Rejected Takeoff: How New Zealand became an Unlucky Country
Chapter 4 of ‘The Revolution that Nearly Was: How Aotearoa New Zealand’s progress was frustrated, and utopia mislaid’
LOOKING BACK on the remarkable development of our export manufacturing sector in the 1960s, 1970s, and early 1980s, I am struck by the question of where we might be now if the earlier momentum had been sustained.
Consider Denmark, a small European country with a similar population to our own, a country that also exports about the same value of produce from its farms.
A graph that I included in the Introduction, admittedly from 2012, can still stand reproduction for a second time.
Yet as we see, Denmark’s manufactured exports considerably outweigh Danish farm exports.
And while our manufactured exports are modest compared to Denmark’s, without them we would be in really serious trouble.
In a brief, 886-word polemic from 2011 called ‘Sustainable economic growth for New Zealand: An optimistic myth-busting perspective’, Sir Paul Callaghan noted that:
Interestingly, our largest export-earning sector is manufacturing (contradicting yet another New Zealand myth that everything is ‘made in China’).
In short, even for a country like New Zealand — with a manufacturing sector much smaller than that of Denmark — manufacturing, and allied high-end services such as engineering consultancy, still matter right now, quite apart from their future growth potential.
Growth potential which greatly exceeds that of our traditional, pastoral activities. As Callaghan also pointed out,
Our valuable dairy industry severely impacts our rivers and lakes. Our pastoral industries are significant emitters of greenhouse gases. . . . The problem with dairy is that environmental limitations prevent us from scaling it up at all . . .
Even so, explicit support for further manufacturing development in New Zealand was mostly terminated in the second half of the 1980s. This happened in a sudden and traumatic fashion. In a 2014 paper called ‘The Purpose of Social Policy, the veteran social policy expert Ian Shirley noted that:
Investment in New Zealand manufacturing declined by almost 50% between 1985 and 1989 and by 1991 registered unemployment represented 11% of the total workforce. Long-term unemployment became a serious social problem with the unemployment rate for Māori aged 15 to 24 years approaching 40%. . . . . As a consequence government became exposed to relatively high levels of welfare expenditure. In 1981 almost 115,000 people were in receipt of a welfare benefit — by 1985 that figure more than doubled and by 1992 it had trebled. The very policies that were designed to cut welfare expenditure created the largest pool of beneficiaries since the Great Depression.
More surprisingly, at a time when joblessness would soon rise to a quarter of a million in a New Zealand that only had a population of 3.3 million at the time, the government then proceeded to cut back on apprenticeships and job retraining. In a 2012 book called Workers in the Margins, Cybèle Locke notes that:
Those being assisted by job creation or training programmes peaked at 51,965 people in January 1985 and would decline to 18, 725 by October 1988; the Department of Labour budget for people on programmes was cut by almost two thirds while registered unemployment almost tripled during this time. (p. 133)
Though great strides had been made over the preceding generation, the idea of New Zealand as an emergent manufacturing nation would fade from public and media consciousness thereafter, in favour of the return of an older national identity framed in largely rural terms.
That is to say, in terms of bulky rural products, muscular toil among those who lifted the bales of these products, bone-crunching contact sports played by strong men who lifted bales for a living, scenery, non-technological forms of soldiering, and re-enactment of the ways of the Māori of old (important as that is for keeping traditions alive).
This was a framing of our national identity that was at every turn both rural and essentially backward-looking. Indeed somewhat paradoxically colonial, if not in fact more colonial than we were in colonial times, since our colonial era was also a time of rapid urbanisation and modernisation.
It was a framing that the historian James Belich has called ‘recolonial’, in something like the myth-making spirit of Jean Baudrillard’s ‘hyperreality’.
In 1969, the image of New Zealand presented in the government film This is New Zealand was go-ahead, technological, and modernising. Before that, of course, 1959’s The New Zealanders had emphasised an egalitarian principle (Chapter 1).
But in the 1980s, the U-turn in our national identity, back to a more exclusively rural hyperreality, was swift. In a 1990 issue of Art New Zealand (#55), the critic Francis Pound thus noted that “refusal of the city and . . . worship of rurality” had already come, by that date, to constitute the “genre of the advertisement . . . the corporation and the state.”
Erin Mercer’s 2017 account of 100% Pure New Zealand (see Chapter 3), in which industry was nowhere to be seen, seconds Pound’s view of the local fantasy factory.
As a commentator named Dionysus had written already, in 1921,
Pre-eminence in Rugby football and dairy products is not enough. I want to see our scientists, our artists, our writers (when discovered), encouraged so that they might put New Zealand’s name on the map as a country which produces ideas as well as butter-fat, as a nation that has spirit as well as population and area.
Why do we keep slipping back like this?
A Missed Chance?
That passage by Dionysus, which I first quoted in the Introduction to this series, was rescued from obscurity by our most famous twentieth-century historian, Keith Sinclair, in a book called A Destiny Apart: New Zealand’s Search for National Identity.
A Destiny Apart came out in 1986. In an article published in the following year, called ‘A Destiny at Home’, a colleague of Sinclair’s named Bill Oliver (whom I also mentioned in the Introduction) wrote that Sinclair’s historical writing was in many ways “an account of missed chances.” In more detail,
… people are free to decline the invitation of the new. When it is declined, when the forces of the old prevail . . . history becomes an account of missed chances.
This elegaic note, indeed, is often struck . . . . Maori lose; Reeves fails; Nash dwindles; Kirk dies. There is a deal more promise than fulfilment.
Was the termination of support for manufacturing development, amid a recolonial turn on the cultural plane, another of our “missed chances?”
While we do still have an export manufacturing industry and, indeed, an important one, it is nevertheless the case that when the bulk of state support for manufacturing was terminated in the 1980s by the Rogernomes, the rapid growth of manufactured exports that we had witnessed since 1960 and even more so since 1970 also came to an end.
For their part, the Rogernomes claimed that, by the mid-1980s, our export manufacturing sector had become sufficiently robust to stand on its own two feet, and that if it could not, then that was the verdict of market forces in any case.
As such, they exposed New Zealand to what the economist Dani Rodrik has lately come to call ‘The Perils of Premature Deindustrialization’.
There are two issues here. The first is that very few countries have prospered without a robust manufacturing sector; which, apart from the things it makes directly, also helps to sustain a web of high-end services such as engineering consultancy.
And the second is that modern manufacturing, because it is more complicated than either farming or real estate speculation, also tends to require a greater degree of ongoing public support.
Certainly, more so than neoliberals and other free-marketeers tend to realise, most probably because surprisingly few who pronounce on economic matters these days actually know how things are made.
(We only need to ask ourselves how many scientists, engineers, or for that matter, even, artists, are in Parliament. Even economists are not required to know anything about the anatomy of industry, their advice as such on a par with that of the mediaeval physicians whose favourite remedy was bloodletting.)
In practice, many nations with strong manufacturing sectors have permanent policies to sustain that sector. These policies include state-sponsored industrial development banks such as Germany’s KFW, which do not require the usual land-based collateral from their customers.
To add to this, many Northern Hemisphere countries, even the ones that preach laissez-faire, have military-industrial complexes that help to sustain ‘dual use’ industries such as aviation, computers, and every kind of precision engineering.
Post-Rogernomic New Zealand has neither industrial development banks nor — given that we are a dagger pointed at the heart of Antarctica, as David Lange once quipped — any military-industrial complex to speak of.
(It is true that we have supplied hundreds of thousands of soldiers and to a lesser degree sailors, fliers, mechanics, and medical personnel to fight in wars overseas, starting with the South African War of 1899–1902 and, thereafter, in Northern Hemisphere conflicts for the most part. But since South Africa, at least, their increasingly ingenious weapons were nearly always forged by others, pressed into the hands of the Kiwis after they had crossed the equator.)
In any case, what has become increasing apparent throughout the twentieth century and beyond is that the power to succeed in manufacturing depends on a certain critical mass of skills: a critical mass that, in New Zealand, just barely keeps its nose above water. This, too, in
For all these reasons, New Zealand’s manufacturing sector, with its frequent difficulties in raising capital and loans as compared to land-based activities and its reliance on skills that are often in short supply locally, has tended to languish since the advent of our version of neoliberalism in the 1980s.
The nearest New Zealand equivalent to Finland’s Nokia, the pharmaceutical giant Glaxo, now part of GlaxoSmithKline or GSK, just gave up on New Zealand in the 1990s, relocating entirely to the Northern Hemisphere. And yet Glaxo had been expanding its operations in New Zealand as recently as 1980.
By rolling back our support for manufacturing after a single generation of overt sponsorship of export-oriented manufacturing, did New Zealand miss another chance thereby, in ways that the departure of Glaxo highlights?
Was this another instance in which the forces of the old prevailed?
And if so, is our present, rurally flavoured national identity nothing more than a green fig-leaf concealing a reality of self-chosen underdevelopment?
The Old Myth
Underdevelopment that is self-chosen, because it appears to have sprung from the persistence of an overoptimistic and complacent view of our rural wealth.
This is the “old myth” to which Town Planning Bulletin №1 referred back in 1958, from which I quoted in the Introduction and which also stands quoting again:
The old myth that we had plenty of first-class land and that there were vast areas of un-developed land waiting for the plough have died hard. Most of us knew only what we saw from the main roads passing through the plains or the fertile valleys between the hills.
Topographical maps tell a different story; but the most revealing experience is to travel by plane on our inland air routes. . . . Here and there a narrow coastal flat — too small to be called a plain — the occasional green valley with a road snaking along the middle; for the rest nothing but hills, mostly bush and scrub covered, rising to the main rugged mountain chain.
The old myth dies hard. Thus, in 2014, the journalist Steve Kilgallon began an article about a report claiming, implausibly, that New Zealand’s landed estate could support a population of 15 million in comfort, as follows:
With just 4,447,369 of us rattling around in 268,000 square kilometres of this green and pleasant land, there’s plenty of space for everyone in New Zealand.
Space for our traditional quarter-acre empire, for the bach, for the lifestyle block, for all those sheep, for beer and cheese commercials to mythologise our great rural existence.
One might have supposed that the report to which Kilgallon referred, Lifting Export Performance, would have predicated its call for a population of 15 million on a transition from agriculture to advanced urban industries.
Yet, in reality, Lifting Export Performance had almost nothing to say about manufacturing and reaffirmed the traditional idea that animal farming would remain the backbone of our export economy, even in an era when its export receipts would have to be buttered over fifteen million rather than four and a half million as in 2014, or a bit over five million as at present:
Being down in the mouth about growth in demand for animal proteins based on past trends could be a mistake.
By the same token, high tech manufacturing has come with a sting in its tail for economies like Taiwan and Ireland where companies have moved on or previously high end products have become commodities like any other.
Ah yes Ireland, ranked #1 in labour productivity just prior to the Covid pandemic, according to Herald columnist Liam Dann, and Taiwan, home of much of the world’s high end microchip manufacture, an industry that has most emphatically not moved on.
Why New Zealand is no longer a ‘Lucky Country’
I mentioned, earlier, that few countries have prospered, in modern times, without a strong manufacturing base. Indeed, it has been said that New Zealand is one of only three countries to have reached First World living standards for an enduring period across the twentieth century, while still depending on a rural pattern of exports.
The other two were Australia and Canada: huge countries with enormous bounties of nature in relation to their national population density.
Focusing on the one out of that pair that is nearest to us, there is no doubt that when it comes to the bounties of nature relative to population, the situation in twentieth-century Australia was perhaps the most fortunate in the world.
Twentieth-century Australia’s endowments included huge reserves of coal and iron ore, along with a higher percentage and substantially much greater per capita area of arable land than New Zealand (deserts notwithstanding). This fact inspired the title, and content, of the Australian journalist Donald Horne’s mid-sixties classic The Lucky Country.
More often cited than read, Horne’s book had a bit of a sting in the tail, its author asking what would happen if one day, Australia’s luck were somehow to run out? Horne began his final chapter thus:
Australia is a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise.
Ouch! All the same, while Australia and Canada remain lucky countries to this day, with national population densities of 3 and 4.4 persons per square kilometre respectively and as such no shortage of natural resources per head, it is worth noting that New Zealand’s membership of that club is now in question.
And that is, in part, because our national population density, albeit still low by world standards, is, at 19.5 persons per square kilometre, several times higher than that of Australia and Canada.
Indeed, our national population density is now significantly higher than that of Argentina, the most notorious former member of the ‘lucky country’ club: a country whose luck did indeed run out.
The parallel with Argentina is rendered all the more ominous when we consider that Argentina, with a similar but but slightly lower population density to New Zealand, has far more farmland of the best quality per capita, as compared to New Zealand.
The area that is used to produce harvestable plant products in New Zealand — the usual definition of arable land, as opposed to more extensive activities such as grazing or forestry — amounts to just 2.3 per cent of our land area.
The equivalent figure for Denmark’s is 58.9 per cent and for the Netherlands, 28.9 per cent. Argentina is 15.4 per cent arable.
This is the ultimate reason why even quite small European countries such as Denmark are able to export as much, or even more, from their farms as we do. The champion among them is the Netherlands, which exports about three times in value much from its farms as we do.
The Netherlands’ rural exports include significant amounts of such costly ultra-perishables as cut flowers, which can easily be loaded onto trucks destined for large cities in neighbouring countries, but which don’t tend to travel so well or so cheaply from remote New Zealand.
What such facts also tell us is that arable-versus-pastoral percentages are not completely hard and fast. They reflect economic incentives as well as geography and can change over time.
All the same, there is no doubt that New Zealand is agriculturally disfavoured as compared to many European countries. The reasons for this include not only our remoteness from the busiest markets but also the fact that New Zealand is the dividing range of a submerged continent, known as Te Riu-a-Māui or Zealandia.
New Zealand is what Europe would be like if its greatest and most fertile plains were submerged by rising waters, leaving only the Alps, the Carpathians, the Scottish Highlands with their “wee bit Hill and Glen,” and so on.
And this makes the parallel with Argentina all the more disturbing.
For there, we have an example of a country with a lower population density than New Zealand, with far more arable land per capita, and which has yet failed to prosper in more recent times, following a period of agricultural prosperity that lasted roughly from 1870 to 1930, during which time the country’s population grew from 2 million to 12 million.
This decline in prosperity was caused by a failure to industrialise in the manner of the Northern Hemisphere countries to which Argentina was routinely compared during its more prosperous era — a time when Buenos Aires was known as the Paris of the Southern Hemisphere — as the nation’s population grew beyond 12 million.
Argentina’s population exceeds 45 million today, nearly four times what it was in 1930. And yet, because Argentina is more than ten times bigger than New Zealand, this population still yields a national population density less than that of New Zealand.
It was, in sum, a very low density of population — comparable to that of Australia or Canada today — that admitted the Argentina of a century ago to the club of lucky countries. And the continued growth of Argentina’s population, without adequate industrialisation, that led to its eviction from the club of lucky countries.
Argentina’s failure to industrialise had a variety of causes. But ultimately, it seems to have come down to a lack of domestic sources of energy and raw materials, allied to a failure of the political will to apply rural earnings to the importation of the fuels and raw materials required to build up Argentina’s industries while the going was good.
The Power to Grow
We, for our part, did fortunately develop manufacturing in the past to the point where, as Callaghan observed, it was our largest single export industry in 2011.
This development arose, in part, because we are blessed with comparatively abundant energy sources save for petroleum, which has always been scarce, and gas, which is now running out as well.
On recent estimates, our current reserves of coal, not so usable now but important in the nineteenth and twentieth centuries, amount to a bit over 8.3 billion tonnes. This figure far outstrips Argentina’s coal reserves of just over 550 million tonnes even though that country is, to reiterate, more than ten times as big and nearly ten times as populous as New Zealand.
As with the distribution of arable versus pastoral land, estimates of mineral reserves can be elastic: indeed, more so. Among other things, published mineral reserves can be altered by the strength of economic incentives to go out and discover more, by the exact degree to which they are proven or estimated, by quality (much of New Zealand’s coal is of poor quality), and by improvements in mining and drilling technology. Even so, the difference between New Zealand’s and Argentina’s coal reserves is remarkable.
Furthermore, we developed our hydroelectric resources earlier, and to a far greater degree, than early to mid-twentieth century Argentina, though Argentina has about twice as much hydro as New Zealand these days.
These days, we are also the ‘Saudi Arabia of wind’, as I have heard it said, athwart thirteen degrees of southerly ocean latitudes and with some shallow seas offshore in which to install offshore wind in addition to onshore sites.
And our solar resource is also far more abundant than most people suppose.
There is a myth abroad that New Zealand is too cloudy for solar power to work, one consequence of which is that the adoption of solar panels is an order of magnitude greater in Australia.
But once again, this is the kind of self-crippling conventional Kiwi wisdom that is nothing of the sort.
Even when the skies are grey, it is a fact that in North Island latitudes, ultraviolet radiation, which is able to penetrate clouds more easily than visible light (whence the unwelcome surprise of cloudy-day sunburn), helps to sustain significant electricity output from solar panels.
Of course, clouds do detract a bit. And this is why it is that the chilly South Island — though closer to the South Pole — actually has greater solar potential than the North Island, because so much of South Island’s terrain consists of elevated semi-deserts with clear skies prized by astronomers.
Where starlight shines down by night, sunlight shines down by day.
Interestingly enough, the very best sites, in the south-eastern South Island, are co-located with our largest hydroelectric power schemes. Schemes that can, to at least some extent, serve as a ‘battery’ by way of current storage and future addition of reversible pump-turbines even in the absence of the additional, expensive, Lake Onslow pumped storage proposal.
Among other things, a dash for wind and solar, in the era of electric cars, e-bikes, e-trucks and of what we should also be investing in by way of electric trains, trams, and ferries, offers a chance to reduce our crippling petroleum import bills — the bills that Eric Ojala equated to the earnings of our export meat trade in 1980 (Chapter 3) — ultimately to zero.
Finding our Niche
The supporters of manufacturing development in New Zealand have also tended to advocate a ‘niche’ strategy, focusing on specialised, high-value forms of manufacturing that are small in global terms but potentially large in relation to New Zealand’s economy.
An article by the Auckland Star journalist Ron Taylor called ‘Industrial Boom has made Auckland the Dominant City’, published in 1962’s Auckland Expanding to Greatness, describes how it was the case, even then, that:
… overseas engineering firms are beginning to look to New Zealand engineering establishments to supply them with specialized equipment that it does not pay them to make. As Dr W. B. Sutch, secretary for the Department of Industries and Commerce, has said: “The stage is set for New Zealand to become an exporter of engineering goods requiring short runs, individual attention, high quality labour, and high finished cost in relation to the cost of the original material.
“And a good example of this is coming from Auckland where New Zealand’s largest manufacturer of automotive parts — Associated Engineering (N.Z.) Ltd of Panmure — produces pistons, cylinder liners, piston rings and other components to suit almost all types of vehicles and engines,” says Dr Sutch. “This firm has designed and built for the Australian market fully automatic machines for the accurate sizing of piston rings. The firm plans to sell similar machines in the United Kingdom, South African, Spanish and Indian markets.[”]
W. B. Sutch, known informally and in a podcast below as Bill, was New Zealand’s most important champion of the niche-manufacture approach in those days.
“Small Countries Live on Skill” was a motto Sutch promoted at the 1960 Industrial Development Conference, the first of three such conferences to be held in 1960s New Zealand.
Sutch’s manifesto statement at the conference was a booklet called Programme for Growth, in which he set out New Zealand’s position in the world, including a central argument that if our population were to continue to increase, animal farming could not continue to sustain our prosperity; and that the development of skilled, niche manufacturing would be an essential component of the diversification that would be required to maintain a developed-country standard of living and prevent a growth in poverty, superfluousness, and precariousness. To this end, he argued that “Small Countries Live on Skill.”
On the next page from that heading (p. 19), Sutch argued that:
New Zealand has not the population of Switzerland or Denmark, but in the lifetime of our children it will have. In 40 years’ time there should be well over 5 million people in New Zealand. And New Zealand’s economic pattern will resemble that of today’s Israel, Denmark, or Switzerland only in the extent to which it relies on the knowledge and skill of its people. If New Zealand does not develop this superb asset, it will remain a set of islands in the sun.
Sutch’s prediction of five million by 2000 was premature, but, had it not been for the flat spot caused by mass emigration in the years 1975 to 1990 (Chapter 2), that figure might have been achieved much sooner than 2020, the date by which we did eventually hit five million. And in any case we are there now, and pressing on for six million.
The championing of niche manufacture and the idea that small countries live on skill was a baton that would be passed, nearly half a century later, to Callaghan. But in the decades between, it would be lost sight of. I will discuss why that happened further below. But in the meantime, we need to delve a little further into one of Sutch’s key arguments against over-reliance on animal farming.
The Importance of ‘Getting off the Grass’
As I have just noted, one of Sutch’s key arguments was that New Zealand was in peril as long as this country tried to build urban prosperity on the back of animal agriculture sustained by what he referred to, at the 1960 Industrial Development Conference, as “grass which is processed by two animals, the cow and the sheep,” an expression soon popularised as ‘processed grass’.
The issue was not just the fact that there was no necessary reason to suppose that the outputs of animal farming would continue to grow as fast as the cities, but also, that the earnings from animal farming were actually subject to downward pressure from the development of substitutes.
At the Industrial Development Conference, Sutch drew attention to the downward pressure on the price of butter caused by the introduction of yellow margarine made from plant oils, as championed in the following advertisement by former US First Lady Eleanor Roosevelt, who donated her fee to charity:
Yet the coming of yellow margarine would soon be seen as a mere nuisance to our farmers, for worse was to follow in the 1960s.
In the middle of that decade, wool accounted for 40 per cent of New Zealand’s exports. But from 1966 onwards, the wool trade was devastated by the coming of artificial substitutes such as nylon and polyester.
There are, broadly speaking, two kinds of wool: fine wool, which is used to make soft, expensive clothing, and coarse or ‘strong’ wool, which is scratchier and used to make things like carpets and hardwearing, tweedy types of fabric.
Most parts of New Zealand favour the growing of strong wool, because most of New Zealand’s pasturelands, save for the more desert-like parts of the South Island, are damp and muddy, and thus unsuitable for the delicate sheep that grow the finest wool.
Unfortunately, while fine wool remains a valuable commodity, the coming of artificial substitutes was eventually to render strong wool almost worthless.
As of mid-2024, sheep numbers in New Zealand have fallen to 25 million from a peak of 72 million in 1982.
‘Peak sheep’ was delayed for a decade and a half, after 1966, by a mixture of hope and subsidies: but it was inevitable all the same. Since 1982, much of the pasture formerly occupied by sheep in New Zealand has been converted to forestry if poor, to dairy farming if it is of better quality, or simply left fallow.
In financial terms, the decline is even worse than that graph makes out. By 2008, wool was down to only 2 per cent of our exports.
Since 1966, our exports have multiplied as a result of farming improvements, limited but nonetheless significant development of manufacturing industries, and the expansion of English-language education for foreign students.
Plus, the expansion of tourism in the fortuitously-arrived jet age, which arrived, for us, by way of an upgrade to Auckland International Airport in very same year as that in which wool prices collapsed, namely, 1966.
Even so, it remains a fact that our largest export industry, as of 1966, completely threw a con rod in ways that forced us to scramble to make up the difference.
The challenge to animal farming continues. Today, our remaining animal farming industries face a third wave of threats from scientifically formulated substitutes, in the form of fermented and cultured alternatives to meat and milk.
That documentary perhaps overstates the case for a transition to precision fermentation and cellular culture. But then again perhaps not. We will have to see.
‘A Dead Rat in the Water Tank’: From the Sutch Affair to Rogernomics
As to what happened in the decades between the respective heydays of Sutch and Callaghan, and why state support for manufacturing was wound back in the post-Peak-Sheep era, part of the reason lies with a 1974 scandal, the so-called Sutch Affair, in which Sutch was charged with being an agent of the Soviet Union.
There may (or may not) have been an element of misunderstanding of what Sutch, a former diplomat, claimed to be ongoing private diplomacy in an era in which our trade with the Soviet bloc was growing.
Expansion of trade with the Soviet bloc was an aspect of our efforts to diversify the economy, both in terms of products and markets, in the face of the rise of margarine and the 1966 wool shock, which was soon followed, in 1973, by further hammer-blows from Britain’s 1973 entry into the European Union, known in those days as the European Economic Community, and the Middle East oil shock of the same year.
A 2019 Radio New Zealand Eyewitness interview with the economist Brian Easton notes the following facts:
A great change was underway. In 1965, New Zealand was one of the least diverse economies in the OECD. By 1980, we were in the middle — an astonishing achievement.
“I’ve not seen any other country that diversified as fast as that.”
But it wasn’t fun. Over those 15 years, slow economic growth meant unemployment and inflation. There were two oil shocks in the 1970s and Britain, our biggest market, told us to naff off and joined the EEC. It was all just a bloody ‘mare, really, and a wonder our economy didn’t cark it entirely.
The only person ever to be prosecuted under New Zealand’s Official Secrets Act, Sutch was acquitted of espionage after a five-day trial in February 1975, though questions and doubts would remain and resurface both then and in later years.
But in any case, the episode threw a dead rat into the water tank of Sutch’s ideas, as one of the SIS agents responsible for Sutch’s interrogation, Kit Bennetts, would later suggest in his 2006 book Spy:
Some may say that the many great things he did for New Zealand far outweigh any minor damage he might have done in his ‘dabble’ with the Russians. I am not of that view. For me it is like a dead rat in the water tank — no matter how clean and pure the huge volume of water was in the beginning, somehow the dead rat spoils it all. (p. 226)
For it was not just Bennetts who thought that way. The Labour Government of the time, whose Prime Minister Norman Kirk had been taking advice from Sutch on how best to diversify the economy until his own premature demise on 31 August 1974, would be red-baited by elements of the press during the 1975 election year, as described in a 2012 podcast by the journalist Redmer Yska from 29:30 onward, and by the opposition National Party.
No part of the Labour-Sutch vision was more controversial than a proposal to set up a sovereign wealth fund to direct capital toward the growing-points of the economy: growing-points that ranged from modern manufacturing, which often struggles in a purely commercial context for the reasons given above, to expanded public land banks that would help to keep house prices low even as the cities grew.
A 1975 National Party campaign advertisement opposing the sovereign wealth fund, the notorious ‘Dancing Cossacks’ ad to which Yska refers in his podcast, can be seen online, here:
Thereafter, Labour would also start to put distance between itself and Sutch’s pro-manufacturing philosophy, lest the party’s leaders be forced to mention his name in that connection.
Like some erring ancient whose name and portrait would be scratched off a public monument, a practice later dubbed damnatio memoriae — or for that matter, some Communist removed from the politburo and never spoken of again — it was, before long, almost as if Sutch had never lived, the three 1960s economic development conferences had never taken place, and his heresies against the idea of New Zealand as a large animal farm had never been uttered.
Such things are indeed possible in New Zealand, a country prone to a very high degree of pious conformity of public expression whatever people might think in private, of a kind that requires a fairly high degree of political repression to enforce in other countries but just seems to happen naturally here, and which was described by a local person in the 1950s as “McCarthyism without a McCarthy.”
It goes without saying that this was a most ironic outcome if, in fact, Sutch had been a Soviet agent arrested in the name of freedom of thought.
The result was a growing intellectual and ideological vacuum in a Labour Party that had up to that point championed New Zealand’s transition from a bucolic frontier territory into a fully fledged participant in what Labour’s first Prime Minister, Michael Joseph Savage, liked to call the “machine age.”
A vacuum with regard to the machine age and the part we were expected to play in it that Rogernomic de-industrialisation would eventually fill, despite its renegade character as compared to Labour’s previously pro-industrial stance. It was, at least, a policy of sorts, as opposed to no policy at all.
And National would thereafter adopt a policy of neoliberal me-too, its own developmental faction outflanked by the landowning interest: the farmers in the countryside and, more damagingly the speculators in the city.
I mentioned the “renegade character” of Rogernomics. This charge is valid, for, not only did the Rogernomes champion laissez-faire and the shrinking of the state — a policy rather obviously at odds with Labour politics as it had been understood up to that time — but also, their main justification for shrinking the state was that its developmental arm was no longer needed.
And behind this stance stood a rebirth of agrarian chauvinism, both of the moralising kind that contrasted rural self-reliance to the greater dependency of the urbanite, as well as of the sort that simply overestimated our fertility.
In a 1980 personal manifesto called There’s Got to Be A Better Way!, Douglas insisted that farming was “The only way out” and “still the key to our economic future.” (p. 29, source emphasis). And that:
We have the knowledge, now, to double our agricultural production. And sell it. If we had done this in the last decade, the oil price rises would have been a nuisance, not a crippling problem.
So why don’t we? (p. 29, source emphasis)
The agrarianism of the Rogernomes has been overlooked, perhaps because of the short-term pain and vociferous farmer opposition caused by the abolition of sheep-farming subsidies and by other Rogernomic policies such as high interest rates which, as the Otago Daily Times journalist Neal Wallace noted in his 2014 article ‘Rude Awakening’, would probably not have been visited by the National Party on its rural constituency.
All the same, in a 1987 book called Rogernomics: Is There a Better Way?, its title an arch rejoinder to Douglas’s earlier tract, the New Zealand Herald’s economics correspondent Simon Collins noted that:
He [Douglas] believed we had been using our skills, our labour and our capital to produce things like clothing and television sets inefficiently for our small domestic market. We could have been much better off by using these resources to produce more kiwifruit or venison for the world market, buying, with the proceeds, more clothing and television sets than we could afford to make ourselves. (p. 39)
Such an opinion did not acknowledge the stellar growth in manufactured exports that we saw during the 1970s and early 1980s (as documented in Chapter 3), nor the likely increasing importance of manufactured exports in the event of a return to rapid population growth (Chapter 2).
Nor would that achievement be acknowledged by many in subsequent years, even though it is clear in hindsight that a generation of state sponsorship of export manufacturing had helped to save us from an immediately Argentine future.
On top of that, the Sutch Affair also lent respectability to the previously extreme idea that state intervention to develop the economy and reduce inequalities — by, for instance, shifting capital from real estate speculation to manufacturing — is unwarranted and essentially a pretext for a drift toward Communism. It is a hallmark of this type of rhetoric that there is no serious engagement with the policies of European social democracies or East Asian developmental states. However, it has remained influential for the last fifty years in New Zealand, all the same.
Modernisation Frustrated
The niche-manufacturing idea would undergo a series of attempted revivals after Douglas’s political demise. The first of these attempted revivals took the form of the 1991 Porter Report; though nothing really came of it from the injection of the term ‘cluster’, as in ‘cluster of related and supporting industries’ — of which the existence of one makes the founding of another that much easier in the sense of the aforementioned critical mass of skills— into our policy lexicon.
As a review by Brian Easton noted at the time, this sort of analysis was hardly new, even if the report’s principal author had come up with some new labels for the proverbial bottles of old wine.
The real question was, were we once more going to put ideas of that sort into effect, or not?
The answer to that question would prove to be no.
And this was because laissez-faire agrarian chauvinists had entirely come to dominate New Zealand’s public realm in the decade and a half since the Sutch Affair and that eminent economist’s subsequent damnatio memoriae. The idea of a full-blown return to industrial development was now out of the question.
A second attempt would come with the election of the Fifth Labour Government in 1999, in the form of the so-called Knowledge Wave and its associated quest for a more manufacturing-intensive New Economy.
However, like the Porter Report, this ultimately led nowhere. And that was because Prime Minister Helen Clark was too instinctively cautious to go out on a limb for a policy that had seen Labour red-baited a quarter-century before.
And partly also because, as I have noted in Chapter 2, the government did not yet believe that we were about to return to an era of rapidly growing population: a belief that lay behind much of the growing unwillingness to invest in New Zealand’s future that was such a feature of the 1980s and 1990s, as shortsighted and unwise as it now appears in hindsight.
One critic of the Knowledge Wave was the late Roger Kerr of the erstwhile New Zealand Business Roundtable, since folded into the New Zealand Initiative.
In an essay called ‘A Refreshing Return to Sanity’, first published in Unlimited magazine on 1 March 2004 and available in a free online collection of Kerr’s writing called Do Economists Agree on Anything? and other essays, its author contended that:
The animus about commodities is mistaken. What’s a commodity? McDonald’s burgers, Starbucks coffee and Easyjet’s budget airline seats are surely commodities but these businesses have made great wealth for investors. Australia, with over 50 percent of its exports in commodity form, has been one of the world’s best performing economies. We become poorer, not richer, if firms make less money from wood processing than from log exports. All we need to concentrate on is what is most profitable at world prices, ie adds most to GDP.
Kerr concluded his essay thus:
In the meantime — New Economy, RIP.
A decade later, Willy Lefferink of Federated Farmers assured an audience that:
Ladies and gentlemen, we are, truly, a land of milk and honey.
. . . . .
While we will run out of suitable dairying land one day, that day is not now, tomorrow or even the medium term.
. . . . .
The priority shouldn’t be trying using the tax system in some quixotic quest for the ‘new economy,’ but harnessing our human, natural and technological resources to be the best land of milk and honey the world has ever known.
The idea that we should have a pro-niche-manufacturing policy would be revived for a third time by Callaghan, who unfortunately passed away in 2012, in addresses such as the one quoted above and in his books Wool to Wētā: Transforming New Zealand’s Culture and Economy (2009) and Get Off the Grass: Kickstarting New Zealand’s Innovation Economy, co-authored with Shaun Hendy and published in 2013.
After Callaghan died, the New Zealand Government did establish several research agencies aimed at the advancement of niche manufacturing and allied services, including one called Callaghan Innovation/Te Pokapū Auaha. So, there was some movement on that front at last.
On the other hand, the ACT party, a tail that wags the dog of the present governing coalition, campaigned to have some or all of these institutes abolished, with Callaghan Innovation mentioned by name in that connection. Under the present coalition these institutes have not been abolished, but they have been retrenched.
All the same, whatever initiatives might be funded or defunded behind the scenes, what is striking is how few politicians — if any — are prepared to publicly champion a manufacturing revival in New Zealand these days.
This observation holds true both with regard to the niche-manufacturing philosophy and with regard to the other possibility, namely, an update of our early-1900s vision of a nation industrialised by sources of energy that don’t come with a fuel bill attached, or, these days, a carbon bill: hydro and geothermal in the twentieth century, solar and wind today.
Even the still more obvious idea of saving on costly petroleum imports has gone out the window since the 2023 election, with the present coalition abolishing rebates to encourage fleet electrification and slapping electric vehicles with a mileage tax in order to bring them on a par with the contribution to roadworks paid already by petrol and diesel vehicles: the triumph of accounting over economics as we might say.
A small pressure group called Rewiring Aotearoa, and the New Zealand Herald’s Liam Dann have lately drawn attention to what is otherwise common knowledge overseas, namely that a dash for renewable electrification is the future. In Dann’s words,
When we look at what gave New Zealand a competitive advantage in the 20th, cheap electric power is near the top of the list. . . .
The next wave of global economic growth will involve electricity — and lots of it.
Artificial intelligence (AI) is incredibly power-hungry. One Chat-GPT search uses 10 times the power of a Google search.
Throw electric vehicles on top of that and it becomes obvious — only countries with access to a cheap, stable power supply will have a competitive advantage in the years ahead.
The underlying problem is that for a good forty years, now, very few New Zealand politicians have been willing to question the laissez-faire agrarianism that underwent revival after the Sutch Affair and which has been more or less untouchable, in the two main parties, since the leaders of the Labour Party bought into it in the Rogernomic era.
What we have, instead, is the setting up of institutes that the general public never gets to hear about, and other behind-the-scenes work, all easily cut back the next time there is a change of government.
The political championing of a New Economy only ever goes about as far as Jacinda Ardern’s 2017 promise of a “government of transformation,” which in practice turned out to mean a series of half-measures.
Even among the environmentalists, there is no Green New Deal on New Zealand’s table. Indeed, quite the opposite. While large parts of the Waitaki and Mackenzie Basins have been transformed by irrigation, attempts to develop solar farms on the remaining desert-like portions have been successfully opposed by mainstream environmental groups, which wish to see the remaining drylands and their fragile ecosystems left unspoilt by grid-scale solar farms.
Of course, it may be that there are still opportunities to put panels on the agriculturally transformed areas (so-called ‘agri-solar’ development), where they would provide welcome shade.
Rooftop solar is being championed, though this is costlier than grid-scale solar farms and more of a complement than a substitute. Rooftop solar cuts the power bills of existing consumers, but it takes grid-scale solar to power new industries. New industries that hardly anyone is talking about in any case.
And so, my concern is that, in the face of a string of successful objections to grid-scale renewables, the idea of a dramatic increase in renewable generation and associated industrial revitalisation might just end up in current politicians’ too-hard basket.
All the genuine environmental issues associated with solar farms— the concern that some rare plant might be trampled underfoot by the builders of a solar farm, waterfowl misled to try and land on a solar panel rather than on a lake, or scenery ruined — can be worked through if we are serious. Of this I have no doubt. The question is, do we have the appetite to work through them?
AI do fear that without champions of an authentically transformative industrial vision in politics, in the media, and for that matter in the academy, it may well be that we miss our latest chance, as a not-so-lucky country, to escape the Argentine scenario of an exploding population on an increasingly inadequate rural base, while the sun continues to shine down on drylands where no solar farms are built. And that this may be the outcome even if the present coalition goes ahead with its controversial fast-track bill.
And that, in missing this chance, that we also fail to play our part in decarbonising the industrial world.
The fear is thus that we will not only miss another chance domestically but also be weighed in the balance of world history, and found wanting.
I have lately returned to Medium publication, after mostly limiting myself to comments and building up a store of new content, to be published over the weeks to come (readers may also wish to refer to ‘Powered by Aotearoa’, which came out last September.). The title of my concluding section, Modernisation Frustrated, is borrowed from a 1988 book by Scott Newton and Dilwyn Porter, Modernization Frustrated: The Politics of Industrial Decline in Britain Since 1900.
