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War Economy

Supply Uncertainties

Supply Uncertainties

The possibility of disruption in overseas communications required urgent attention to questions of continuity of supply in war. Retail sales to consumers, materials for manufacturing, equipment for industry and construction materials, all had a high import content and could be seriously affected by any impediment to the flow of imported supplies. Twenty-seven per cent of all New Zealand consumption of goods and services was imported and 40 per cent of capital formation. Many manufacturing industries were entirely dependent on imports for their continual operation and the average import content of New Zealand manufactured goods was nearly one-third. Even farming was over 3 per cent directly dependent on imports, and this dependence rose as high as 10 per cent when the import requirements of those who serviced farming were taken into account.2

As far back as 1933 the New Zealand Committee of Imperial Defence had recognised the importance of early planning for supply in wartime and had formed various supply sub-committees. In 1936, when the Committee of Imperial Defence became the Organisation for National Security, a National Supply Council was set up. This Council and its sub-committees made reports on specific commodities, and tabulated information resulting from a questionnaire sent to major factories. Responses to the questionnaire were, however, not good enough to provide really reliable information. The special staff engaged on this work also maintained contact with manufacturers and others, encouraging them to use substitutes and to stockpile essential raw materials.

By the time of the Munich crisis, in September 1938, recommendations had been made for the necessary controls over supply in the event of war, and draft regulations had been prepared. The Department of Industries and Commerce, which had been represented on all the Supply Committees, was given the job of page 37 organising and co-ordinating a larger scale investigation of the supply position. A further questionnaire was sent to specific industries and produced a rather better range of information, though once again the response does not seem to have been sufficient to give a really comprehensive view of requirements.1

In April 1939 the Pacific Defence Conference was held in Wellington, attended by representatives of the United Kingdom, Australia and New Zealand. All aspects of co-ordination in the event of war and co-operation in defence problems in peacetime were fully discussed.

By this time the main impediment to the accumulation of reserve stocks was the critically low level of New Zealand's overseas funds. In 1938 the effects of lower export earnings, high imports and some flight of capital had run down overseas reserves rapidly, leading to the imposition of import controls and a very tight rein on the use of overseas funds.

In May 1939 Cabinet decided that funds and special import licences should be made available to certain firms and Government departments to enable them to purchase and hold stocks as a reserve in case of war. A sum of £512,000 was earmarked for this purpose. It was pitifully inadequate, but, in agreeing to the proposition, the Reserve Bank added, ‘owing however to the possibility of an acute shortage of sterling I must request that the Reserve Bank be consulted before any further large purchases are sanctioned involving the remittance of funds overseas.’2

It is possible that any major commitment of overseas funds would have been similarly tagged, but it is still surprising that such a small sum for war preparations did not have a higher priority by May 1939.

Recognition of the need for effective action came too late to enable reserves to be greatly expanded, for the war was only a few months away. Mr L. J. Schmitt, Secretary of Supply, wrote later to the Minister, ‘… the outbreak of war on September 3rd 1939 caught us in the middle of a steady expansion of reserve stocks of many items, which would have been purchased in September and October but were never imported because of the outbreak of war.’3

page 38

2 These are actually post-war estimates for 1952–53 (Baker ‘Patterns and Relationships in the N.Z. Economy’, Accountants' Journal, January 1959). Because of the increasing relative importance of domestic manufacturing, they probably give low estimates of import contents in the pre-war years.

1 War History narrative 90/1, Ministry of Supply, Vol. 1, p. 21.

2 Reply of Governor of Reserve Bank of 28 June 1939 to application by the acting Minister of Finance of 28 June—on Industries and Commerce file 55/7. See also p. 44.

3 Secretary of Supply to Minister of Supply, 22 August 1940. On Industries and Commerce file 55/7.