Title: War Economy

Author: Baker, J. V. T.

Publication details: Historical Publications Branch, 1965, Wellington

Part of: The Official History of New Zealand in the Second World War 1939–1945

This text is the subject of: ‘Something of Them Is Here Recorded’: Official History in New Zealand

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Diversification of the Economy

In the depression, factory production had fallen by 19 per cent while farm production remained comparatively stable. In fact 1932–33, which in many respects was the worst year of the depression, saw a sharp rise in farm production. Nevertheless there was, in the 1930s, a definite indication that it might not be too long before manufacturing overtook farming as New Zealand's major producer.

Manufacturing output made its first major recovery in 1934–35 when there was a 14 per cent increase over the previous year. In 1935–36 there was a further 9 per cent increase and in 1936–37 a 14 per cent increase. This brought the level of factory production to 53 per cent above 1931–32, which had been the lowest year in the depression, and to 30 per cent above the pre-depression level of 1928–29. After 1936–37 the rate of increase tapered off, with a 7 per cent rise in 1937–38 and 5 per cent rise in 1938–39. In the following year, aided no doubt by the exchange restrictions, which became effective in December 1938, and the supporting quota restrictions on imports, the increase in manufacturing production was 10 per cent.

Chart 7 shows changes in the volume of manufacturing output from pre-depression to pre-war years.

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In accordance with the Labour Government's declared policy of expanding production, a Bureau of Industry had been set up in 1937 to plan new industry. The Bureau discussed and was interested in varying degree in the establishment of a number of new industries. However, it is likely that the shelter given, from 1938, by import restrictions did much more than the Bureau towards the diversification of industry. It was Labour's intention to expand industries other than farming, in order to make New Zealand less dependent on overseas sales of a narrow range of farm products. Quantitative control of imports gave the opportunity for considerable direct influence in this direction.

Import controls were to give fertilisers and other farm requirements first priority, then capital equipment and raw materials for industry. However, there were many major consumer goods such as tea, sugar and petrol which it was politically inexpedient to cut back in time of peace. Thus the range of preferred items was very wide, and considerable cuts were necessary in less favoured items. Industry in New Zealand tended to fill the gaps. The result was certainly diversification, but often in a rather haphazard way.

Even before import controls, manufacturing was gathering strength and, in spite of the depression, output increased well over 50 per cent in the decade preceding the war. The rapid upward movement of factory production in the late thirties—an increase of 36 per cent in the four years from 1935–36 to 1939–40—was no doubt assisted by other Labour policy measures which increased consumer spending and also made direct demands on the economy through the expansion of public works.

New Zealand entered the war with a wide range of manufacturing industries. Some were still in the embryo stage, but, faced with extra wartime demands, they were to fill many gaps left by the preoccupation of overseas suppliers with their own war requirements.