Manufacturing in New Zealand
Agaisnt the odds manufacturers are doing some great things in New Zealand. They often get written off as part of a dying industry but the reality is that manufacturing provides jobs for about 250,000 New Zealanders, and is at the core of our ability to self sufficiently provide for ourselves, give us the type of diverse economy that will get us through economic shocks and downturns, cut our imports and thus carbon emissions, and importantly provide jobs in our regions.
But successive governments have not always seen it that way. The Buy Kiwi Made programme that the Greens initiated is small but successful step in the right direction, but that does, at times, look like it is swimming against other government policy.
The Herald on Sunday interviewed a range of people involved in manufacturing who are all increasingly worried. It notes that in the last six weeks at least 830 people in manufacturing around New Zealand have learned they’re about to lose their jobs.
The NDU’s Laila Harre says the Government’s apparent belief that the only manufacturing worth nurturing is innovative, high end and technically cutting edge. Continuing to make things we have always needed and always will need doesn’t seem to warrant attention:
“Labour has lost the plot. Who says New Zealanders are brainier than the rest of the world? In order to keep the brainy jobs going you need the brawny jobs.
“It’s all very well to say high-tech, high-end, high-skill, but New Zealand workers at Fisher & Paykel are among the highest-tech, highest-end, highest-skill in the world. That hasn’t saved their jobs.”
Green MP Sue Bradford calls the knowledge economy line arrogant. For years, Bradford has been exhorting us to preserve and expand our ability to make what we need here.
A significant part of the current problem is the Reserve Bank’s use of the Official Cash Rate to keep inflation down. While that is an important goal it is being exercised at the expense of our primary industries and it is hurting them badly. Rampant inflation was the problem a quarter of a century ago but we need to be wary that it is neither the only nor the pre-eminent problem that our economy can face.
May 12th, 2008 at 11:32 am
It is incredibly arrogant, and implicitly says that Chinese, Indians, and the rest of the world are stupid, and cannot compete in innovation. Globalisation levels the playing field on all counts.
May 12th, 2008 at 11:58 am
Can someone explain to me what the effect of, instead of having sky high interest rates (and a corresponding high supply of $$, yen etc chasing those rates), having very LOW interest rates (with a high demand but a low supply). Would that not dampen down consumption expenditure but still allow productive investment, lower the $, encourage exports etc?
Educate me please.
May 12th, 2008 at 12:59 pm
How is “Buy Kiwi Made” successful? Where are the figures that tracked actual purchases?
We can’t compete with commodity manufacturing. There is plenty of other work that needs doing….
May 12th, 2008 at 1:32 pm
I will second BP’s statements at this stage
May 12th, 2008 at 1:38 pm
Yep.
The only real competitive advantage is our Kiwi Brand, 100% Pure (maybe its time we lived up to it?!)
Is our agricultural sector that efficient and productive compared to overseas?
May 12th, 2008 at 1:43 pm
I would say, ‘yes they are’. Thats why they make so much money!
May 12th, 2008 at 1:58 pm
Would they be able to make so much money if they had to internalize costs that they currently externalise? Or had to pay water rates like the rest of us?
May 12th, 2008 at 2:21 pm
New Zealanders aren’t “brainer” than anyone else, but:
- we have a pretty reasonable education system by global standards.
- our free liberal society provides a good environment for innovation
- we have the ability to attract smart people from overseas
- we have the “soft infrastructure” of a stable society governed by laws
All of these give us a competitive advantage in knowledge-based industry.
That suggests to me that we should try and grow our knowledge industry and get more of our people interesting, renumerative jobs. Not try and revert to the past, when everyone was “guaranteed” a shitty job labouring in a meatworks or outside in the rain.
May 12th, 2008 at 2:40 pm
Ah, well of course that is an important question.
Anyway, this is about manufacturing, and I would be interested to know if this thread is meant to imply that NZ manufacturing should be ‘nurtured’ like Harre alludes to is the case with ‘high tech’. I can’t get past the thinking that the only way to nurture low-tech, labour intensive manufacturing is to subsidies and tariffs, but surely we ARE past all that?
May 12th, 2008 at 2:53 pm
Maybe workers (and the rentier class) will have to adjust to lower expectations of monetary compensation, to align with those of the less developed nations.
If I’m working in the distribution or horticultural industry, why should I pay higher costs on goods so as to protect the high incomes of those in manufacturing, because either the costs of the high wages or tariffs will be passed on me?
May 12th, 2008 at 3:04 pm
>>but surely we ARE past all that?
Most are, but it seems the far left just can’t think outside Marxist reference points. Factories, industrial, rail, etc….
May 12th, 2008 at 3:06 pm
Can you release my post Frog?
I didn’t realise “Mar***t” was swear word, but kinda amused that it tripped the filter….
May 12th, 2008 at 3:18 pm
Well BP it seems more *implicit* more than *explicit* at the mo, will just wait for a frog till I make my judgements. Interestingly there are some good affordable NZ-made clothes at the Aotea square market on friday/saturday, should really ask them how they do that…
May 12th, 2008 at 3:49 pm
frog,
You are aware that wage inflation contributes to core inflation in a self-perpetuating cycle? In the case of a cost push inflation cycle that we’re in (agflation, petroinflation, house inflation), business increases their prices and labour demand higher wages which adds to business costs, so labour demands further pay rises pushing inflation higher in a vicious cycle.
As for whether the current Reserve Bank’s sole tool of the OCR is ideal method to deal with inflation, my answer is that it a problem that is actually out of their hands. The basis of their actions is the assumption that the high oil and commodity prices are a TEMPORARY aggregate supply shock and that the market will spontaneously readjust itself to distribute resources when fact neither is the case.
May 12th, 2008 at 4:06 pm
“The basis of their actions is the assumption that the high oil and commodity prices are a TEMPORARY aggregate supply shock and that the market will spontaneously readjust itself to distribute resources when fact neither is the case.”
That just about hits the nail squarely on the head.
On the other hand, I’m disappointed that despite having really really high interest rates the value of the NZD is falling. If the NZD falls significantly then we are going to have astronomical costs of commodities, which will slam ‘most everyone hard, and we’ll still have high interest rates to boot.
May 12th, 2008 at 4:41 pm
I meant
….and that the market will spontaneously readjust itself to redistribute resources more effectively and efficiently when fact neither is the case.
dbuckley
We actually should be happy that the USD is devaluing as imagine the cost of oil in NZD if it were lower as it was in the 1990s.
Expect the reserve army of labour to get larger due to the Reserve Banks war against inflationary expectations continues. They may lower interest rates, but that won’t compel business to borrow if we’re in the midst of a recession and so aren’t guaranteed a return on their capital investment.
And the Reserve Bank have no one to blame, but themselves, because they haven’t caught up to new economic realities.
May 12th, 2008 at 7:17 pm
BluePeter: “We can’t compete with commodity manufacturing. There is plenty of other work that needs doing….”
Like what?
May 12th, 2008 at 8:00 pm
rainman:
- IT - plenty of growth going on, it’s often lack of staff that holds us back
- media - Flight of the Conchords, Peter jackson are doing great business overseas
- green technology - if we pioneer new concepts in geothermal and wind power, we can sell those overseas
- design - things don’t need to be physically made here to generate money and jobs
We don’t need protectionism and low-skilled jobs. We do need better (and free) education to upskill people for better jobs.
May 12th, 2008 at 8:51 pm
There are some guys who make wind turbines too, but Meridian didn’t want to buy them cos they’re too small and noisy!
May 12th, 2008 at 8:56 pm
I am going along with Sue Bradford, to be independent will be soon the best way to stay afloat, with a barrel of oil costing a forecasted $ 200.
I wish all these globalisation apostles would -read- say Jane Kelsey’s ‘Reclaiming the future’. Instead of preaching the same old mantra’s of, if we do not compete in the ‘world scene’ we will end up back in the stone age…it’s such a load of short sited bollocks…If we will direct our brightest minds to achieve independence we will ALL prosper. It will just take to change that mindset of the above mentioned apostles and that might be achieved by just watching all what they belief in, go up in smoke at $ 200 a barrel !!!
May 12th, 2008 at 9:31 pm
greed n power
The greenies might want to start by promoting hydro. And fusion.
Some might big rats must be swallowed if oil really is running out….
May 12th, 2008 at 9:35 pm
Rainman
Trades, for starters.
Just got a quote today for some internal painting work, which I estimate would take around two weeks. Quote: $24, 000.
Painting. Not rocket science. I’m not paying it, but it seems many do….
May 12th, 2008 at 9:43 pm
rich_d_rich:
“- IT - plenty of growth going on, it’s often lack of staff that holds us back”
So that’d explain why IT growth overall was only up 3.5% last year vs 7.9 the year before (pre-credit crunch, shudder to think what it’ll be next time round), why 90% of the ICT market is domestic consumption, why we have the second biggest ICT trade deficit in the OECD, and why Mexico (you know, those low-skill commodity manufacturers we get to make our whiteware) has a positive ICT trade balance? What specific areas of IT do you see have “plenty of growth going on”?
“- media - Flight of the Conchords, Peter jackson are doing great business overseas”
There’s 4 million and change of us. What percentage have been successful in the media biz? How big could we grow this industry, realistically?
“- green technology - if we pioneer new concepts in geothermal and wind power, we can sell those overseas”
Now you’re onto something, at least we’d have brand advantage. Pity we don’t have a lot of engineering expertise left. As an illustration: I interviewed an Electronics Engineer (with a PhD) the other day. He wanted a relatively junior IT role, even for less money (and he is not being well paid for his qualification), as “there is no future in NZ for design work”.
“- design - things don’t need to be physically made here to generate money and jobs”
A common myth, built on the premise that the lesser economies are stupider than us. Although this can and does happen, you can’t build a sustainable economy on it. Any advantage we currently have is short lived. Look at what happened to IT development - a high skill knowledge economy job… Gone to Bangalore and beyond.
“We don’t need protectionism and low-skilled jobs. We do need better (and free) education to upskill people for better jobs.”
So who does the low-skilled jobs? What do you do with those of us who don’t have the skill, talent, or inclination to get into IT, or “media”?
We do need better education, but we also need protectionism, however ideologically repulsive this might be. We’re a little economy a long way down the supply chain at a time when that supply chain is getting ever longer.
Wake up. We need resilience above all else.
May 12th, 2008 at 9:49 pm
BP: “Trades, for starters”
That’s domestic consumption stuff, not generally exportable. Your original point was in response to Buy Kiwi Made. The “we” in your “we can’t compete” must surely mean NZ as a nation?
And at the risk of pedantry, oil’s been running out since we drew out the first barrel. It’s cheap oil that’s running out.
And I’ll happily do two weeks painting for only $23,000!
May 12th, 2008 at 10:04 pm
You asked what work there is that needs doing. I have given you one example.
My “Buy Kiwi Made” comment was in reference to a pointless propoganda campaign that appears to have no valid measurement criteria for success.
As for oil, we do not know what we do not know. We may be running out of cheap oil, or we may be being told we’re running out of cheap oil. I’ve been in the gulf recently, and learned a bit about the latter from a Texan business development exec…
>>And I’ll happily do two weeks painting for only $23,000!
So would I mate, so would I….
May 12th, 2008 at 10:11 pm
while ‘buy kiwi made’ goes on, kiwi jobs go off(shore)…
its a token gesture.
if this was in some places, people would fightback and occupy the factories and keep their jobs.
the paper had an article about manufacturing jobs that are disappearing and job loses and factory closures.
after Mexico.. the low wage, high hours jobs will jump off to another CHEAPER free trade zone and the race to the bottom will continue.
nz govt and some unions don’t care at all if jobs go, as long as overseas investors make some big bucks…
the ghost of Rogernomics lingers…
May 12th, 2008 at 10:11 pm
@BP
When I was young and enthusiastic … I demonstrated against the building of a nuke station in Kalka Germany, in those days -sigh- was the Green movement perceived, I imagine you where busy spraying DDT on paddocks and refuelling your chainsaw to cut some native forrest down…well, I am looking forward having Tschernobil build on your back lawn-mate- You are just not informed, and that is ok, alternative energy can be generated by many means with little impact, for a start - decentralise, encourage different building codes, tax incentives for 4litre cars( that is in 4litre per 100k’s) not 4litre Hoden ute (remember), enable people to have their own power generation in their homes to cut down on losses through transmission…well I could go on for ever…all that info has been around for decades, before you thought that there is any value in your environment…
May 12th, 2008 at 10:19 pm
BP: “You asked what work there is that needs doing. I have given you one example.”
So can I have an example that involves competing (internationally)?
“As for oil, we do not know what we do not know.”
Exactly right. Which is why some prudent risk management would not be amiss. Protecting our way of life and supporting economy, rather than risking it all for ideology.
May 13th, 2008 at 11:20 am
Dunno aboput all this knowledge economy stuff. Seems to me knowledge (including all the art, music, design and similar creative jobs) are dead easy to ship off overseas. Peter Jackson is an anomaly, having decided to set up and invest in Wellington rather tthan head off overseas as most successful creative people do.
Design and inovation seem to flourish when it is close to manufacturing and there’s an exchange of ideas and knowledge of processes. Keeping the two seperate might work if you are big enough and rich enough to maintain a constant interchange over a distance, but the record of NZ innovation seems to show that anybody who comes up with something good gets bought out and the knowledge heads to somewhere else.
NZ has had a very innovative agricultural sector, but much of the economic benefits resulting came from the sector doing the processing and providing services and farm inputs. A wealthy dairy sector isn’t going to do much for the rest of us if everything the farmers buy comes from overseas.
May 13th, 2008 at 1:30 pm
“built on the premise that the lesser economies are stupider than us….Look at what happened to IT development - a high skill knowledge economy job… Gone to Bangalore and beyond.”
Actually, not. There’s lots of IT development in NZ. India is fast reaching capacity, because their education system doesn’t produce enough people with the right skills, and the best people tend to emigrate permanently.
Like I say above, people in developing countries aren’t “stupider” than us, although some of them might have better English. We just have a lot more of our population able to access reasonable education.
May 13th, 2008 at 1:49 pm
rainman
Why? Are you incapable of thinking of one example yourself?
The point I’m making is that there is plenty of other work to do besides manufacturing. If you want specific examples of export-related industry, then consider agriculture, aluminum, forestry, horticulture, seafood, export services etc, etc….
>>risking it all for ideology
That’s what the left does. I’m all for increasing energy independence, but the halfwits keep blocking anything that doesn’t involve a windmill….
May 13th, 2008 at 1:57 pm
The greatest advantage that Kiwis have is our greater access to capital market, especially the Third World.
Advocates of microcredit brag of how interest rates in Bolivia have dropped; from a ruinous 70 to 80 percent down to “only” 35 percent after “commercialization”.
“In her answer, Zafar brought up the Bolivian market, where pre-commercialization microfinance rates were at 70 to 80 percent. But in the past 10 years, when Bolivia has become perhaps the most-commercialized microfinance sector in the world, the interest rate has dropped to 35 to 45 percent – a decrease that Zafar chalks up to competition. At the same time, the original players in that market may charge a higher rate because of the risk they’re taking on.
There is also a moral element at play. In Pakistan, moneylenders charge 200 to 350 percent – compared to Kashf’s 36 percent. Zafar noted, “I cannot stress this enough: you cannot put a cap on interest rates
http://www.worldchanging.com/archives/007973.html
Sam,
thats true, but commentators about farmer’s “success” fail to note that the cost of their inputs have risen as well, eg finance, land, fertilsers, feed etc thus eating up any productivity gains they may have made.
May 13th, 2008 at 1:58 pm
GAH!
I meant
The greatest advantage that Kiwis have is our greater access to capital market, especially compared to the Third World
May 13th, 2008 at 2:13 pm
You use Kiva.org at all?
May 13th, 2008 at 2:33 pm
StephenR,
Not yet, but I will once I sort out my own finances. My new boss is a passionate advocate of Kiva, although its really limited, because countries have far more important constraints that microcredit fails to address, which are necessary if those in the Third World will be able to enjoy a decent standard of livng.
Inadequate or expensive distribution and communications infrastructure for the movement of goods and services, poor sanitation and healthcare, poor education, no or little indigenous research and development. All of which require access to the capital markets which we enjoy, although most of us waste that privilege on the consumption of cheap trinkets or speculating on the values of assets (stockmarket, commodities, houses)
It infuriates me.
May 13th, 2008 at 8:58 pm
rich_d_rich: “There’s lots of IT development in NZ”
Yet overall ICT exports declined last year. Who’s our most successful ICT export developer?
BP: “Why? Are you incapable of thinking of one example yourself?”
Well, I could argue with myself, but that would be no fun. It’s your thesis, you defend it.
The examples you cite, (agriculture, aluminum, forestry, horticulture, seafood, export services) are mostly not “knowledge-economy” activities, and are vulnerable to being less competitive (read: downward pressure on relative prices) as a result of having to be shipped long distances in an environment where transport costs are increasing. And they largely won’t retain our brightest and best, who will continue to flood overseas and cause National to get all exercised.
The knowledge economy is a crock, and primary produce (and commodity production like the aluminium example) is subject to the tyranny of geography and ever-lengthening supply chains. If we want our (rather pleasant) lifestyle to be sustained, we’d better figure out how to be sustainable. And that doesn’t involve more globalisation, privatisation and FTAs, nor a bigger trade imbalance, but rather more local resilience, and living within our means.
May 13th, 2008 at 9:22 pm
rainman Says:
May 13th, 2008 at 8:58 pm
> The examples you cite, (agriculture, aluminum, forestry, horticulture, seafood, export services) are mostly not “knowledge-economy” activities
Actually, I think the future of agriculture and horticulture needs to be in them being more knowledge-based and wisdom-based. The future of dairying should be in farmers deepening their knowledge about cows, grass and soil, and how to get the best out of them.
May 13th, 2008 at 9:23 pm
I have no idea who are single most successful IT exporter is, or even where to look this up. However a few NZ products and firms include:
- Marshal Software - back in NZ and going strong
- Xero - leading hosted accounting package
- Navman - a manufacturer as well, but the value is in the design, not the boxes
- Serato - the worlds leading digital DJ solution
- Firefox - the lead developer is a Kiwi
- Peace Software - customer management solutions for energy
- Jade - niche database language used all over the world
- Ghost - Symantec product invented here and still developed and supported out of NZ
There are many more.
May 13th, 2008 at 10:05 pm
Rainman
Your argument is all over the place. Now your extra qualification is the work must be knowledge related?
My argument is straightforward. New Zealand cannot compete in commodity manufacturing, therefore work in this area will dry up. There is plenty of other work for people to do in other sectors. We enjoy comparative advantage in various sectors, few of which are knowledge based, and nor do they need be. Some countries i.e. the UK cannot markedly increase agricultural production, simply because there is no land left on which to do so.
You are also pretending that export will no longer be a viable option. Of course it will. Ships keep sailing. Planes keep flying. Consider that once a sector of the oil economy (i.e. the car) migrates to alternative power sources, there will be downward pressure on the price of oil.
May 13th, 2008 at 10:59 pm
BluePeter: My apologies, I seem to have merged your line of reasoning with that of rich_d_rich, who was talking about knowledge based industry above. Defence of the knowledge economy is also the standard response I find to any critique of globalisation. As you can tell, I think it’s not our salvation (although it is not a bad thing in itself and does help a little).
I agree we can’t compete in commodity manufacturing, at least not if we want to preserve our lifestyle. I also agree there is plenty of work to do in other sectors, but I would prefer to focus local production on meeting our domestic needs (not wants) first and minimising our trade imbalance. This cannot be left to the market and needs suitable trade protections, which I suspect is not your view.
I’ll take your word the UK has no more available arable land, but wonder why they buy lamb etc from NZ rather than from other countries nearer by. Undoubtedly some of this is a perception of quality, and there are clearly willing buyers for our premium product today. My contention is that this favourable set of circumstances is vulnerable to oil price escalation, as:
a) it will cause transport costs to distant markets to increase, impacting on our profit if we are to remain competitive, and
b) their local discretionary spend will be impacted by the rising oil costs and knock-on effects, and today’s willing buyers may well settle for some adequate Polish mutton instead of the superiorly delicious NZ lamb.
At the same time our imported plasma TVs will be more expensive owing to the same supply chain effects. Plus our export earnings will be dropping (see above), while our general import costs (eg. oil products) will be rising. As a result we are likely to import fewer TVs. No big loss, but as this extends, our current lifestyle will be gradually eroded.
I’m not saying shipping (or even air travel) will no longer be viable, simply that it will get progressively more expensive. I do expect that oil prices will correct as demand drops and efficiency measures kick in, but that in the medium term this will merely be a temporary blip, and the long term trend is inexorably up.
May 15th, 2008 at 1:24 am
that’s pretty much how it should go, though in the short term export volume might not adjust up very quickly as we havn’t built up the productive capacity. it will take some time to adjust our economy.
for a vicious circle to happen workers would have to demand - and get - wage rises entirely adequate to cover the price inflation at each round - and with businesses already making less profit through cost inflation & reduced sales (due to higher prices) that’s not going to happen. wage rises & price rises may go a few rounds before settling into the new “equilibrium” but in the end businesses & workers can both expect to be worse off.
the reserve bank can of course still control even inflation from exongenous shocks via monetary tools, but it would be quite draconian in effect.
you mean that if the price of oil was as high in $US as it is now but the $US was higher against the $NZ. but that situation couldn’t happen, part of the rise in the price of oil (in $US) is sinply because of the fall of the value of the $US (against oil & against other currencies too)
the $NZ has fallen a smidgen from record levels, but is still very high.