Strategy required to halt the slide

By Rod Oram

Between the lines

If you think the New Zealand economy is healthy, consider this: in 1950 we had to export 0.7 tonnes of wool to pay for an imported small car; today we have to export 4.5 tonnes.

In the golden days, we exported high value commodities, earning ourselves the world's third highest per capita income. Today we have sunk to 25th for two broad reasons: commodity prices (excluding inflation) have fallen sharply; and we have failed to adapt by developing enough high value exports in agriculture and other sectors.

Some 60 per cent of our exports are still commodities such as wool, dairy products, meat, metals and timber which have been subjected to only basic processing.

Take the dairy industry. Milk production has virtually doubled over the past decade yet farmers have suffered a 2 per cent a year fall in prices. The reason is that the industry had to cope with the increased volume by exporting low value milk powder, distracting it from developing a greater volume of high value products.

As a nation we are doubly impoverished. Imported cars, for example, are much more sophisticated and reliable than they were 50 years ago and take a smaller share of average annual incomes to buy. Thus, imports have never been such good value yet we run a trade deficit because of deficient exports.

No reverse is in sight based on the economic outlook and the policies driving it. Seeking a better understanding of the problem and solutions, the Business Herald embarked on a special report on manufacturing which we published on March 25.

We were greatly encouraged by finding New Zealand manufacturers defying those trends; but we were discouraged they were exceptions not the rule.

Manufacturing's contribution to gross domestic product has fallen over the past 15 years. It now represents just under 15 per cent of GDP, making us probably the least industrialised of the world's developed economies.

The manufacturing sector has atrophied to the point that it may become unsustainable. It is so small and remote in world terms that it may not be able to support much longer the domestic infrastructure - the network of suppliers of components, materials, skills, research and development and services - vital to its survival.

The special report proposed a broad strategy for reversing that economically damaging trend.

Tomorrow a high powered collection of speakers and delegates will explore the remedies further at a one-day conference in Auckland hosted jointly by the Business Herald and the New Zealand Manufacturers' Federation. For further details about attending, please call ManFed on 04 496-2811.

There is no reason why our standard of living should stick at number 25 in the world. It is in our power to climb or fall. All we have to do is decide which way to go.