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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An Attempt to Remove import Controls

The National Party came into office in December 1949, with promises of fewer controls and more competition. It was helped into power by a growing body of opinion that some of the wartime economic controls were being retained for too long. It set about progressively dispensing with import controls as opportunity offered. Circumstances were most propitious. Export earnings in 1950 were £36 million higher than they had ever been before. In 1951, they rose a further £64 million, largely as a result of exceptionally high wool prices, caused by international tension over Korea. Export earnings were now over four times as high as their average for the three years before the war.

Many import items were freed from quantitative control in July 1950,⁴ and other relaxations were made during the year. The Minister of Industries and Commerce announced, in April 1951, that within the last sixteen months import restrictions had been lifted from 503 of the total of 998 items previously controlled.⁵ page 550 Imports flooded in. In 1950 they were £38 million above 1949, in 1951 £87 million above, and in 1952 £109 million above. Meantime, export prices had fallen slightly and earnings in 1952, though still exceptionally high, were only £93 million above those of 1949. It was not enough to pay for all the extra imports. The Government took fright and resorted to an exchange allocation system for imports, to be operated by the Reserve Bank.

Imports dropped back for a while. Reserves built up quite well in the middle of 1954, though imports were then rising again. At the end of 1954 the exchange allocation system for importers was terminated.

Though it had restrained imports, exchange allocation had not been a satisfactory system. Any form of restriction of imports meant that some items would be cut back, others preferred. The importer naturally preferred the items which yielded him the highest profit, and tended to spend his exchange allocation accordingly. If asked to bring in other items which the Government regarded as essential, the importer expected to be given more funds.

When the exchange allocation scheme came to an end, import controls over a limited range of goods continued. Less than a quarter of private imports were now subject to control.¹

With no extensive controls, imports again soared in 1955, and in December the net overseas assets of the banks fell to £65 million, £29 million lower than in December 1945.

In the election year 1957, there was another flush of importing. Export earnings, though high, were not high enough, and net overseas assets fell to the perilously low level of £46 million in December 1957.

To make the situation look worse, export prices were falling quite rapidly in late 1957 and early 1958.

Labour, elected to office in December 1957, reintroduced a comprehensive import licensing system, but by June, usually a high month, overseas assets had risen to only £53 million. Export prices were staying low and overseas earnings for 1958 were to be £26 million below 1957.