Listener: 10 July 2004.
Keywords: Political Economy & History;
Wool Price Collapse – the End of the Golden Wether
Once the New Zealand economy could be described as depending upon processed grass. After the wool price collapse, that was never going to be enough. On 14 December 1966, the auction price of wool tumbled, eventually to levels comparable to those of the Great Depression, despite a brief respite in the early 1970s. At that time, wool and sheepmeat combined earned more than half of all New Zealand export revenue. The resulting rupture to the economy included a devaluation in October 1967, the infamous ‘nil-wage order’ of June 1968, and the beginning of a decade and more of inflation. The economy stopped growing as fast as the rest of the world. Exports were forced to diversify. Today, wool earns less foreign exchange than tourism, dairy, meat, forestry, horticulture, fish, or machinery exports. A different society and politics has been the result.
July 1967 – The End of the Pound
After a long argument over what it should be called (Denis Glover wanted the ‘zac’), and some bizarre proposals for the coinage (a rugby player on the 50 cent piece), the dollar replaced the pound as the nation’s unit of currency on DC Day. Under the tutelage of finance minister Rob Muldoon and Mr Dollar we replaced the system of 20 shillings and 240 pence with the simplicity of a 100 cents. The total conversion cost $6.5m, which was more than covered by the sale of old coins for scrap metal and collector’s coin sets. An initial run of 27m banknotes was issued, but the pound didn’t cease to be legal tender until 1982.
March 1985 – Freeing the Dollar
Critics and defenders identify the floating of the dollar as having the greatest impact of any Rogernomics policy. No longer was the value rigidly fixed to another currency, but it found its own level reflecting those who wanted to buy or sell it. It was a logical consequence of the 1971 Smithsonian Agreement which end the world’s fixed rate regime, but a totally free floating policy (reversed in March 2004) was unusual. The dollar floated up, to the joy of consumers (who get cheaper) imports, and the financial sector (who like a ‘strong’ dollar). But it devastated the export sector, business and jobs were depressed, and per capita economic output fell for six successive years. As Roger douglas began dismantling the welfare state – a policy continued by Ruth Richardson – as subsidies were eliminated, import duties reduced, and state assets sold.
The Biggest Crash
The Tuesday New Zealand share market crash followed Black Monday in the United States. But New Zealand’s crashed deeper than any other rich country’s. The boom, fuelled by promises of ‘Rogernomics’ reforms with their rapid liberalisation of financial markets proved to be fake, unsustained by the economic fundamentals, and dependent on cowboy investment strategies and creative accounting. Despairing investors lost their fictitious fortunes, and some company directors went to jail. Businesses which were market darlings – the long standing and the fashionable – disappeared, or were sold off overseas. (Brierlys almost went down with them.)
With assistance from Tim Watkins