New Zealand was the first country to embrace inflation targeting, along with a raft of other polices that have come to be known as the broad neoliberal policy approach. In contrast to the northern hemisphere in New Zealand many of these changes were championed by the left of politics, and has become the entrenched position, for the most part, across our political spectrum for the past thirty odd years. Has this period of political thought delivered the promised well balanced improvements in our economic wellbeing, and what has been the outcome for the productive sectors of our economy?
What happened to Manufacturing?
New Zealand, along with most of the Anglo Saxon world, has offshored a significant amount of manufacturing activity since 1985. This accelerated when import tariffs were abandoned for most manufactured and agricultural goods. What manufacturing activity existed prior to the 1985 was targeted at rural support and infrastructure: road, rail and power generation plus some consumer durable manufacturing that could only function behind significant licencing and import tariff barriers.
Some types of pre 1985 activity, particularly that could be mass produced was quickly replaced by imports, and in the longer term more and more activity moved to low-cost countries. In a small economy local supply chains have found it hard to sustain themselves as volume fell through the 1990s, and as volume falls skills, capability and competitiveness become increasingly hard to sustain.
Many manufacturers in New Zealand did, and still do, have supply chain positions within the domestic market, even for goods that are finally exported. This dependence means that the loss of capability early in a supply chain can have a broader impact on the ability to compete via downstream effects on the manufacturing ecosystem – one more recent example of this was the loss of local manufacturing capability related to the rail industry in Dunedin.
There are pockets of success with some specialised products where New Zealand producers of elaborate goods do well in global niche markets but these successes cannot fully offset the decline in well-paid employment and elaborate product export revenue. New entrants are more likely to produce offshore, often not by choice: design, development, prototyping and early production can and do happen in New Zealand but the loss of any such local activity generally happens at some point.
Weekly incomes in manufacturing are higher than all industries both in average and median termsii.