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New Zealand’s economy is developed, but it is comparatively small in the global marketplace. In the late 19th and early 20th centuries, New Zealand’s standard of living, based on the export of agricultural products, was one of the highest in the world, but after the mid-20th century the rate of growth tended to be one of the slowest among the developed countries. Impediments to economic expansion have been the slow growth of the economy of the United Kingdom (which formerly was the main destination of New Zealand’s exports) and its eventual membership in the European Community (later the European Union) and the high tariffs imposed by the major industrial nations against the country’s agricultural products (e.g., butter and meat). New Zealand’s economic history since the mid-20th century has consisted largely of attempts to grow and diversify its economy by finding new markets and new products (such as wine and paper products), expanding its manufacturing base, and entering into or supporting free-trade agreements.
New Zealand has had a long history of government intervention in the economy, ranging from state institutions’ competing in banking and insurance to an extensive social security system. Until the early 1980s most administrations strengthened and supported such policies, but since then government policy has generally shifted away from intervention, although retaining the basic elements of social security. Most of the subsidies and tax incentives to agricultural and manufacturing exporters have been abolished, and such government enterprises as the Post Office have become more commercially oriented and less dependent on government subsidies. In addition, administrations have attempted to increase the flexibility of the labour market by amending labour laws and encouraging immigration.
Agriculture, forestry, and fishing
New Zealand’s farming base required a relatively complex economy. Highly productive pastoral farming, embracing extensive sheep grazing and large-scale milk production, was made possible by a temperate climate, heavy investment in land improvement (including the introduction of European grasses and regular application of imported fertilizers), and highly skilled farm management by owner-occupiers, who used one of the highest ratios of capital to labour in farming anywhere in the world. The farms supported and required many specialized services: finance, trade, transport, building and construction, and especially the processing of butter, cheese, and frozen lamb carcasses and their by-products. That economy could be described as an offshore European farm, which exported wool and processed dairy products and imported a variety of finished manufactured consumer and capital goods, raw materials, and petroleum. Pastoral farming, especially dairying, has remained significant, but other sectors such as forestry (and the production of paper and other wood products), horticulture, fishing, deer farming, and manufacturing have produced a more-balanced economy. Viticulture has also flourished, and many New Zealand wines have come to rank among the world’s best.
Apart from gold mining’s brief heyday in the mid- to late 19th century, biological resources have always been more significant than minerals. Domesticated animals introduced from Europe thrived in New Zealand. Forestry has always been important, but the emphasis has swung from felling the original forest for timber to afforestation with pine and fir trees for both timber and pulp. Although New Zealand’s forestry industry is small on the world scale, it is a significant supplier of wood products to the Asia-Pacific region.
Resources and power
Most minerals, metallic and nonmetallic, occur in New Zealand, but few are found in sufficient quantities for commercial exploitation. The exceptions are gold, which in the early years of organized settlement was a major export; coal, which is still mined to a considerable extent; iron sands, which are exploited both for export and for domestic use; and, more recently, natural gas. In addition, construction materials, with which the country is well endowed, are quarried.
New Zealand’s energy comes from both fossil fuels and renewable resources such as hydroelectric, wind, and geothermal power. The country has exploited much of its great hydroelectric potential, and hydroelectricity long has supplied the bulk of the country’s power. However, as demand has increased, that proportion has dropped somewhat. Thermal plants fired with coal and natural gas constitute much of the remaining generating capacity, although a small but growing amount comes from geothermal sources. The New Zealand electricity grid has a notable feature in the form of direct-current submarine cables across the Cook Strait. Those link the two main islands, enabling surplus hydroelectric power in the South to be used by the North’s concentration of industry and people. In addition, partnerships between government and private interests developed natural gas reserves and constructed the world’s first plant producing gasoline from natural gas (since closed). There has been some successful offshore drilling for oil reserves.
Manufacturing
Even in the 19th century New Zealand’s relative geographic isolation made necessary a proportionately large industrial labour force engaged in the manufacture and repair of agricultural machinery and in shipbuilding, brewing, and timber processing. After the 1880s the factory processing of farm products swelled those numbers, while the country’s temporary isolation during World Wars I and II stimulated the production of a wide range of manufactured goods that previously had been imported. Protectionist policies first espoused, although weakly, by governments in the late 19th century were strengthened after World War I. From the end of World War II until the early 1970s, manufacturing industries were protected by import-licensing fees in order to maintain full employment. Some labour-intensive, heavily protected, and uneconomic activities—such as automobile and consumer-electronics assembly (with the manufacture of some parts and components)—were developed but were not able to remain competitive. Some industries have taken their manufacturing activities offshore, although the sector has remained significant as an employer and as a contributor to gross domestic product.