Think Big
Encyclopedia
The New Zealand
Prime Minister
Robert Muldoon
(Prime Minister: 1975 - 1984) and his New Zealand National Party
government in the early 1980s sponsored Think Big as an interventionist
state economic strategy. The Think Big schemes saw the government borrow heavily overseas, running up a large external deficit
, and using the funds for large-scale industrial projects. Petrochemical and energy related projects figured prominently, designed to utilize New Zealand's abundant natural gas
to produce ammonia
, urea
fertilizer
, methanol
and petrol.
The National Cabinet Minister Allan Highet
coined the "Think Big" label in a speech to a National Party conference in 1977. Economist Brian Easton also used the term "think big" in describing economic strategies.
, and from rampant inflation
.
In 1978 New Zealand faced a further crisis in oil-supply. OPEC
continued to raise the price of oil. Then in 1979 the Iranian Revolution
paralysed that country's oil-industry and 5.7 Moilbbl of oil per day were withdrawn from world supply.
In 1978 Bill Birch
became the Minister of Energy. He looked to the substantial reserves of natural gas under Taranaki and off its coast as an opportunity to bring life to the ailing economy.
In 1979 the oil crisis
worsened. During the first half of 1979 OPEC
raised oil prices from US$12 a barrel to US$19 a barrel. The New Zealand government banned weekend sales of petrol. On 30 July, 1979, the government introduced carless days
, where private motorists had to choose one day of the week, on which they could not drive their motor vehicle. Heavy fines were imposed for motorists who were caught driving on their nominated carless day.
The increases in oil prices substantially worsened the country's already precarious terms of trade
. The cost of oil loomed as the major component of the New Zealand balance of payments deficit. Muldoon's administration intended the Think Big projects to reduce New Zealand's reliance on imports, especially oil, and thus improve the balance of payments
.
synthetic-petrol plant at Motunui
, the complementary expansion of the oil refinery
at Marsden Point
near Whangarei
, and the building of a stand-alone plant at Waitara
to produce methanol for export. Motunui
converted natural gas from the off-shore Maui
field to methanol, which it then converted to petrol on-site. Declining oil prices rendered this process uneconomic and New Zealand abandoned the manufacture of synthetic petrol.
The construction of the Clyde Dam
on the Clutha River
formed part of a scheme to generate electricity for smelting aluminium
. Construction of a proposed smelter at Aramoana
on Otago Harbour
never happened — largely because of resistance on environmental grounds.
only. Some see the Synfuels and other projects as a way in which foreign multinationals had the opportunity to establish themselves in the then highly-regulated New Zealand market.
Little doubt remains that the New Zealand economy reaped substantial benefits from economic activity during the construction period, but the basic justification for the projects, a permanently higher oil-price, did not happen. Oil prices subsequently dropped in real terms.
Think Big did have a large positive impact on New Zealand's exports, and saved large quantities of commodity-imports through its process of import substitution. The industrial projects such as Tiwai Point continue to generate very sizable profits (for their largely overseas owners) that arguably cumulatively have outweighed the actual cost of implementing the Think Big projects. Power generated from the Clyde Dam, the expansion of the Marsden Point Oil Refinery
(claimed as having one of the most powerful catalytic crackers in the world), and the methanol produced at Waitara all provide examples of continuing positive benefits to the economy decades after the completion of the projects. New Zealand's balance-of-payments
problem in the late 1980s would have loomed much more significantly if New Zealand had not had the benefits to its external accounts arising from Think Big.
Approval of Think Big, at least during and soon after the time of its implementation, tended to rely on party affiliations (with National Party
supporters backing the projects, while Labour Party
supporters opposed them). But Think Big no longer serves as an issue in New Zealand politics. Even much of the National Party came to perceive that Think Big sank New Zealand into huge debt without any significant return, accompanied by a generational repudiation of Muldoon's entire legacy.
More recent economic thought suggests that the policies of Think Big may have had no effect on the balance of payments at all. It is now believed that under a floating exchange rate
, the balance of payments is directly linked to the equilbrium of savings and investment through Net Capital Outflow
.
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
Prime Minister
Prime Minister of New Zealand
The Prime Minister of New Zealand is New Zealand's head of government consequent on being the leader of the party or coalition with majority support in the Parliament of New Zealand...
Robert Muldoon
Robert Muldoon
Sir Robert David "Rob" Muldoon, GCMG, CH served as the 31st Prime Minister of New Zealand from 1975 to 1984, as leader of the governing National Party. Muldoon had been a prominent member of the National party and MP for the Tamaki electorate for some years prior to becoming leader of the party...
(Prime Minister: 1975 - 1984) and his New Zealand National Party
New Zealand National Party
The New Zealand National Party is the largest party in the New Zealand House of Representatives and in November 2008 formed a minority government with support from three minor parties.-Policies:...
government in the early 1980s sponsored Think Big as an interventionist
Economic interventionism
Economic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...
state economic strategy. The Think Big schemes saw the government borrow heavily overseas, running up a large external deficit
Deficit
A government budget deficit is the amount by which some measure of government revenues falls short of some measure of government spending.If a government is running a positive budget deficit, it is also said to be running a negative budget surplus .-Primary deficit, total deficit, and debt:The...
, and using the funds for large-scale industrial projects. Petrochemical and energy related projects figured prominently, designed to utilize New Zealand's abundant natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
to produce ammonia
Ammonia
Ammonia is a compound of nitrogen and hydrogen with the formula . It is a colourless gas with a characteristic pungent odour. Ammonia contributes significantly to the nutritional needs of terrestrial organisms by serving as a precursor to food and fertilizers. Ammonia, either directly or...
, urea
Urea
Urea or carbamide is an organic compound with the chemical formula CO2. The molecule has two —NH2 groups joined by a carbonyl functional group....
fertilizer
Fertilizer
Fertilizer is any organic or inorganic material of natural or synthetic origin that is added to a soil to supply one or more plant nutrients essential to the growth of plants. A recent assessment found that about 40 to 60% of crop yields are attributable to commercial fertilizer use...
, methanol
Methanol
Methanol, also known as methyl alcohol, wood alcohol, wood naphtha or wood spirits, is a chemical with the formula CH3OH . It is the simplest alcohol, and is a light, volatile, colorless, flammable liquid with a distinctive odor very similar to, but slightly sweeter than, ethanol...
and petrol.
The National Cabinet Minister Allan Highet
Allan Highet
David Allan Highet QSO was a New Zealand politician. He was an MP from 1966 to 1984, representing the National Party for Remuera, holding the then largest majorities in the House.-Early life and family:...
coined the "Think Big" label in a speech to a National Party conference in 1977. Economist Brian Easton also used the term "think big" in describing economic strategies.
History
In the late 1970s New Zealand's economy was suffering from the aftermath of the 1973 energy crisis and the loss of its biggest export market upon Britain's entry to the European Economic CommunityEuropean Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
, and from rampant inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
.
In 1978 New Zealand faced a further crisis in oil-supply. OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
continued to raise the price of oil. Then in 1979 the Iranian Revolution
Iranian Revolution
The Iranian Revolution refers to events involving the overthrow of Iran's monarchy under Shah Mohammad Reza Pahlavi and its replacement with an Islamic republic under Ayatollah Ruhollah Khomeini, the leader of the...
paralysed that country's oil-industry and 5.7 Moilbbl of oil per day were withdrawn from world supply.
In 1978 Bill Birch
Bill Birch
Sir William Francis Birch, GNZM , usually known as Bill Birch, is a former New Zealand politician. He served as Minister of Finance for several years in the fourth National government.-Early life:...
became the Minister of Energy. He looked to the substantial reserves of natural gas under Taranaki and off its coast as an opportunity to bring life to the ailing economy.
In 1979 the oil crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
worsened. During the first half of 1979 OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
raised oil prices from US$12 a barrel to US$19 a barrel. The New Zealand government banned weekend sales of petrol. On 30 July, 1979, the government introduced carless days
Carless days
Carless days were introduced by the Muldoon government of New Zealand on 30 July 1979. The enabling legislation was one of several unsuccessful attempts to help the declining New Zealand economy after the oil shocks of the late 1970s - other such policies included the Think Big strategy.In this...
, where private motorists had to choose one day of the week, on which they could not drive their motor vehicle. Heavy fines were imposed for motorists who were caught driving on their nominated carless day.
The increases in oil prices substantially worsened the country's already precarious terms of trade
Terms of trade
In international economics and international trade, terms of trade or TOT is /. In layman's terms it means what quantity of imports can be purchased through the sale of a fixed quantity of exports...
. The cost of oil loomed as the major component of the New Zealand balance of payments deficit. Muldoon's administration intended the Think Big projects to reduce New Zealand's reliance on imports, especially oil, and thus improve the balance of payments
Balance of payments
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...
.
Projects
The core Think Big projects included the construction of the MobilMobil
Mobil, previously known as the Socony-Vacuum Oil Company, was a major American oil company which merged with Exxon in 1999 to form ExxonMobil. Today Mobil continues as a major brand name within the combined company, as well as still being a gas station sometimes paired with their own store or On...
synthetic-petrol plant at Motunui
Motunui
Motunui is a settlement in northern Taranaki, in the North Island of New Zealand. It is located on State Highway 3 close to the shore of the North Taranaki Bight, six kilometres east of Waitara....
, the complementary expansion of the oil refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
at Marsden Point
Marsden Point
Marsden Point is a head of the Whangarei Harbour, near Whangarei, New Zealand, lying close to the northern tip of Bream Bay. It is also a major industrial area, containing Marsden Point Oil Refinery, the country's only such facility, and two large defunct power plant stations...
near Whangarei
Whangarei
Whangarei, pronounced , is the northernmost city in New Zealand and the regional capital of Northland Region. Although commonly classified as a city, it is officially part of the Whangarei District, administered by the Whangarei District Council a local body created in 1989 to administer both the...
, and the building of a stand-alone plant at Waitara
Waitara, New Zealand
Waitara is the name of a town and a river in the northern part of the Taranaki Region of the North Island of New Zealand. Waitara is located just off State Highway 3, 15 km northeast of New Plymouth....
to produce methanol for export. Motunui
Motunui
Motunui is a settlement in northern Taranaki, in the North Island of New Zealand. It is located on State Highway 3 close to the shore of the North Taranaki Bight, six kilometres east of Waitara....
converted natural gas from the off-shore Maui
Maui gas field
The Maui natural gas field is the largest gas, natural gas condensate and oil field in New Zealand, producing nearly three-quarters of the country's hydrocarbons, as well as providing energy for electricity generation. It is located in the Tasman Sea, 35 km off the coast of Taranaki and to the...
field to methanol, which it then converted to petrol on-site. Declining oil prices rendered this process uneconomic and New Zealand abandoned the manufacture of synthetic petrol.
The construction of the Clyde Dam
Clyde Dam
The Clyde Dam, New Zealand's third largest hydroelectric dam, is built on the Clutha River near the town of Clyde. It is owned and operated by Contact Energy.-History:...
on the Clutha River
Clutha River
The Clutha River / Mata-Au is the second longest river in New Zealand flowing south-southeast through Central and South Otago from Lake Wanaka in the Southern Alps to the Pacific Ocean, south west of Dunedin. It is the highest volume river in New Zealand, and the swiftest, with a catchment of ,...
formed part of a scheme to generate electricity for smelting aluminium
Aluminium
Aluminium or aluminum is a silvery white member of the boron group of chemical elements. It has the symbol Al, and its atomic number is 13. It is not soluble in water under normal circumstances....
. Construction of a proposed smelter at Aramoana
Aramoana
Aramoana, also known as "The Spit" to locals, is a small coastal settlement, 27 kilometres north of Dunedin city, in the South Island of New Zealand. The settlement's permanent population in 2001 Census was 261. Supplementing this are seasonal visitors from the city who occupy cribs...
on Otago Harbour
Otago Harbour
Otago Harbour is the natural harbour of Dunedin, New Zealand, consisting of a long, much-indented stretch of generally navigable water separating the Otago Peninsula from the mainland. They join at its southwest end, from the harbour mouth...
never happened — largely because of resistance on environmental grounds.
List of projects
- methanol plant at WaitaraWaitara, New ZealandWaitara is the name of a town and a river in the northern part of the Taranaki Region of the North Island of New Zealand. Waitara is located just off State Highway 3, 15 km northeast of New Plymouth....
- ammonia/urea plant at KapuniKapuniKapuni is a small hydrocarbons field and drilling site in the North Island of New Zealand. It is located within a dairy farming area in Taranaki, south of New Plymouth....
- synthetic-petrol plant at MotunuiMotunuiMotunui is a settlement in northern Taranaki, in the North Island of New Zealand. It is located on State Highway 3 close to the shore of the North Taranaki Bight, six kilometres east of Waitara....
- expansion of the Marsden Point Oil RefineryMarsden Point Oil RefineryMarsden Point Oil Refinery is located at Marsden Point, Whangarei, Northland, New Zealand. It is the only oil refinery in New Zealand, and is operated by Refining NZ....
- expansion of the New Zealand SteelNew Zealand SteelNew Zealand Steel is a large steel mill located at Glenbrook, New Zealand. It uses a unique method of producing steel from ironsand, abundant on the west coast of the North Island...
plant at GlenbrookGlenbrook, New ZealandGlenbrook is a rural and industrial area in the Franklin district of New Zealand.The industrial site, that of New Zealand's major steel mill, New Zealand Steel, is not located close to any towns - the surrounding countryside is occupied by huge farms... - electrification of the North Island Main Trunk Railway between Te RapaTe RapaTe Rapa is a mixed light industrial, large scale retail and semi-rural suburb to the northwest of central Hamilton, New Zealand.Stretching in a long, thin north-south axis, Te Rapa is home to a large number of factories including Te Rapa Dairy Factory, one of the largest of its kind in the world...
and Palmerston NorthPalmerston NorthPalmerston North is the main city of the Manawatu-Wanganui region of the North Island of New Zealand. It is an inland city with a population of and is the country's seventh largest city and eighth largest urban area. Palmerston North is located in the eastern Manawatu Plains near the north bank... - a third reduction line at the Tiwai PointTiwai Pointthumb|[[Awarua Plain]] , Tiwai Point and [[Bluff, New Zealand|Bluff]] viewed from the [[International Space Station]] in 2008.Tiwai Point lies at the entrance to Bluff Harbour on the southern coast of the South Island of New Zealand...
aluminium smelterAluminium smeltingAluminium smelting is the process of extracting aluminium from its oxide alumina, generally by the Hall-Héroult process. Alumina is extracted from the ore Bauxite by means of the Bayer process at an alumina refinery....
, near BluffBluff, New ZealandBluff is a town and seaport in the Southland region, on the southern coast of the South Island of New Zealand. It is the southern-most town in New Zealand and, despite Slope Point being further to the south, is colloquially used to refer to the southern extremity of the country... - the Clyde DamClyde DamThe Clyde Dam, New Zealand's third largest hydroelectric dam, is built on the Clutha River near the town of Clyde. It is owned and operated by Contact Energy.-History:...
on the Clutha RiverClutha RiverThe Clutha River / Mata-Au is the second longest river in New Zealand flowing south-southeast through Central and South Otago from Lake Wanaka in the Southern Alps to the Pacific Ocean, south west of Dunedin. It is the highest volume river in New Zealand, and the swiftest, with a catchment of ,...
.
Measuring outcome
No definitive study has addressed the issue as to whether Think Big brought positive economic benefit to New Zealand or whether it simply raised the country's debt levels. Opinions differ — the cost to taxpayers remains unknown, and no comparison of cost to results obtained has appeared. Some commentators believe the schemes delivered net benefits to the private sectorPrivate sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
only. Some see the Synfuels and other projects as a way in which foreign multinationals had the opportunity to establish themselves in the then highly-regulated New Zealand market.
Little doubt remains that the New Zealand economy reaped substantial benefits from economic activity during the construction period, but the basic justification for the projects, a permanently higher oil-price, did not happen. Oil prices subsequently dropped in real terms.
Think Big did have a large positive impact on New Zealand's exports, and saved large quantities of commodity-imports through its process of import substitution. The industrial projects such as Tiwai Point continue to generate very sizable profits (for their largely overseas owners) that arguably cumulatively have outweighed the actual cost of implementing the Think Big projects. Power generated from the Clyde Dam, the expansion of the Marsden Point Oil Refinery
Marsden Point Oil Refinery
Marsden Point Oil Refinery is located at Marsden Point, Whangarei, Northland, New Zealand. It is the only oil refinery in New Zealand, and is operated by Refining NZ....
(claimed as having one of the most powerful catalytic crackers in the world), and the methanol produced at Waitara all provide examples of continuing positive benefits to the economy decades after the completion of the projects. New Zealand's balance-of-payments
Balance of payments
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...
problem in the late 1980s would have loomed much more significantly if New Zealand had not had the benefits to its external accounts arising from Think Big.
Approval of Think Big, at least during and soon after the time of its implementation, tended to rely on party affiliations (with National Party
New Zealand National Party
The New Zealand National Party is the largest party in the New Zealand House of Representatives and in November 2008 formed a minority government with support from three minor parties.-Policies:...
supporters backing the projects, while Labour Party
New Zealand Labour Party
The New Zealand Labour Party is a New Zealand political party. It describes itself as centre-left and socially progressive and has been one of the two primary parties of New Zealand politics since 1935....
supporters opposed them). But Think Big no longer serves as an issue in New Zealand politics. Even much of the National Party came to perceive that Think Big sank New Zealand into huge debt without any significant return, accompanied by a generational repudiation of Muldoon's entire legacy.
More recent economic thought suggests that the policies of Think Big may have had no effect on the balance of payments at all. It is now believed that under a floating exchange rate
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....
, the balance of payments is directly linked to the equilbrium of savings and investment through Net Capital Outflow
Net Capital Outflow
Net Capital Outflow is the net flow of funds being invested abroad by a country during a certain period of time . A positive NCO means that the country invests outside more than the world invests in it; a negative one, that the world invests in the country more than the country invests in the world...
.
Readings
- Easton, Brian (2001), The Nationbuilders, Auckland University Press, ISBN 1-86940-260-X
- Gustafson, Barry (2002), His Way: A Biography of Robert Muldoon, Auckland University Press, ISBN 1-86940-236-7
External links
- Techhistory: Think Big
- Chronology of World Oil-Market Events 1970-2003 including a detailed annotated graph of oil-prices