New Zealand's sad manufacturing problem

16:00, Feb 03 2013

Last year I was lucky enough to spend a day in Oamaru. For the tourist, one of the best things about the town is the large number of beautiful old buildings. It's like walking around a movie set. I kept expecting a bearded man in a top hat and smoking a pipe while riding a penny-farthing to emerge from behind one of the glorious Victorian stone buildings. But there's also the superb Whitestone cheese factory and many good cafes. And just down the road at Moeraki is the famous Fleur's Place. And if you're into biking, Oamaru will be the destination of a cycle trail, opening later this year, starting at Mt Cook.

As I ambled down Oamaru's main street, I admired the way the pretty little town seemed to be reinventing itself. Little did I know that in just two months, the town's second-largest employer, the Summit Wool Spinners' plant, would close, with the loss of nearly 200 jobs.

It's a familiar story of provincial New Zealand. The Japanese owners decide to sell the unprofitable plant at a bargain basement price to another overseas company. The new owners close the plant while they look at how they can make it profitable. When I heard the manager of the new Australian owners talk about the need to "revitalise" the mill "in an amended form" my heart sank. For the 192 redundant workers, the most optimistic projection is that the new owners might employ up to 50 workers later in the year.

This sad story is not unique. Kawerau, Kaitaia, Hillside – we've heard it before. The global financial crisis, along with the high dollar, is blamed for less demand for the product.

Is this just a sign of the times? Perhaps, though I worry that if Kiwis can't make a go of spinning our world-class wool, what can we do? Local National MP Jacqui Dean had a crisis meeting with company officials the day after the redundancies were announced, yet the yarn that her prime minister has been spinning is that his government will not intervene to bring down the high dollar. Nor will it intervene in any other way to assist ailing manufacturers. The gospel according to St John Key states that it's the free market that determines whether manufacturers live or die, not government.

Yet this is the same "hands off" government which bailed out South Canterbury Finance investors, which gave taxpayer money to private schools to integrate, and which changed our industrial legislation so Hollywood movies could be made here. Perhaps the new owners of the Oamaru spinning plant need to specialise in making red carpets for Hollywood film premieres subsidised by Kiwi taxpayers.

So what should the Government do? Those of us who remember the overregulated days of Robert Muldoon don't want a return to a highly managed exchange rate. We recall how financial dealers like John Key were able to make millions overnight when Roger Douglas was forced to devalue. But there are far less draconian ways to ensure that the exchange rate doesn't rise on the back of speculative foreign investment.

Yet the proponents of laissez faire economics, many of whom still work for the Reserve Bank and Treasury, are more dogmatic than the staunchest trade unionist. They don't want to know, even though limited interventions can help an economy. Even our Government knows this. That's why John Key's recent state of the nation speech signalled much more stimulation and, dare I say it, intervention than last year.

There are both advantages and disadvantages to intervening in the exchange rate. But rather than issue a dogmatic "no way", the Government and financial institutions need to debate the issue openly and realistically. I suspect that if a politician can successfully persuade New Zealanders that taking moderate action to lessen the effects of the high dollar could save jobs in heartland New Zealand, and resuscitate our ailing manufacturing sector, then they could find themselves replacing our current tut-tutting prime minister. And their party would probably win the now marginal seat of Waitaki while they're at it.


The Dominion Post