Empires, nations and businesses, most centred far from New Zealand, have shaped the country’s economic life since the first arrival of Europeans.
World economy and New Zealand, 1770–1840
At first New Zealand was not part of Britain’s empire. Individual trading ships from many nations came for seals, whales, flax, timber and provisioning.
Britain’s influence grew after it established penal colonies on the eastern Australian coast at Port Jackson (Sydney) in 1788 and Hobart in 1807. Many of the early trading ships came from Australian ports. Until 1833 the British East India Company had a monopoly on Pacific trade with Britain, but this was not fully enforced after 1819.
Britain annexes New Zealand, 1840
Britain incorporated New Zealand into its empire in 1840. European powers had traditionally been ‘mercantilist’ – they favoured their own traders and their own ships. But in the 1840s Britain was moving towards ‘free trade’, a view that commercial dealings between countries should not be restricted. After the first years of the colony, New Zealand did not give significant preference to British commerce, nor was it expected to.
In the gold rush years of the 1860s, Britain’s Australian colonies remained important economically to New Zealand. Dunedin, the main outlet for the Otago goldfields, was developed by businesspeople and migrants from Melbourne. Most of New Zealand’s gold found its way to Australia in the first instance.
In the 1870s gold declined, and wool rose in importance. British firms supplied around 60% of New Zealand’s imports and Britain took around 75% of exports. Perhaps 20% of wool imported into the UK was sold on to mainland European manufacturers.
The British government itself was important to New Zealand economically. Britain supplied troops when relations between Europeans and Māori broke down. Military spending was vital to the economy of Wellington in the mid-1840s and Auckland in the mid-1860s.
Being of good standing – and therefore able to borrow more cheaply – was a persisting goal of colonial governments. UK colonial legislation in 1877 allowed colonial loans to be ‘inscribed’, which made them more reputable, and the Colonial Stock Act of 1900 allowed trustees in the UK to invest in such stocks.
Lending to the colonies
Another important connection was financial. British investors lent money to individuals, companies and the colonial and provincial governments. Banks lent the colonial government £1 million in 1863 (nearly $120 million in 2020 values), at a time when the economy of the colony as a whole was reckoned at about £12 million, and exports earned less than £2 million. £10 million was lent in the early 1870s.
British investors were often sceptical about New Zealand enterprises. Colonial banking practices attracted sceptical comment, criticism that was borne out by the difficulties that colonial banks got into in the late 1880s and early 1890s.
The most important financial officer in the New Zealand government was the agent-general in London, who organised loans. In 1904, of £53 million of government debt, £46.5 million was raised in London: ‘England is for [New Zealanders] a banker provided by nature’ said one commentator.1