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Graphic: An Encyclopaedia of New Zealand 1966.


This information was published in 1966 in An Encyclopaedia of New Zealand, edited by A. H. McLintock. It has not been corrected and will not be updated.

Up-to-date information can be found elsewhere in Te Ara.



Labour Policy

Labour swept to power in 1935 on a mixture of urban and small farmer vote similar to that which had brought the Liberals into office in 1890. The new Government sought to promote economic stability and security. In regard to stability, the aim was to avert the large fluctuations in prices, incomes, and employment, largely originating outside New Zealand, which had caused so much hardship in the years since the First World War. New Zealand has been successful in this objective, in the sense that for nearly a quarter of a century the country has experienced full employment and a continued high level of domestic economic activity. To achieve this has involved, however, throwing the burden of fluctuations on the external aspects of the economy – hence the recurrent balance of payments crises which have caused so much perplexity, especially in the 1950s. Moreover, to protect the country's overseas reserves and contain inflation within tolerable limits has necessitated a structure of controls which, in the opinion of many observers, has entailed some distortion of the country's economy, and has proved inimical to rapid economic growth.

In regard to security, success has perhaps been less ambiguous. The system of social services which the Labour Government and its successors have erected and maintained has, together with the absence of unemployment, substantially removed the fear of destitution from the people, and the vitality and health of the New Zealand population of today are plain for all to see. Critics have maintained that this success, too, has been bought at a price: that the incentive to save, for example, has been weakened by a “cradle to grave” system of State Security, and that the high level of taxation needed to finance these benefits has had an adverse effect on economic initiative. There may well be some force in these arguments; but it is incorrect to suppose that the proportion of the national income taken by taxes in present-day New Zealand is materially higher than in other countries with similar levels of per capita income.

To return, however, to the mid-1930s, the new Government proceeded to tackle the economic problems of the country in a far more imaginative way than its predecessors had done. It must be acknowledged, however, that Labour was fortunate in the timing of its electoral victory; for by late 1935 the worst of the depression was over – export prices, except those of dairy produce, had passed their trough two or three years earlier, and the relatively healthy state of overseas reserves enabled the Government to take measures to stimulate the economy without undue fear of immediately precipitating a balance of payments crisis.

The 1936 Budget restored the Coalition Government's cuts in public service salaries and brought wages back to their level preceding the general order of May 1931 which had initiated the sharp decline of wage rates during the depression period. A vigorous State housing programme was begun, public works expenditure was stepped up, and unemployment and other social benefits were increased. The dairy farmers got their promised “guaranteed price”, though the principles underlying it were ambiguous from the start, and a major collision over its interpretation was postponed only by the war. In 1937 a Marketing Department was established, monopolising the export of dairy produce. A programme of stimulating the development of manufacturing industry was started, and the 40-hour week was introduced. All these measures without doubt helped greatly to stimulate the economy. Nevertheless the revival of imports induced by a rising national income, combined with the minor recession overseas of 1937–38, did in fact run reserves down to a dangerously low level in 1938, and shortly after its second period of office began, the Labour Government began to erect the system of exchange and import controls which developed, after the war, into a major instrument of national policy.

For New Zealand, as for many countries, the Second World War involved a larger economic effort than did the First. Yet being directed by a Government whose philosophy favoured controls, some of which were already in operation, the economy was mobilised to wartime needs with remarkably little disruption. New Zealand was able, for example, to hold the rise of retail prices during the war to only 18 per cent – much less than in many other belligerent countries. The Marketing Department, again, was well placed to mobilise exports of primary produce, which, as in the First World War, but more promptly, were “commandeered” by the United Kingdom government. Farmers benefited from assured prices, though in fact, perhaps because of unwillingness to press Britain too hard, New Zealand received for her exports prices substantially below the world level – a comment which would equally apply, in the case of meat and dairy produce, to the post-war years also.

New Zealand put into its armed forces a higher proportion of its able-bodied men than did any other allied country save Russia, yet the volume of production generally expanded, though in the later years of the war a shortage of fertiliser somewhat impeded farm production. Secondary industry received a marked stimulus from the shortage of imported consumer goods; the number of factory workers rose, despite conscription, by some 20,000.

The holding of the price level and the comprehensiveness of controls, together no doubt with the better understanding of national income economics which New Zealand, in common with other countries, now enjoyed, smoothed the difficulties of war finance. The National Debt, in the eight years prior to March 1947, increased by some £290 million but liabilities in London and in Australia were reduced by £36 million. This, following on a conversion operation to take advantage of low interest rates in 1933–34 and together with further debt repayment in the later 1940s, greatly reduced the burden of interest payments on the balance of payments, particularly in view of the post-war rise of prices and incomes. During the 1950s, interest payments abroad on the public debt did not exceed 2 per cent of the value of exports. Yet the very excellence of the machinery of controls meant that, in some ways, the real burden of the war was postponed rather than lightened. In the post-war years the very high level of liquidity, the barely suppressed demand for imports, and the housing shortage constituted major problems, and perhaps justified retaining key controls until the end of Labour's long period of office in 1949.

For some six years after the war these difficulties, however, were rendered tolerable by the very marked rise in export values, which trebled between 1945 and 1951. This rise combined the effects of increasing volumes of exports and of a sharp rise of export prices, especially of wool; meat and dairy produce prices would have risen more but for the continuance of the bulk purchase schemes until rationing ended in the United Kingdom in 1954. The former trend has continued after 1951, thanks in part to the spectacular post-war innovation of aerial top-dressing, which has worked wonders for the productivity of the more rugged country since the first experiments in 1948. In the years 1948–58, the total sheep population increased from 32½ to over 46 millions – an increase of nearly 42 per cent. This expansion, combined with difficult trading conditions for dairy produce in the late 1950s, has resulted in the sheep becoming once again by far the greatest export earner. The opportunity was taken, during the pre-Korean war years of favourable balance of payments, to reduce further New Zealand's balance of international indebtedness, and to revalue the currency to parity with sterling in 1948 – a move to which Labour had been committed since taking office in 1935, and which helped, though temporarily, to restrain inflationary tendencies.

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