of us who had been expecting a severe downturn for some months – in my case since August 2007.
Even then I was aware of a couple of ambiguities in the paper. I omitted discussing the case that the whole of the period from 1920 to 1935 was one of depressed conditions with the Great Depression at a desperate end. One might argue the same story for the Long Depression which became particularly desperate towards the end when the Auckland economy joined southern New Zealand following the Australian economy – to which Auckland was linked – going into a downturn in the late 1880s. And one might want to draw the same conclusion about the growth retardation from 1966 with the Rogernomics Recession again the more difficult phase at its end.
Regrettably there is a question of terminology – what constitutes a depression and what constitutes a recession? Leaving aside the use of the recession term as a phase of the traditional business cycle perhaps we might call a long shallow depression a ‘long recession’. That would mean there has been only one depression – in the 1930s – so its adjective ‘great’ is redundant.
While this might seem to be a matter of words, but it affects the way we think and make comparisons. It may be that we are wrong to chop up the economy into depression and recession periods on one hand and times of prosperity on the other. I have considerable respect for the Schumpetarian view that the boom and bust are intimately connected. That might tell us something about the current downturn, that it is a reaction to the long boom of the 1998 to 2008 period, with the significance that it might presage a longer downturn or recession, sometimes summarised as the L outcome.
Long Term Growth Trends
Difficulties with data complicate linking booms and busts in New Zealand. Properly estimated official volume aggregate output (GDP) figures go back only to March year 1955 There are nominal estimates derived from incomes and output going back to 1919, which can be converted into volume figures by using an output deflator. Before then – back to about 1860 – the nominal output figures are synthesised from money multipliers and converted into volume output using the consumer price index. Angus Maddison uses estimates derived this way by Keith Rankin.
Recently David Greasley and Les Oxley have been estimating volume of output in the pre-official period using individual sector outputs based on volume of production indicators. Thus far they provided estimates for only some sectors. With the addition of the service sectors New Zealand may well have reasonably reliable output series back to 1870.
So at the moment we have two unsatisfactory series of GDP per capita. Fitting a polynomial to them gives two different accounts of the long run trend of New Zealand, although they both recognise the Long Depression of the 1880s and the Great Depression their accounts after 1955 are similar since they are using the same data.
The Maddison-Rankin Series.
The Maddison-Rankin data trend line in per capita GDP might be interpreted as follows. While there is little evidence of economic growth in the nineteenth century, and evidence of a shallow ‘Long Depression’ to 1895, after that New Zealand goes into a long growth upswing, despite various recessions and depression.
Perhaps the series tells a story of a Rostovian take-off into sustained growth. If so, the key to the takeoff is not the one described by Rostow of institutional change generating sustainable growth. Instead technological innovation had refrigeration opened up the shipping of meat and dairy products to Britain supplanting the nineteenth century economy of wool to the south and quarrying to the north. Wool remained the most important export by value but it was now a joint product with sheep meats.
The trend line shows a climacteric in the 1960s, with a slow down in the economic growth rate, presumably as a result of the fall in the structural price of wool in 1966. The slower trend after that has various fluctuations around it. The economy seems to run above the long term trend in the 1998 to 2008 period although we need some further observations before we can decide whether that was a fluctuation or there was a growth recovery.
As someone who has argued the case that there was a structural break in the New Zealand economy when the wool price fell in 1966. I am not uncomfortable with the notion of the climacteric, although I did not envisaged it before I looked at the Maddison-Rankin series.
A climacteric adds to the difficulties of the conventional wisdom sustaining its account of the reasons for New Zealand’s relatively poor quality economic performance in recent decade. However the conventional wisdom has never been strong in economic history.
The Greasley-Oxley Series.
The Greasley-Oxley series covers the 1870 to 1939 period so it tells the same story afterwards, although its climacteric in the 1960s is not as strong. A complication of the series is that while it is is based on outputs rather than money multipliers, it currently covers only the primary and manufacturing sectors, and it is possible that when the service sectors are added the growth pattern may appear a little different (although various tests I have applied suggest that it will not). A more serious problem is that it has yet to incorporate the wool inventory build up during wool during the First World War (although I have made some very crude adjustments).
There is no Rostovian ‘takeoff’ in the Greasley-Oxley series, or – what amounts to the same thing – there are two. Again there is an evident lift in economic performance from 1895, but this time the growth boom seems largely exhausted sometime in the 1905 to 1910 period. After that there is little substantial economic growth until the late 1930s. The interwar depression might be seen as an output plateau, ending in the Great Depression.
The Greasley-Oxley GDP per capita is about 30 percent higher in 1900 than the Maddison-Rankin. By 1939 they have to be at the same level, so the Greasley-Oxley series is going to grow markedly slower – say about half the long term rate – than the Maddison-Rankin one. So it does not show the takeoff. (Part of the divergence may be explained if the sectors G-O omits grow faster than the commodity sectors.)
There has been little enough research on the economy in the early twentieth century to do other than hazard some hypotheses to explain the Greasely-Oxley series – assuming that the plateau of the economic stagnation from 1905 to 1935 is not a statistical artefact, Among the hypotheses are
– New Zealand farming had exhausted the available land which had been extended as a result of refrigeration
– there were no significant technical changes
– the manufacturing sector never took over as a significant engine of growth
– there was market saturation in a slowly British market.
Such possibilities have to be addressed – and the Greasley-Oxley series will be improved. In the interim we must be cautious as the pattern of long run economic growth in New Zealand.
Recessions and Depressions in New Zealand
Recessions and depressions are a monetary phenomenon, so while no doubt the pre-market of the Maori had it fluctuations, they were due to natural shocks. There were fluctuations in the market economy before 1870 but there are poorly quantitatively tracked and probably all the result of external shocks. I am also going to omit discussion on the shorter business cycle fluctuations – those we might characterise by a V.
That leaves five longer New Zealand recessions or depressions for comparison purposes:
– The Long Depression approximately 1878-1895
– The Interwar Depression which ended in 1935 but may have started as early as 1905
– The Great Depression from 1929 to 1935, which was the tail-end of the Interwar Depression.
– The Post-climacteric Recession, (the ‘Third Great Depression’) from 1966 to 1994
– The Rogernomics Recession from 1987 to 1994, which was the tail-end of the Post-climacteric Recession.
There is some overlap, so I am going to confine the comparators The Long Depression The Great Depression and The Rogernomics Recession. I now briefly describe each.
The Long Depression of the 1880s
Following the failure of the City Bank of Glasgow in October 1878, and three further bank collapses in December, there was a tightening in the London money market. New Zealand had spent the previous decade relying on borrowing in London to support the Vogel boom. The tap was turned off and there was a credit contraction. Trading bank advances, which had almost trebled between 1870 and 1879, fell 15 percent in the following year, and while there was some subsequent growth, New Zealand struggled through the next decade in ‘The Long Depression’.
There are two other elements crucial to this story. First, wool prices had been falling since 1873. So while the Long Depression was precipitated by a monetary crisis overseas, the independent terms of trade deterioration compounded the misery. Second, there had been land speculation in the 1870s, and land prices were out of line with the returns from farming them. Owners were thus saddled with excessive interest payments on overvalued land (and falling output prices). Banks were faced with the dilemma of carrying such owners and some banks failed with the New Zealand Government bailing them out.
Factor and product prices were flexible in those days, and there was a general lowering of price levels. However debts are usually set in fixed nominal terms, and so are inflexible. One of the greatest problems in each depression has been how to realign debts with actual prices sometimes bankruptcy is the only option.
The Great Depression of the 1930s
New Zealand had entered the Great Depression with excessive debt, and the fall in both export and import prices disrupted the relationship between external and internal prices, and hence debt and domestic prices. Because the prices were relatively inflexible downwards (and debt values perhaps moreso) markets adjusted with falling output and rising unemployment.
Much of the policy activity of the period was to re-balance relative prices. This realignment of nominal price relativities is central to a sustainable Keynesian expansion. The conventional account of New Zealand in the Great Depression is based on a simple model in which a single commodity can be expanded and contracted by demand management. However an open economy must have multiple commodities, for otherwise it would not be necessary to export and import. A multi-sectoral analysis in which the relative prices between sectors and the debt they carry is a critical part of the story of the Great Depression. Fortunately the economist advisers of the 1930s grappled with it.
The Rogernomics Recession 1986-1994
The Rogernomics recession came at the end of the long adjustment to the climacteric of the 1960s. Per capita output fell every year between 1986 and 1994. Unemployment exceed 10 percent of the labour force between March Quarter 1991 and June quarter 1993 peaking at 11.4 percent. This was probably higher than at any previous time in New Zealand’s history – the Great Depression excepted – although labour market conditions were so different in the nineteenth century as to make the comparison limited.
There is no agreement as to why the Rogernomics Recession occurred. Although it is in living memory many current commentators just ignore it. In my view it was in part a working through of the climacteric, but its intensity was compounded by poor economic management – especially in regard to the exchange rate and fiscal and monetary policy which interacted with it.
Is it the Same This Time?
Table 1 compares the three substantial depressions which New Zealand has faced.
This Time 2008-
So while many of the economic mechanisms were the same, there were differences in external circumstances, terms of trade, debt and economic management. Closer inspection suggests the first two depressions/recessions had similarities, but the third was different. How do those previous experiences compare with what we are now heading into?
There is no doubt the New Zealand economy was booming in the 1998 to 2008 period. some might say it was overheated.
The a monetary crisis with weak and insolvent major financial institutions seems to have been largely resolved, but there is the concern that there will be a second phase sovereign debt crisis. Even if there is not , the monetary and fiscal authorities have to unwind the support they have been giving the financial sector and the economy as a whole. The world economy is now in recession, perhaps it is in the recovery phase although the subsequent expansion may be weak in output terms (or highly inflationary), or perhaps different in ways we cannot anticipate.
There has been some falling off in commodity terms of trade from recent high levels. Some of the falls, such as for oil, are of benefit to New Zealand. There is no reason to believe that the current export price trends are a deteriorating as they were in 1873, 1929 or 1966 (except that we might expect energy prices to rise). There is some reason to believe that the food price terms of trade may be secularly rising.
Internal Price Alignments
Assessment of the domestic price structure is complicated by the real exchange rate, which undergoes medium term cycles. The rise in the 2000s choked off export growth and tipped the New Zealand economy into a growth slowdown – even a recession – before the world recession started. The exchange rate seems to be too high, and there has to be a doubt that the export sector cannot lift the economy out of the downturn even if the world economy recovers. If it cannot, there will be parallels with the Rogernomics Recession.
Compared to previous depressions the government and the business sectors appear to have favourable debt levels. However the household sector is holding unusually high debt by past standards., largely secured against over-priced housing, although there is some consumer debt with little security except that the consumer is employed. Most is owed to banks. Insofar as they are protected by the Reserve Bank, the private sector debt becomes a public sector problem.
While most consumer debt is legally secured against housing, it is largely serviced from labour earnings. As long as unemployment remains tolerable, the housing debt problem is manageable for most individuals, although there are some who are over-borrowed against their human capital. The macroeconomic challenge may be whether New Zealand can rollover its international debt at reasonable cost.
The banking system seems sound, but there have been collapses in the non-bank financial sector, a little reminiscent to what happened to some banks in the Long Depression, except there have been no government bailouts. There is a worry that some framers have paid too much for their land and carry too much debt – shades of the Long and Great Depressions.
Government Macro-economic Management
Its current quality is too soon to tell.
Table 2 puts the previous sections discussions in the context of Table 1.
As I said, I finished the original paper with ‘Yes this time it is the same yes, this time it is different.’ While nothing has happened in the last fifteen months to revise this assessment, additional pondering suggests that the Long Depression may be the best comparator with the current downswing. The difference, which may save us from the prospect of a 17 year stagnation, is that 125 years ago there was a parallel European long depression (but not an American or US one). We may hope that this time the world economy will soon be stronger.
The Treasury is the Government’s lead economic and financial adviser, providing strategic advice on the current and future New Zealand economy. Its role is to help the Government achieve higher living standards for New Zealanders.
The Treasury focuses its efforts in a number of key areas that support the Government’s goals and have a positive impact on the lives of New Zealanders. These outcomes – economic performance, macroeconomic stability and state sector performance – are closely linked and reflect the issues that the Treasury considers most important for economic growth – enhancing productivity growth, maintaining fiscal stability and lifting the performance of the state sector.
Stronger economic performance is ultimately about an economy that is growing consistently and sustainably to support higher living standards for all New Zealanders.
The Treasury has the unique ability to provide an overall perspective on economic growth by incorporating analysis of institutions, macroeconomics, microeconomics, and the economy as a system, complemented by the contribution of other government agencies.
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Expanding trade and cultural diversity
Britain was an important and assured market for our farm products. But when Britain joined the European Economic Community (EEC) in 1973, New Zealand lost that important market. This was a blow to our trading community and to the country.
Luckily, New Zealand had already begun diversifying its export trade. So when Britain joined the EEC, that event encouraged New Zealand to widen its outlook. We now sell our farm goods and many other exports to a wide range of countries.
New Zealand has become a culturally diverse country. Particularly from the 1980s, a wide range of ethnic groups have been encouraged to settle here and New Zealand is now much more multicultural.
According to data from 2013 national Census, 25% of people living in New Zealand were born abroad, 15% are Māori, over 12% are Asian, and over 7% are from Pacific Island nations. Hindi is the fourth most common language in New Zealand, after English, Māori and Samoan.
- Region: Pacific
- Population: 4.8 million (2018)
- Area: 268,000 square kilometres
- Capital: Wellington
- Joined Commonwealth: 1931, under the Statute of Westminster
- Commonwealth Youth Index: 3 out of 49 countries
At a working session in April 2019, the Secretariat helped New Zealand parliamentarians share lessons with other countries in the Pacific region on human rights issues.
In March 2019, the Secretariat helped New Zealand learn about using the United Nation’s Universal Periodic Review (UPR) process to develop the human rights of minority groups.
In April 2018, the Secretariat partnered with New Zealand to help create a central securities depository (a specialist financial organisation to hold securities such as shares) in Fiji. It also helped fund the conversion of Fiji’s bonds to electronic format.
In March 2018, in Durban, South Africa, New Zealand worked with the Commonwealth to improve connections with trading partners. They investigated reducing physical barriers to trade – for example, by improving infrastructure.
New Zealand champions the Ocean Acidification Action Group. The Action Group held its first meeting in February 2019 with a three-day workshop led by the government of New Zealand.
More than forty-five participants, including experts, scientists and Commonwealth marine officials met to explore the impacts of ocean acidification and strategies that policymakers can to use to address the growing issue.
New Zealand is also a member of the Commonwealth Clean Ocean Alliance – the Blue Charter Action Group on tackling marine plastic pollution..
New Zealand is a member of the Physical, Digital and Regulatory Connectivity clusters of the Commonwealth Connectivity Agenda. The Connectivity Agenda is a platform for countries to exchange best practices and experiences to trade and investment and undertake domestic reform.
A brief history of economic self sufficiency in New Zealand
In this series, Sharesies is getting Auckland-based columnist, author, and speechwriter David Slack to deep-dive into the New Zealand economy — sharing stories from the past and exploring possibilities for the future.
ANALYSIS: The idea sounds improbable in hindsight. Down here in the South Pacific, as far from London in a leaky boat as it’s possible to go, we decided to make a living out of growing food for Britain. But it worked. We would send them lamb, and butter, and wool and other goods that would have been familiar to the Romans. They would send us money. Our little nation at the far end of the world steadily grew.
Over time, we would lose customers and scramble to find new ones, but we kept on growing, and now, here we are, 5 million souls and a GDP (gross domestic product) of $300 billion. Through it all, the fundamental scenario has remained more or less the same: down here at the bottom of the world, we make a living from turning grass into something the world might buy.
What could possibly go wrong? From time to time, the world economy shows us. We’re vulnerable in the way we have been from the beginning. We’re not diversified enough to be able to just sit out a global cataclysm and fend for ourselves. We need things the world makes that we do not. Pharmaceuticals. Face masks. The new iPhone.
Most of all, right now, two vulnerabilities weigh on us.
TOURISM AND SUPPLY CHAINS
The first of those is already painfully clear. Air New Zealand has most of its fleet parked. Tourist businesses have no customers. The borders will be shut for a long time. It’s a $20 billion industry employing directly or indirectly possibly 300,000 people, and it’s more or less paralysed.
As for the supply chains, that’s more of a potential disaster playing out in slow motion. Globalisation and open borders brought us the beauty of the global supply chain. A thing could be made in one country, bringing together elements sourced from 20 factories across the world. It could be made just in time and on time, every time, right up until the day borders closed and economies shuddered as nations went into lockdown — suddenly, we are confronted with some not-great prospects.
When the doors open again, will all those factories still be there? Will those parts be available, and will there be a shipping line to carry them? In the post-Covid-19 just-in-time economy, will those packets and pallets be available when we need them? Who will supply us with masks and ventilators and PPE (personal protective equipment) if we need them?
Now that the supply chains are in question and our borders are closed to visitors, could this be a time to reconsider the notion of greater economic self-sufficiency?
SELF-SUFFICIENCY IN THE 1930s AND '40s
We have passed this way before. The Great Depression of the 1930s brought misery: vast unemployment, a world contagion of doors closing to trade, and financial collapse. If you lived through that, you naturally looked for ways to become more self-sufficient, to insulate the country from further economic harm. And so from the 1940s, New Zealand became a protected economy. The aim was to foster manufacturing of a wider range of goods and products, using import licences and tariffs to give local manufacturers a leg up and protection from competition.
How did that turn out? Pretty well, for a time. The ensuing decades saw many new factories producing many new goods: fork-lift trucks, water-jet engines, forage harvesters, Axminster carpets, wallpaper, aluminium sheet and foil, wood screws, glucose, dextrose, instant coffee, television tubes and tyres, to quote just a few from this roll-call.
Local manufacturers who are seen today as potential innovators had their beginning then: electronics company Tait, making two-way radios Clearlite Plastics making plastic products, PDL making plastic, electrical and consumer goods.
These factories were mostly small affairs by international standards, except for the ones processing primary produce — freezing works, dairy factories, and later, aluminium smelter and steel mills, and pulp and paper mills. But by the end of the 1950s, the 5000-odd factories of 1930 had grown to nearly 9000, and put on nearly 100,000 more jobs.
1950s TO 1980s
This was not a merely reflexive protectionist response. There was a long-term strategy supporting it, championed in particular by Dr Bill Sutch as secretary of industries and commerce from the end of the 1950s. Replacing foreign imports with domestic production would be an initial step towards a more industrialised, diversified economy, manufacturing not only for the domestic market but also for export, adding value to primary produce. The aim was to develop an economy of greater technical breadth and capability, supported by training, industrial design, technology and research, and infrastructure.
How well did they do? On the one hand, New Zealand went through the strongest export diversification of any OECD economy between 1965 and 1980 by product and destination. On the other, we remained lopsided, still primarily a primary producer.
The late 1970s took things a little further. Oil price shocks had brought inflation and economic turmoil. Various expensive projects were instigated under the banner Think Big with the aim of reducing our reliance on imported energy. We would use electricity and gas to reduce our reliance on oil. The projects came on stream more or less in time to see world oil prices fall and make the projects look like a vast waste of money.
CHANGES IN THE 1980s
This also coincided with the change of government in 1984 that put New Zealand into the global slipstream of free market reforms, economic liberalism and globalisation that threw open borders to let competition thrive.
Our local protectionism was now examined through a new lens: these local operations, how good were they really? Were they efficient, or were they costly and rule-bound and lumbering? Were we stuck in some kind of unionised Polish shipyard? What sense did it make that car manufacturers would disassemble a car, put the parts in a crate, and send them out to New Zealand to put it back together in a Porirua car plant? And what sense did it make to be assembling TVs and radios, or to be making shoes and clothes here, when we could be buying them for so much less from somewhere in Asia?
The arguments in favour of competition and globalisation were put compellingly Finance minister David Caygill said you could theoretically grow bananas on the side of Mt Cook with a decent glasshouse, but that didn’t mean to say you should.
Arguments in defence of the self-sufficiency of our economy or the protection of jobs were trumped by arguments about competition making us more prosperous. If someone could offer those products or services at a better price, we should let them do that and play to our own competitive strength.
And so from 1984, import licensing was dismantled, subsidies removed, and tariffs progressively reduced. Many factory industries struggled to compete, and folded.
What were left, in the end, were chiefly export-viable manufacturers: in plastics organic chemicals paper and paper products electrical and electronic goods and machinery. This might be the place to first ask about the possibilities of expanding local manufacturing.
Those changes of the 1980s carried us into the current settings of free market and comparative advantage, and extensive and elaborate global supply chains.
Life’s enduring lesson is that in curing one problem, you often create fresh ones. Have we made ourselves too dependent on a world from which we can be cut off? Has the pandemic demonstrated to us that certain goods and services matter too much to ever be out of reach?
If we cannot ever hope to be entirely self-sufficient, would it not at least make sense to secure a greater degree of self-sufficiency than we currently have?
If the wait for a vaccine could be long, could it be time for us to explore the possibilities for securing a greater degree of self-sufficiency, if not within New Zealand, then at least in a common market with Australia, for manufacturing in the immediate vicinity and for a shared tourism market? And how might that work?
In the next of this series, David Slack will explore what self-sufficiency in New Zealand might look like in the short term.
This content from Sharesies has been reproduced with permission.
Economic crunch: Here's what past recessions can teach us
ANALYSIS: Tough times are here. New Zealanders are facing up to an economy in recession which shrank by 12.2 per cent in the three months to the end of June.
Tens of thousands of households and businesses are struggling to pay their mortgages, overdrafts and bills, but history shows coping with the rigours of recessions, depressions and economic shocks is something every New Zealander should bank on doing fairly often in their lives.
New Zealand has around 34,000-odd people aged over 90, and the parade of recessions, depressions and shocks they’ve experienced makes for sobering reading.
Kiwis enjoying their 10th decade of life experienced the Great Depression of the 1930s, the Wool Bust of the 1960s, the two oil shocks of the 1970s, the self-inflicted recession of 1991-92, the Asian Crisis of the late 1990s, the global financial crisis in 2008, and now the Covid-shock.
Independent economist Shamubeel Eaqub believes we have learnt a lot about how to respond to recessionary periods, though we are no better at preventing them from happening.
“There will always be recessions,” he says. “Human systems tend towards chaos. We go to the brink, and pull ourselves back. The economy is organised chaos.”
Part of the reason we are so bad at predicting, and preparing for recessionary periods is that no two of New Zealand’s recessionary periods in our history have been the same.
In 2008, with the global financial crisis raging, economists Michael Reddell and Cath Sleeman produced a paper for the Reserve Bank walking through past recessions.
The pair produced a table of the characteristics of the recessionary periods, and no two shared the same characteristics.
Every recessionary period was a new experience for politicians, public, and business, and Covid-19 is no different.
Economist Brian Easton, the author of Not in Narrow Seas: The Economic History of New Zealand, believes it’s unhelpful to look at New Zealand’s past recessions and depressions in a bid to understand the Covid recession, or model its likely recovery.
Even comparing the scale is hard, as historical data is often patchy and weak.
In his history of the Great Depression, The Broken Decade, Malcolm McKinnon said it was difficult to even know how many people were unemployed with estimates of male worker unemployment ranging from 13.5 per cent to 28 per cent.
Even today the data is not perfect.
Easton is not convinced that New Zealand’s 12.2 per cent decline in GDP in the June quarter, reported with horror around the world on the likes of the BBC and CNN, is likely to be accurate.
“I’m not going to hang onto 12.2 per cent as an accurate figure. It will be revised as with all the estimates from other OECD countries,” he says.
But, he says: “This shock is probably unprecedented.”
The Great Depression (1928-1933)
No recessionary period looms in New Zealand history as large as the Great Depression, though Easton wonders whether the little-studied, mostly-forgotten export price shock of the early 1920s may have been the closest parallel to the Covid economic shock.
“While the collective memory is of ‘farmers walking off the farm’ in the early 1930s, some families recall a similar trauma in the early 1920s,” he says.
The traumas and rising up for social justice prompted by the Great Depression helped shape the politics of the 20th century, resulting in a first Labour government, the building of health and welfare systems, and attempts to improve Māori living standards.
The New Zealand that faced the Great Depression was a very different one from the New Zealand of today.
The country’s exports were nearly 85 per cent pastoral, with 80 per cent of it going to Britain, Reddell and Sleeman said in their paper.
The Great Depression was an international event. It hit the UK very hard. New Zealand’s exports suffered as a result.
By 1933, export prices had dropped 45 per cent, Reddell and Sleeman said, though farmers ramped up production reducing the impact on earnings.
But many farmers were deeply indebted, and rural belts were tightened. The rural depression flowed into the cities.
Unemployment spiked- possibly as high as 20 per cent. Wages fell, but so did consumer prices, which fell by 12 per cent in 1932 alone.
Today, the Government is borrowing, and the Reserve Bank, which has forced down interest rates, is flooding the system with new money. It’s enabling massive support for households and businesses.
That did not happen during the Great Depression.
Governments were wedded to balanced budgets. Spending cuts exacerbated the economic slump. New Zealand did not have an independent Reserve Bank at that time, and relied on the United Kingdom’s money markets for debt. The country was also deeply indebted when the Great Depression hit. The exchange rate was pegged to the UK pound.
“Had consensus opinion at the time allowed for the exchange rate to be floated, or even to have been devalued sharply earlier in the downturn, the recession in economic activity would have been milder,” Reddell and Sleeman said.
Eaqub said The Great Depression led to a great rethinking of economics, giving birth to ideas that would shape the responses to future recessionary periods.
Among those where the ideas of British economist John Maynard Keynes, who won over the world to the idea that governments should increase spending and lower taxes to stimulate demand and pull economies out of recession.
The wool bust (1967–1969)
In 1966, around 31 per cent of New Zealand’s exports were wool, Reddell and Sleeman said.
The sixties had been a time of growth, both economically and culturally, but living off the sheep’s back exposed New Zealand badly when in November 1966, just before the general election, the wool market collapsed.
Overnight New Zealand lost an eighth of its total export income.
“Overall, wool prices fell by 20 per cent in 1967 and a further 20 per cent in 1968,” Reddell and Sleeman said. The Government tried to protect farmers buying hundreds of thousands of bales of wool from them, but between 1966 and 1968, GDP growth fell by 2.9 per cent, and income per head may have fallen by as much as 5 per cent.
For workers it was not a terrible time, and job queues barely lengthened by contrast to the Covid economic contraction.
The oil shocks (1974-1977 and 1979-1980)
The country was posting budget surpluses, and foreign reserves were high. The population, and house prices, had been rising.
But in 1973 Opec cartel of oil-producing countries decided they deserved a bigger share of the Western economic boom, and after two decades of relatively flat oil prices, the price more than doubled between December 1973 and January 1974.
It triggered a global recession. Many New Zealanders found themselves cycling to work to save money. In the second oil shock “car-less” days were introduced by the government in a bid to reduce consumption.
Sharemarkets in London and New York lost more than half their value in the first oil shock, Reddell and Sleeman said, and to make matters worse here, New Zealand experienced an El Nino drought in 1972 and 1973.
Commodity prices and immigration fell during the first oil shock, as did real house prices, but inflation was running hot, hitting 17.8 per cent in 1976.
New Zealand initially tried to stimulate the economy, and maintain living standards, borrowing from the International Monetary Fund and the Bank of International settlements, Reddell and Sleeman said.
But in 1976, as a fresh election approached, the new government cut its spending in a bid to reduce inflation.
Recovery was in its early stages when the second oil price shock hit, with prices more than doubling as a result of the Iranian Revolution and the Iran-Iraq War, pushing the world’s economy back into recession.
In New Zealand unemployment rose to levels the country had never seen before, and prime minister Sir Robert Muldoon, who came to power in 1975, moved to stimulate the economy with measures including his now famous “Think Big” projects, echoed now in the Government’s “shovel ready” infrastructure projects.
The 1991–1992 recession and Asian financial crisis (1997-1999)
New Zealand was booming in the 1980s, but inflation was high, and unpredictable, and attempts to bring it under control, combined with economic deregulation and rising unemployment, to tip the country into recession.
The economy moved back into growth mode, unemployment fell, and then in 1997 an economic shock came from a place nobody had expected it to: Asia.
Around one third of New Zealand’s exports were destined for Asia, and Australia was similarly exposed to the fate of its Asian trading partners, Reddell and Sleeman said.
The crisis came at an inconvenient time, with New Zealand’s farmers again contending with drought.
”The Reserve Bank was slow to recognise the full impact of the Asian crisis and the first drought through late 1997 and early 1998,” Reddell and Sleeman said.
“This was the first economic slowdown and financial crisis forecasters had ever had to deal with emanating from Asia, and it was unclear quite what it would mean for New Zealand.”
The recession following the global financial crisis (2008-2009)
Former Reserve Bank governor Allan Bollard described the global financial crisis (GFC) in these stark terms in 2012: “The global financial system went through major convulsions in 2008, putting great pressure on an already weakening global economy. A massive global economic recession followed.”
So bewildering and damaging was the GFC to the financial masters of the universe, that Bollard wrote: “We are all working to understand, contain and repair the damage to financial systems, to economies and to governments' financial capacity.”
At the heart of the GFC was a massive speculative housing and corporate debt bubble in the United States and the United Kingdom, combined with country debt crises in Europe.
New Zealand’s banks remained strong, but two home-spun financial failures, the finance companies and the leaky building scandal, made financial life a misery for many Kiwis.
The government moved quickly to guarantee bank deposits so international money markets retained confidence in lending to them. It also bailed out investors in finance companies, while the Reserve Bank cut interest rates.
New Zealand experienced six quarters of recession in 2008 and 2009. Unemployment rose from 3.7 per cent in December 2007 to 6.1 per cent in December 2008.
Overseas, central banks embarked on massive “quantitative easing”, and governments borrowed heavily.
The playbook of fighting recessions that would be used during the Covid pandemic had been established.
The Covid recession (2020)
Wage subsidies, new benefits, mortgage and business loan “holidays”, and unprecedented Government borrowing have so far muted job losses, business failure and household financial distress in the face of the massive 12.2 per cent drop in economic activity.
The Covid recession is New Zealand's first pandemic recession.
Eaqub says we have yet to see what impact the current recession will have on the way New Zealanders choose to run the nation and economy.
“I think the pandemic has ripped off a lot of band aids,” he says.
“We say very clearly, that we think inequality is bad, that we think housing is important, that we think healthcare should be of high standard, that we think education and justice are important, but at the same time we say we don’t want to pay more taxes.
“There’s a disconnect between what we say we value, with what we do,” Eaqub says.
Nowhere is that clearer than in the welfare system, he says.
As soon as it looked like middle New Zealand income earners might suddenly find themselves jobless the Government created a $490-a-week Covid Income Support Payment in tacit recognition that the welfare many had been paid for years was inadequate.
So far, Eaqub says he’s seen little fresh thinking.
Labour and National offer similar alternatives for the recovery, he says.
“Our brains are wired towards doing what we already know. We can’t imagine a different future unless we are forced to.”
But he's been heartened by the “team of ive million” coming together.
“Our ability to find consensus is something that’s a bit different from other countries. That’s a good lesson for New Zealand,” he says.
“Collectivism is not often on display. Our ability to produce consensus through collectivism is there, which is really positive. If you want to make brave and difficult decisions, we can.”
2011 February - Scores of people are killed in a major earthquake in Christchurch, New Zealand's second-largest city, on South Island.
2013 April - New Zealand becomes the first country in the Asia-Pacific region to legalise same-sex marriage.
2013 - Two powerful earthquakes rock central New Zealand including the capital, Wellington, but without causing major damage.
2014 - A 6.3 magnitude earthquake rattles New Zealand's North Island, but without causing major damage or serious injury.
2016 December - Bill English becomes prime minister after John Key quits unexpectedly.
2017 March - A river revered by the Maori people becomes the first in the world to be recognised as a living entity with the same legal rights as a person, after parliament passes a bill granting the Whanganui River special status.
2017 May - A New Zealand-American company, Rocket Lab, launches its first test rocket into space, ushering New Zealand into the select group of countries which have carried out a space launch.