Fluctuation of the economy

Economic growth in the North Island had been considerably retarded by the wars. Meanwhile, the South Island, especially Canterbury and Otago, had grown increasingly prosperous. Pastoral farming expanded steadily, and the discovery of gold, first in Otago and then on the west coast, led to a sudden boom in production and trade. Population rose when diggers poured in; economic life quickened as gold brought prosperity, less to the diggers than to bankers, merchants, land sellers, and farmers supplying provisions. The South Island share of the European population jumped from about 40 percent to 60 percent during the 1860s. The North Island did not recover its previous lead until the 20th century.

Attempts by other provinces to emulate the development of Canterbury and Otago normally ended in embarrassment (in one case in bankruptcy) as money was recklessly borrowed and spent. To preserve the colony’s reputation, the central government in 1867 banned further provincial overseas borrowing. About that time economic depression struck the greater part of the country, especially the South Island, where the accessible alluvial gold had been worked out. The South Island was thus looking for a stimulus, while the ending of the wars now made further development possible in the North Island. It was widely agreed that only the central government could adequately revitalize the economy.

In 1870 a development policy was provided by Julius (later Sir Julius) Vogel, who at the time was colonial treasurer and who later served twice (1873–75; 1876) as premier. He was convinced (not altogether accurately) that New Zealand was bursting with potential resources needing no more than the stimulus of capital and labour for their exploitation. He borrowed overseas capital for public works on an unprecedented scale and swelled the labour force with British immigrants whose passage had been subsidized by the government.

Not all of Vogel’s schemes were wisely conceived; the prosperity of the mid-1870s was more an investment boom than a solid growth of productivity. But the colony ended the decade with a doubled population (about 500,000) and the beginnings of efficient internal and external communications. Roads, bridges, railways, and telegraph systems had been built and overseas shipping services improved. Private lending agencies contributed to the boom; in a heady atmosphere land values and interest rates climbed alarmingly. The public debt greatly increased, and many people who had acquired land were in desperate financial straits. Falling overseas prices for farm products (chiefly wool and wheat), a declining gold output, retrenchment by the government, and widespread unemployment marked the 1880s. Immigrant ships discharged their passengers at ports where unemployment was already rife. There had been growth in the 1870s, but it was succeeded by a depression that lasted until 1895.

Vogel abolished the provincial governments in 1876. They had earned his enmity by refusing to allow their lands to be used as security for public works and by blocking a forest-conservation scheme. Essentially, they had become outmoded when in the early 1870s the initiative in development passed to the central government. Provincial governments had been set up to colonize their districts; when the centre assumed this function, they lost their raison d’être. Abolition came fairly painlessly; it was an affront more to local pride than to local prosperity. Only in Otago was there a strong attempt to resist change. Thereafter, provincial interests were long pursued by the respective delegates in the General Assembly, whose achievements were in no way diminished by the lack of particularist (provincial) institutions.

The governments of the 1880s, though led by men of some ability and imagination, such as Sir Robert Stout and Sir Harry Atkinson, did not deal effectively with the depression. The time-honoured remedy, spending loan money on development, was not fully given up until 1887. The basic problem was to find productive work for the country’s labour force; closer land settlement was the remedy suggested in the 1880s and applied in the 1890s. Great areas, especially in the South Island, had fallen to large owners; these “monopolists” were attacked by the radicals, though probably the pastoral industry could not have been established under any other system. William Rolleston, minister of lands in the early 1880s, first proposed that the state help men to become small farmers as state tenants; John (later Sir John) McKenzie and the Liberal government applied that remedy with vigour in the 1890s. But closer settlement and intensive farming did not of themselves create economic benefits, which in fact could not accrue until small farmers had a product to export and gained a good price for that product. Refrigeration and rising world prices provided the answer. It became possible in the 1880s to send to Great Britain refrigerated cargoes of butter, cheese, and meat; this encouraged the spread of small-scale intensive farming.