Some Hope

Listener: 13 January, 1981.

Keywords: Growth & Innovation;

Many economists are developing a cautious optimism about the New Zealand economy. It is it view which has only the most tenuous links with the strident claims of faith in our future which we shall be hearing from the politicians this year, and the economist’s optimism may well survive the election.

The view is based on the assessment that after more than a decade of stagnation the processes, particularly in the farm sector, which drove the New Zealand economy on a growth path for d hundred years up to 1967 are beginning to reassert themselves.

Indeed, with hindsight, the stagnation in the farm sector now has the appearance of a restructuring. If so. it is a fascinating case of how restructurll1g can take place. On the one , hand we have had farmers responding to the market-price signals, changing the mix of what they produce and how they produce it. On the other hand the New Zealand taxpayer has been pouring in subsidies into the farm sector in order to sustain it in the face or harsh prices, and to ease the structuring adjustment.

Meanwhile new policies have been put into effect. Perhaps the most important was the package in the 1979 Budget which. with the crawling peg exchange rate and the supplementary minimum prices, has given farmers the confidence that they will get a reasonable return for their effort.

The spectre or the EEC still looms over our ability to export, but part or the restructuring effort has been the selling of new products to new markets. We are no longer so dependent upon Britain to take our food exports. Whereas in 1966 67 percent of all exports went to Britain, in 1979 the figure was down to 28 percent, there with another percent going to the United States, 1 percent going to Japan, and nine percent going to the industrializing nations of East Asia which with the Middle East, Latin America and Eastern Europe, promise to be our growth markets for the 1980s.

Moreover, forecasts for world food demand are particularly favourable for our products. It appears that a number of countries are going to move into the income range which has a demand for sheepmeats and dairy products. T. Barna of the the Sussex European Research Centre has produced a study (for which I provided the New Zealand input) on Agrilculture Towards the Year 2000. He predicted Third World deficits in the year 2000 of 1.3 million tonnes of sheepmeats and 35 million tones of milk with a maximum supply from the high-Income countries of 7 million and 10 million tonnes respectively, In both cases the gap between what the rich can supply and what the poor will want to buy is greater than what New Zealand will export, We must be cautious about such projections, especially, as they are dependent upon successful Third World development, But our caution need not be pessimistic.

Factors such as these have led to a set of projections for farm output over the next decade of an increase in farm export volume of up to a half, In today’s prices that could be an extra $1.5 billion of exports a year, by the end of the decade.

In other areas we are also cautiously optimistic, We are creating more opportunities for further processing of farm production, Managed properly. fishing and tourism will make significant contributions to export revenues, So will forestry, but more in the 19905 than the 1980s, Developments in the energy sector will reduce our need for imports and contribute to exports from the mid-1980s. It looks as though we are going to have a few more years of difficulties, but with luck the main difliculty will be getting the growth mechanism to work rather than fighting off stagnation, There are good reasons to be cautious, for the economists’ optimism is dependent upon a number of crucial assumptions. They are assuming that the world economy will not stagnate and that the rich in the world will foster rather than inhibit the development of the Third World.

They are assuming that the Government will not neglect the primary sectors in favour of the energy sector, and that the resources required for energy development wilt not be drawn from farming. Economists remain nervous about our high rate of inflation , either unsure how to reduce it or concerned that anti-inflationary policies may damage the mechanism of investment and growth: A particular worry to farmers is that domestic inflation could put them in a cost.squeeze with insufficient income to generate the production thrust.

Most of all there is concern that the Government” will muck things up, either by an overstimulus of the economy in the short term or by expensive election bribes – the spectre of national superannuation looms large here.

Let us not deny that we have been through a rough’ period. The evidence is that we are moving out of it, To do so wilt require good luck and good management, Let us, with caution, hope for both.