The Depression of the Thirties
For New Zealand, as for most of the world outside Russia, the great depression of the early 1930s was the most shattering economic experience ever recorded. Exports fell by 45 per cent in two years, national income by 40 per cent in three. The balance of payments was further weakened by the burden of interest on the overseas debt. At the worst point of the depression, the number of unemployed may have exceeded 70,000 – ambiguities of definition make a precise estimate difficult. The sharpest price fall was that of wool, which declined by 60 per cent from 1929 to 1932; meat fell a good deal less. The dairy price index continued to fall until 1934; dairy farmers tried to make ends meet by increasing production during the depression and in doing so forced the export prices of butter and cheese still lower: butter exported rose from 1,654,000 cwt in 1929 to 2,635,000 in 1933; cheese exports also rose, though much less rapidly.
The depression has rightly been described as a traumatic experience; for the second time at least since the founding of the colony, new New Zealanders found themselves disillusioned by the appearance in their adopted country of conditions they thought they had escaped from. As in the late 1880s, there was some net emigration in the early 1930s; as on the earlier occasion, again, most of the would-be emigrants could not afford the fare to leave. Perhaps as well; for this time, at least, they were not justified in thinking they had made the worst of the bargain. Bad as were conditions in New Zealand, they were perhaps less demoralising than those in Jarrow or on Clydeside, and percentages of the labour force unemployed were a good deal higher in many industrial countries, and in Australia.
The depression was, in fact, aggravated by New Zealand's extreme unpreparedness to meet it. Despite New Zealand's early reputation as a “social laboratory”, her social services had in fact fallen behind those of many other countries in the post-1918 years, and the country entered the depression without even the modest provision for unemployment relief by which the British industrial worker was protected. The policy of the Coalition Government formed in September 1931 was on the whole unenterprising and, perhaps inevitably, unenlightened in the Keynesian sense of the word. As elsewhere, the chief concern was to balance the budget, though overseas borrowing continued until 1933. Some of the public works which formed the main relief measure were, however, useful. Especially notable were the schemes for the development of Maori land (conceived before the depression but speeded up essentially as relief work), which accorded well with the marked resurgence of the Maori people since the late nineteenth century, and the planting of exotic trees in the centre of the North Island, which was to lead to a thriving development of forest products.
Most of the positive measures were conceived to help the farm community whose net income, according to one expert calculation, was zero in 1930–31 and a negative quantity in 1931–32. From 1931 the Government adopted a scheme first tried privately on the initiative of the Canterbury Chamber of Commerce, whereby mortgage commitments were scaled down by agreement between the farmer and his mortgagee. In 1933 the New Zealand pound, which had already slipped to a discount of about 10 per cent, was devalued, £125 equalling 100 sterling at the new rate of exchange. The year before, the Imperial Conference at Ottawa had set up the structure of Imperial preference which has since remained the basis of New Zealand's trade with the United Kingdom, though the importance of the concessions, particularly as regards New Zealand exports to Britain, has been somewhat eroded with the passage of time. However, a British proposal to impose quota restrictions on butter imports and an unsuccessful experiment in placing such quotas on meat, shocked New Zealand opinion into its first acquaintance with an idea which has since become only too familiar – that the British market is not a bottomless pit into which anything New Zealand can produce may be profitably poured. Belief that Coates, Minister of Finance in the Coalition Government, had aided and abetted the British government's plan for a butter quota, was one reason for the loss of confidence in the Administration on the part of the dairy farmers, and their readiness to vote for a Labour Party which promised a guaranteed price for their products.