1935 – Labour, Fletchers and State Houses

New Zealand has a long history of government provision of state housing – well built homes funded by the state but built by private enterprise and rented to low income families. The first Labour government wasn’t the first to build them. That honour goes to the Seddon Liberal Government with its 1905 Workers’ Dwellings Act. But the Savage Labour Government of 1935 was the first to do it on an industrial scale. Historian Astrid Baker notes that within 12 months the government had…

established a Department of Housing Construction under provisions of the Housing Act of 1919 and the State Advances Corporation Act of 1936, and began to acquire land for state housing all over New Zealand …was employing about 2,500 people in building or making and transporting materials. The Reserve Bank, through low-interest credit, provided the money for the scheme.This way of providing public finance fitted in with Labour’s long-term ambition for financial self-sufficiency, but it was unorthodox.

Realising they lacked the requisite skills to manage such a large undertaking by themselves, Labour Ministers Walter Nash and John A Lee worked with Fletchers and other smaller companies to design and build the homes and assisted them to gear up their manufacturing plant to supply the materials. This tied in nicely with Labour’s 1936 Industrial Efficiency Act, a sort of crony capitalism similar to Fordism in the US, whereby limited numbers of private businesses were assisted to concentrate production in specific key industries in order to increase efficiency and avoid wasteful duplication of plant and expertise. The other logic was that by growing these industries, New Zealand made goods could be substituted for imports, providing needed employment as well as helping the balance of payments. A foreign exchange crisis in 1938 accelerated this process. James Fletcher was fortunate that his ambitions coincided with the objectives of Labour. As Astrid Baker again notes in another article

Because Labour’s determination to get things done through local industry coincided with James Fletcher’s, and then his son’s, drive for company expansion and profits. Fletchers’ design or construction of roads, wharves, saw-mills, flour mills, pulp mills, paper mills, factories, railway stations, university buildings, hospitals, department stores, office blocks, houses, and ownership and management of stone quarries, brickworks and forests, left a mark in almost every town and city in the country. Many projects required building methods and materials new to New Zealand, the innovative use of traditional materials, large-scale plant, specialist, skilled staff and technical know-how from United States and British construction and engineering firms. In this way Fletcher projects drew together many different suppliers, equipment makers, skilled tradesmen and financiers. As a provider of employment in construction and manufacturing, with easy access to established business and political leaders and a powerful influence on policy making, the company became a potent force in New Zealand’s full employment welfare state.

This close relationship between selected businesses and government and the drive for import substitution and self sufficiency as far as practicable seems an anathema in today’s neoliberal market orientated economy, but up to 1984, both Labour and National were of a similar mind. Full employment was given primacy over competition and consumer pricing. But what drove the switch away from this was perhaps not the invalidation of the economic rationale but the unsustainibility of the means by which it was financed.

Labour came to power in 1935 during the Great Depression, a depression that was caused mainly by debt fueled speculation and a resulting deflationary crash. The state housing programme and other policies were funded by public credit issued by the Reserve Bank which had been nationalised from the private owners.

A crucial part of Labour’s recovery program was taking control of “the people’s credit” (and currency) to create low- or no-interest loans for public purposes, especially housing, purchasing butter and cheese for export to allow payment of a guaranteed price to farmers, and providing a free medical service and superannuation payment. The new government’s first measure, the Reserve Bank Amendment Act of 1936, was intended to ensure available credit for those major reforms. Just as significant as buying out the private shares of the Reserve Bank, New Zealand’s central financial institution, was the legislation’s “social clause,” which made the clear connection between controlling monetary policy and social and economic well being. An amendment in 1939 further increased government control of the bank.

The use of public credit did not appear to have resulted in inflation as unemployment was high and there was plenty of capacity in the depressed economy. Where bottle necks did appear, they were addressed with skilled immigrants. This financing option was not popular with the banking industry or New Zealand’s main trading partner Britain. There is little material on why Labour phased out its public credit process. While popular with many rank and file, it had not been favoured by Savage or Nash who were forced into promoting it by an overwhelming and acrimonious vote in in caucus. National governments have been far more conventional in their financing of public works and despite Nash endorsing public credit again in 1962, so too have subsequent Labour governments.

The disparity between the state housing programme of 1935 and the current National government’s response to a purported housing shortage and rapidly rising prices in Auckland is dramatic.

Labour in 1935, with public credit created by the Reserve Bank, bought land, built factories, paid select companies, especially Fletchers, to harness unemployed builders and other tradespeople to design and build high quality but modest homes and passed them to another government department to rent cheaply.

In 2013 National has left everything to the “market”. There is no national effort to finance, design, build and rent to low income families. There is no attempt to harness the resources of the unemployed or to utilise local materials and manufacturers, to give local businesses the assistance to gear up to meet a clear failure in the housing market, even in Christchurch after the earthquake apart from a very few temporary villages. The price of land and the cost of finance precludes low cost housing being built by private developers. Only the government has the resources to make it happen and the ability to finance it with low or zero interest public credit. But as in most of New Zealand’s history, progressive policies on property and how it is financed does not align with the ambitions of the private banks, who now more than ever, are dependent for their profits and solvency on ever escalating property values and the mortgages that back them.

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3 comments

  1. […] himself in this interview. Remarkably he talks about Public Credit as an option, something the 1935 Labour Government used for State Housing, and which I have championed here, here and here as an option many times. (Gould below with […]

  2. […] is what the First Labour Government did in New Zealand in the late 1930’s. It is time for Andrew Little and the current New Zealand Labour Party to follow Jeremy […]

  3. As a two-time Social Credit candidate for parliament, I’m happy to hear the issue of public credit hasn’t died completely in New Zealand. Sad to see that all the major sites purporting to inform about the First labour Government, John A Lee, and the state housing project avoid the question of how it was financed.

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