INDUSTRIALISTS STUDY THE FUTURE

Evening Post, Volume CXIX, Issue 33, 8 February 1935, Page 43 (Supplement)

INDUSTRIALISTS STUDY THE FUTURE

HT^HE volume and character of New ZeaJj[ land's secondary industries have in the past been dictated to a great extent by New Zealand must then import less and manuis now contended that if British import-restric-tion policy compels New Zealand to export less, New Zealand's primary produce and exports. It facture more. But the Ottawa Agreement places on New Zealand's secondary industries a degree of restriction. Thus curious cross-currents arise. Will Ottawaism and Elliotism ultimately diverge or converge? As they stand at the: moment, the naked principle of Elliotism and the Ottawa principle of finding a place in the Dominions for Britishmanufactures could become irreconcilable, and the New Zealand Tariff Commission (1934) quite, saw this. Neither Britain nor America Can sell without buying. If "the tacit assumption that the British market for our exports is indefinitely open at prices satisfactory to us" has gone for good, then the Commission sees that New Zealand may be forced to a "redistribution of the balance of our productive resources." The short formula is: No New Zealand exSorts to Britain means no British exports to lew Zealand; hence an increase in New Zealand manufactures. ' But no exporting nation commits economic suicide, and no principle goes to its logical extreme when politics (whose other name is camouflage) rules otherwise. So the Tariff Commission excluded from its calculations the possibility that Elliotism (import restriction) would be pushed by Britain to the n r th degree. "We are assuming," reported the Commission, "that the policy hitherto pursued is the policy of the country at the present time." IF NO REVOLUTION, AT LEAST TIDE ■, . . ' TURNS. Nevertheless, from the angle of the New Zealand manufacturers, the recent change in British policy towards however- bent it may be towards eventual compromise with countries imported from, yet marks a turning of the tide. What the general secretary of the New Zealand Manufacturers' Federation has called "the third chapter" has now opened its first page. ' The first chapter of New Zealand trade and industry ended with the birth of refrigeration. Prior to refrigeration New Zealand could not export to her great market (thc-United Kingdom) perishable goods; her chief export had been wool. But refrigeration in the eighties enabled New Zealand to add to her exports meat and dairy produce, and the meat development substituted crossbred wool for merino. . With refrigeration opened Chapter 11, which assumed—perhaps rashly—that there would be continual expansion of primary production for export, in the sure hope of an ever-open market in the United Kingdom. As we have seen, that hope is undermined, but to what extent none can foresee. The British people's very existence in war-time, as well as their standard of living in peace-time, plays a'veiled part in the problem. Summing up the situation, with all its uncertainties, the New Zealand manufacturers' secretary feels confident in proclaiming "the limit of our expansion in the exportation- of-meat and dairy produce." On the same reasoning, if our primary production (food and raw material) must expand, we must eat or use it ourselves (as Bernard Shaw advised); and that means a larger popu-, lation. How shall we .grow'and maintain- a larger population? The answer .(on the same line of reasoning) is larger secondary industries. Thus opens the third chapter. | Whither is Chapter 111 leading us? Are there any temporary signposts? One at any rate is provided by the Ottawa Conference, 1932 (since which Conference, however, the United Kingdom's agrarian-protective policy has considerably developed). | "SOUND OPPORTUNITY' TEST. ' f Under the Ottawa Trade Agreement, 1932, New Zealand undertakes that protection jigainst United Kingdom products shall be given "only to those. industries which are reas- . Xinably assured of-souad'opportunities-of success." Thus the, first test that Ottawa applies to New Zealand manufactures is opportunity and .efficiency. : ' "i The Ottawa Agreement also sets up a second $gnpost. 'At Ottawa New Zealand promised to .reduce Customs duties "to such a level as will place the United Kingdom producer in the position of a domestic competitor." There is no legal precision in this phrase; it is a sort of gentlemen's agreement. Literally, it cannot be. :,giyen effect to. You cannot "place the United (Kingdom producer (i.e., manufacturer) in the position of a domestic competitor" any more than a Dunedin, producer can be put literally on the basis of a domestic competitor in Auckland. That fact has been pointed out- by the -New Zealand Tariff Commission. * But it is possible, nevertheless, to gather that Ottawa prescribes "a fair deal" for the manufacturer, and seeks a-New' Zealand tariff that shall equalise costs of production as between him and the New. Zealand' manufacturer. When it comes to applying this equalisation of costs principle, scientific accur-.,

acy is impossible. There is something arbitrary in all costings," reports the Tariff Commission. The "fair deal" or equalisation policy cannot be applied to the fineness of a fraction. Yet New Zealand is (at present) under obligation to implement it in terms of Ottawa, and in a general way can do so. Taking the two Ottawa signposts, "efficiency" and "equalisation of costs," how do New Zealand manufactures level up to them? The writer has looked for the word "efficiency" in the Tariff Commission's review of manufactures, and makes a'■'little list of them below—a list which does not claim to be comprehensive, but which sufficiently indicates what industries "caught the eye" of the Commissioners as being efficient industries. "SHELTERED" SECTION. But fiijst let it be remembered that any Ottawa view only covers a portion of New Zealand's manufacturing industries—perhaps the most interesting portion, but still only a section. . There is another section of industry that needs no tariff protection, because it is "naturally sheltered by the physical impossibilities of foreign competition." If a country has brick clay almost everywhere, its people would be very poor manufacturers if they could not make ordinary building bricks of a quality and cost that would exclude the oversea building brick. Wellington City is built partly on clay, and bricks made therefrom should be capable of being manufactured and put into buildings more cheaply and effectively,than bricks transported halfway across the world. In this sense, then, brick-makirtg is a "shel-

Lered" industry—we assume that the transport cost of the-bricks of other distant countries, bricks being heavy cargo, will shut out foreign bricks, and that no protective' duty should be required to protect the ordinary building brick. But when we thus speak of industries "naturally sheltered by the physical impossibilities of foreign competition," we speak of a shelter varying in degree. At first sight, one would think that timber-milling was a sheltered industry. When the white man came to New Zealand, timber, as well as clay, was everywhere. The first whites might well have thought that New Zealand would never need to import timber across the Seven Seas. But after the whites had burned the forests (the clay they could not burn) timber became so remote that, from a freight point of view, ocean transport of timber from America and Europe to New Zealand ports compares favourably with inland transport of timber from bush-mills to consumption centres. Thus the factor of shelter-through-cost-of-ocean-transport varies from industry to industry, and from time to time. It is supposed to be folly to carry coals to Newcastle, but though New Zealand has several good coalfields she has at times imported immense quantities of coal.

Internal'transport itself is an industry sheltered from foreign competition. Only New Zealand vehicles can ply between Wellington and Auckland. "Physical impossibilities" prevent a Sydney-Melbourne service car from making piratical raids on the transport runs in this country licensed by the Transport Board. And a huge New Zealand capital is sunk in New Zealand transport service, possibly duplicated. After writing-off a number of millions, the

capital account of the New Zealand railways (now paralleled with roads) is still about fifty millions (perhaps still more than the capital cost of hydro-electricity). The railways pay wages, working expenses, and sometimes a little interest on borrowed capital. Their shelter, internal and external, was once complete. It is complete no longer. COST OF LOCAL WORK TO PRIMARY EXPORTERS. > x The sheltered industries—those protected in varying degrees by the physical difficulties of the oversea competitor—are important in any country. Big in volume they must be; efficient and cheap they may be. If they are efficient, they can render necessary service to the primary export industries, and to the community, at a very cheap rate. Think what really cheap internal transport would mean to all the farming industries, and think how the whole community would benefit if dwellings could be erected in New Zealand as cheaply as now in the United Kingdom. But the timber industry, because it has long needed a tariff, brought itself under the notice of the Tariff Commission, which expressed doubt as to whether the industry is economic. And the opinion of the farmer on the cost of transport in New Zealand is well known. It. is clear, then, that the sheltered or partlysheltered industries can be expensive to primary production and to the community. Whether they are in fact expensive cannot be said offhand. Before that question could be answered, their services, and the prices charged therefor, would have to be valued. Not much attention

WELLINGTON had little prospect seventy years ago of becoming an important business centre. . Trade was active in Dunedin; which was the base of supplies, for the gold diggings, and market quotations there were regularly reported, but business was very quiet in comparison in this city at that time. However, it is quite clear from the nature of the advertisements in "The Post" of the time that if there was'the trade here to do the local merchants and retailers were ready enough to do it and prompt to take any advantage of any favourable trading wind.

While what was described as "colonial" produce was on the market in fair supply, recourse was had to imports mainly from the United Kingdom, for quite large quantities of goods which are now manufactured in the Dominion, and these were of quite satisfactory quality and reasonable in price. The arrival of a ship with general cargo was an event in the commercial life of the community, and importers let the public know what had arrived and what was available. Sugar came" from Mauritius, tea from ChinaJ and the imports of potable spirits and bottled malt liquors were relatively large. French brandy could be bought for about 6s per bottle and rum for about 4s. Many supplies now produced in quantifies, permitting large exports, were imported. On the other hand, butter was priced at Is 7d to Is 8d per lb, and bacon ("colonial") at_ Is 6d per lb. Cheese from England cost Is lOd to 2s per lb, and that made in New Zealand commanded Is 6d to Is lOd. Flour supplies were drawn from Chile and Australia as well as from New Zealand mills. Some sheep came from China, but they did not seem to become established.

When "my ship comes in" had a literal meaning in those days, for the merchant was often in a position to meet his financial engagements with celerity as soon as he had delivered the goods imported. There were often periods of scarcity due to some extra demand for.a.given article or the tardy arrival of some vessel with further supplies. The clockwork regularity which is observed by the vessels now engaged in the overseas trade with New Zealand could not be

kept then because of the vagaries of the weather on the long voyage and the sailing qualities of any particular ship. Goods were largely sold before they arrived.

More or less regular contact was made with Tasmania by services of small barques ahH brigs bringing timber from Hobart and loading kauri in the Northern Wairoa or Mercury Bay for Australia. Much of the building in Wellington was of Tasmanian timber, so- were the fences and posts and rails.' .■' : ■ GOLD PRODUCES BY BUSINESS. :■ One of the most important of all exports from New Zealand was gold from the West Coast. Okarito and Hokitika were booming, and Wellington had some share in that trade, but Melbourne, which sent over so many of the miners at work on the West Coast, had a good share in the trade, too. .. From April 1,1857; to December 31,1865, the value of then gold. exported was £8,998,530. Today that gold would be worth almost double what, it was then. But it was a good showing for New Zealand. It helped the trade of the country. Today the three main sources of the Dominion's wealth are derived from its wool, meat, and dairy produce; with them go the by-pro-ducts of the meat industry, such as skins, hides, tallow; dairy produce includes milk powder, condensed milk, and casein; and wool'is exported in the grease, scoured, and sliped. Fruit, timber, mineral products (apart from gold and silver), and'some fish all help in building up a big export trade from the Dominion today. But the greatest factor in that trade is refrigeration." This has worked a revolution in New Zealand production and industry and commerce. New Zealand being found an eminently suitably country for sheep raising, this industry received attention from the first, but seventy years ago the flocks were puny in comparison to what they became in less than thirty, years. In 1851 the sheep numbered 233,000; in 1880 they had grown in numbers to 11,530,000. They were killed for their skins and the carcass, apart from such of the meat as the country itself con-

sumed, was "boiled down" for- its tallow. Something had to be done about this grievous waste with a vast potential market for meat in the United Kingdom only awaiting supplies. Accordingly an experiment was; tried to freeze the meat arid send it Home in that condition. This was successfully done by way of experiment in the Shaw, Savill ship Dunedin. The meat was frozen on board the vessel as she lay at Port Chalmers. There were heartbreaking obstacles to he overcome; nevertheless, the courageous pioneers of the frozen meat industry stuck to their job, and had the satisfaction of seeing the Dunedin sail out with the first cargo of frozen meat that had ever left New Zealand. She took ninety days on the passage, but landed her 3970 carcasses of mutton and lamb andy 22 carcasses of pork in good condition, and.it sold in London and Glasgow and Edinburgh at from 6d to 7d per lb for mutton and lamb and gave a net return to New Zealand shippers of about 3Jd per lb for the meat only. This was the humble beginning of the great refrigerated cargo trade of New Zealand. Today the exports of beef, mutton, lamb, and pork amount in volume to over 9,000,000 freight carcasses of 601b of meat in one year. DAIRY PRODUCE BECOMES PROMINENT. It was when the carriage of refrigerated cargo had become established that it was resolved to export butter and cheese. There was a sort of export trade as far back as 1867, when 128cwt of butter and cheese were shipped. Exports varied between the eighties and nineties,.and for ten years from 1881 to 1890 they amounted to 385,000cwt. ' But the carriage of meat having by then been most successfully established, and the suitability of a very large part of New Zealand (especially in the North'lsland) for dairying, gave a great impetus to the dairy industry. The wide use of the milking machine and later the introduction of electricity in the dairy for power as well as, light, the use of motor vehicles in,place of horse-drawn for the carriage of milk and cream to factories, and the almost general adoption of separating milk on the farm and sending the cream to the' butter factory—all these contributed in bringing the dairy export

has been given to this' question because the tariff industries have claimed extra attention. A farmer or a builder in a given situation may not be sure that he is paying too much for his local heavy goods and for his transport, but he is nearly always sure (cocksure!) that the goods protected by Customs tariff are excessive in price. This the protected manufacturer denies. . The manufacturer usually declares that the levying of a tariff on imported competing goods gives him an assured volume of trade sufficient to enable him to give the community good service at a reasonable price.

In short, the protected manufacturer claims that he is efficient, and that his price is fight. Can anything authoritative be said on this point? That is where the Tariff Commission's recent report throws a little bit of light. In pointing out that one of the desirable things in a tariff is rates of duty "as low as are consistent with carrying out the desired policy, in order that the burden on consumers shall be as small as possible," the Tariff. Commission adds:— - :

"While Customs duties are normally passed on to the consumer, frequently with profit accretions, the burden of tariff duties is often exaggerated. In some instances the existence of a New Zealand industry appears to have kept the prices of competing imports down, notably in cases where competition overseas is restricted or in abeyance. In many cases, too, the excessive cost of commodities to the final buyer is the result of wasteful and. duplicated trading seryicee,. and is not wholly the result of higher manufacturing or. importing costs due to the tariff." Again: "We are of opinion that it is

FACTORS IN THE GROWTH OF NEW ZEALAND'S COMMERCE

trade into the premier position in recent years. For instance, the value of .dairy, products- exported in the twelve months ended June 31, 1934, amounted to roundly £17,000,000^—and that was not the best paying year,-.whereas the value of ■wp6lv"and"'wpolled':skins-"was^un3er;"?' £8,000,000; and the value of meat, tallow, pelts, and other products of the freezing industry was just under £10,000,000. This was a. bad period for prices of wool and meat, but also. for-.dairy produce." ■ . : . ■-..-' '■

Although it is from these "star" exports1— dairy produce, wool, and "meat—that the greater part of the income of the Dominion is derived, there are, the valuable contributory exports, such as kauri gum, fruit, timber, coal, seeds, and other products.

In 1870 the value of the.export and import trade of New Zealand combined was £9,500,000, in round figures; for 1920—one of the best years the Dominion ever experienced—it was of the value of £108,300,000. For the year ended September 31, 1934, for all the disabilities imposed on production by low prices, the total trade was £73,188,600 (specie excluded).

The seat of Government, the head offices of the banks and of many mercantile firms being in Wellington \l\ add to its commercial importance. The heaviest quantities of wool sold in the Dominion are handled in Wellington, for these New Zealand sales have now grown; in volume that would have seemed unthinkable in 1866 when the first sale was held at;Christchurch; it was of about 200 bales, and averaged 10£ d per lb. Today between 550,000 and 600,000 bales are sold, in New Zealand, and buyers from all markets of the world attend.

With the expansion of the primary industries have grown the number and influence of commercial houses, and many of the retail firms are themselves considerable importers. Local manufactures in Wellington are not only various, 'but well established. These. with the many activities connected with the production handling, and financing of both primary and secondary industries,,and the expanding shipping of the port have all together placed Wellington as the foremost business centre in New Zealand.

undesirable and impracticable to make the grant of tariff protection subject to an undertaking that the prices of commodities produced by the protected industry shall not be raised. Circumstances quite outside the control of the parties giving such undertakings may make it impossible to carry them out. . . ." "EFFICIENT" INDUSTRIES. \ Besides this general comment on price 3 under tariffs, the Commission discusses the individual efficiency of tariff -protected industries, and its findings are important both to the_" TVsw Zealand consumer and to those British, manufacturers who rely on Ottawa and the Ottawa tests mentioned above. A glance through the schedules of the Tariff Commission's report shows that, the .word "efficient" is applied to the following industries: Biscuits, confectionery ("very efficient"), matches, sauces; manufacture of cement, of gas meters, of gas heating and cooking appliances, of pumps, of valves and cocks, of oil engines, of piston rings and pistons, of porcelain enamelled cast-iron baths, of tinware tins and canisters, of window sashes and frames, of cortage rope and twine, of gelatine, and glue, of bottles and jars; also,. concrete mixers and insulators are "made satisfactorily in New Zealand." Protection of New Zealand-made agricultural implements and machinery has been much criticised by /farmers in the past, but the Commission reports that "the protection on this class of goods is relatively low, and it is considered to be in the interests of primary producers that such an industry shall be maintained in the Dominion." The following New Zealand industries contain "some very efficient units": Brush manufacturing; making of boots and shoes and the allied tanning industry; woollen mills. The complexities of the woollen industry are gone into in more detail than can be here shown; and it is. shown that textiles generally (including clothing and hosiery) employ many people. The New Zealand industry of manufacturing silk and artificial silk socks and stockings."is reasonably assured of sound opportunities for success" (note the adhesion to the Ottawa formula) and "the industry of manufacturing woollen yarns in New Zealand is an .efficient one." Sanitary earthenware "is a suitable industry, for New Zealand, utilising a considerable amount of local material." • . ■ '■ On the other hand, the Commission; finds that the manufacture of pig-iron "has failed to establish itself on an economic basis," the pre^ sent consumption of pig-iron in New Zealand being too small; a protective duty on, iron arid steel bars is not warranted "until the local consumption, of steel warrants a basic iron industry"; manufacture of ; barbed wire, from imported plain galvanised wire is not regarded as an economic industry;' nail manufacturing is not suited to conditions here; manufacturing of iron and steel pipes is.not "reasonably assured of sound opportunities fqr success," nor is manufacturing of .motor vehicle, bodies, but assembly, of motor-cars in New Zealand from completely knocked-dqwn imported parts ah<i local materials . . . appears to be suited to conditions in the Dominion." The Commission found some timber mills much less efficient industry., fs econoßic^from the need of lower timber costs. In view of what has been said about,the <$U tawa^ tests, and about freights,,..the,, following findings may^be regarded^Jiyp^aliJof certain, ■classes of industry: the ;in Nejv Zealand of electric cooking and Keating appliances is not an industry to whici£ under the Ottawa Agreement, protection should be afforded; and earthenware or concrete draih* pipes, tiles, etc., having relatively high freight protection, should not need protection under tie British preferential tariff. '* To sum up: As a country so peculiarly specialised for primary produce export to one consumer-creditor market, New Zealand is dominated by unpredictable events overseas. If Britain wishes to continue to be creditor and consumer, New Zealand's export economy will not be totally changed. But some degreei of change appears to be inevitable. What change may occur is likely to increase New Zealand's manufacturing strength. On the whole, the Tariff Commission's report suggests that New Zealand industry is in better shape than most people think to assume new responsibilities ?in. a Third Chapter. ''■. "A cask of beef came to light last Thuirsday under unusual circumstances," reported the "Poverty Bay Herald" of July 6, 1874. "A prisoner was engaged in cleaning up the yard of the lock-up, when he came across a hard substance buried some few inches below the surface which proved to be a cask of salt beef. On being exposed to the light of day the caskwas found to be in an advanced stage of decay, but the meat was in a far better state of preservation, considering that it has remained hidden upwards of five years, ever since the eventful Poverty Bay massacre, when it was 'planted' in case of a siege taking place. Although far from being decomposed, the beef was not actually eatable, and it was again buried by tha police."