Think Big
Think Big was an interventionist economic strategy launched by New Zealand's Third National Government under Prime Minister Robert Muldoon in 1978, aimed at reducing dependence on imported oil through massive state-funded projects in energy production, heavy industry, and resource processing.[1][2] The program, prompted by the 1970s global oil crises and New Zealand's vulnerability as a net energy importer, involved investments totaling around NZ$10 billion (equivalent to over NZ$40 billion today) in initiatives such as synthetic fuel plants from natural gas at Motunui and Waitara, expansions of the Marsden Point oil refinery, ammonia and urea fertilizer facilities in Taranaki, and enhancements to New Zealand Steel and the Tiwai Point aluminium smelter.[3][4] While Think Big created thousands of construction jobs and built enduring infrastructure that contributed to export growth—such as increased aluminium and steel production—it faced criticism for underestimating costs, relying on optimistic assumptions about sustained high oil prices that failed to materialize after 1982, and exacerbating New Zealand's external debt and inflation through heavy overseas borrowing.[2][5] Economic analyses have deemed the program an overall fiscal burden, with projects like the synthetic fuel plants becoming financially unviable without subsidies, though some assets later proved viable post-privatization in the 1990s.[3][6] Muldoon's top-down approach, including wage and price controls to manage inflationary pressures, intensified political divisions and contributed to the economic crisis that precipitated the 1984 government change and subsequent neoliberal reforms.[7][4]Background and Context
Global Oil Crises and New Zealand's Vulnerabilities
The 1973 oil crisis began with the OPEC embargo imposed in October following the Yom Kippur War, leading to a sharp reduction in supply and causing global crude oil prices to quadruple from approximately $3 per barrel to nearly $12 per barrel by January 1974.[8] This shock disrupted energy markets worldwide, exacerbating inflation and triggering recessions in oil-importing economies as transportation and production costs surged.[9] The 1979 oil crisis, precipitated by the Iranian Revolution and subsequent production disruptions, further intensified global energy instability, with crude oil prices rising from around $13 per barrel in mid-1979 to approximately $40 per barrel by mid-1980.[10] These events compounded the effects of the earlier embargo, as Iranian output fell by about 4.8 million barrels per day—equivalent to 7% of global production at the time—prompting panic buying and sustained price elevations.[11] New Zealand exhibited pronounced vulnerabilities to these shocks due to its heavy dependence on imported petroleum, sourcing over 80% of its oil requirements from abroad during the 1970s, including a significant share from OPEC nations.[12] The crises contributed to a recessionary contraction in GDP of around 1.5% during 1974-75, alongside widening balance-of-payments deficits that reached substantial levels exceeding NZ$1 billion annually by 1977 amid deteriorating terms of trade.[13][14] As a small, geographically isolated economy lacking domestic diversification in energy resources, New Zealand faced amplified exposure to such exogenous commodity price volatility compared to larger nations with broader industrial bases and alternative supplies, rendering it acutely sensitive to disruptions in global oil flows.[15][16]Domestic Economic Pressures Pre-1977
In the 1970s, New Zealand grappled with stagflation, a combination of accelerating inflation and stagnating output that eroded post-World War II economic stability. Consumer price inflation reached 17.2% in 1976, driven by wage-price spirals, fiscal expansion, and external shocks amplifying domestic cost pressures.[17] Unemployment, virtually nonexistent in the full-employment era immediately after the war, began rising modestly but persistently, reaching approximately 5,000 registered unemployed by 1976—equivalent to about 0.3% of the labor force—signaling emerging slack in labor markets previously sustained by protected domestic industries.[18] The manufacturing sector, built on import substitution policies since the 1930s, faced mounting strains as high tariffs and licensing shielded inefficient producers from competition, fostering complacency and rising unit costs.[19] By the mid-1970s, these measures had failed to generate internationally competitive industries, leaving manufacturing vulnerable to imported input inflation and unable to offset agriculture's dominance, which accounted for over 90% of merchandise exports.[19] This structural rigidity exacerbated balance-of-payments deficits, as domestic production substituted imports at higher long-term costs without boosting export earnings. The United Kingdom's entry into the European Economic Community in 1973 compounded these vulnerabilities, slashing New Zealand's preferential access to its primary market; UK-bound exports, previously 30% of total exports and 8% of GDP, declined sharply as tariffs and quotas on dairy, meat, and wool took effect.[20] Foreign exchange reserves dwindled under persistent current account deficits, prompting heavy government borrowing; official external debt as a share of GNP surged from 5.1% in 1974 toward projections exceeding 20% by decade's end, reflecting unsustainable financing of import needs in a remote, resource-scarce economy overly dependent on volatile commodity revenues.[21] These pressures underscored the risks of deindustrialization absent measures to harness domestic energy and heavy industry for import substitution and self-reliance.[13]Conception and Objectives
Policy Rationale from First Principles
New Zealand's economy in the mid-1970s was structurally vulnerable to external energy price shocks due to its complete reliance on imported crude oil and refined petroleum products for transportation and industrial needs, which accounted for a significant portion of the import bill and exacerbated chronic balance-of-payments deficits.[22][23] With limited domestic oil production, rising global prices directly translated into higher foreign exchange outflows, constraining the ability to fund essential imports and maintain currency stability in a small, open economy dependent on agricultural exports.[24] The logical response from foundational economic mechanics involved leveraging abundant indigenous resources—such as natural gas from fields like Kapuni and substantial coal deposits—to convert into synthetic fuels, fertilizers, and electricity, thereby substituting for imports and preserving forex reserves through value-added domestic processing rather than raw export.[25] This substitution mechanism operates causally by internalizing energy production within national boundaries, reducing the multiplier effect of import costs on inflation and debt; for instance, gas-to-liquids conversion could offset oil equivalents at lower effective forex cost, given New Zealand's proven reserves exceeded decades of consumption at prevailing rates.[26] The 1973 OPEC embargo and subsequent price quadrupling demonstrated how cartel-controlled supply chains impose asymmetric risks on import-dependent nations, with New Zealand's terms of trade deteriorating sharply as oil expenses surged over 400% in real terms by the decade's end.[2] A second shock in 1979, triggered by the Iranian Revolution, further doubled benchmark prices, accelerating import bill escalation and underscoring the peril of geopolitical leverage by producers, where supply disruptions or pricing power could dictate economic policy without domestic buffers.[22] Prioritizing energy autarky thus secures sovereignty by decoupling vital inputs from foreign cartels, enabling stable industrial output and avoiding coerced rationing or devaluation spirals. Market-liberal approaches, emphasizing import reliance and price signals, falter under first-principles scrutiny in crisis-prone small economies, where global shocks overwhelm localized pricing mechanisms and export revenues prove insufficient to cushion volatility; New Zealand's narrow commodity base amplifies this, as agricultural terms of trade cannot reliably offset energy spikes without intervention to harness underutilized local hydrocarbons.[13] State-directed scaling of conversion infrastructure addresses coordination failures inherent in fragmented private investment during uncertainty, ensuring rapid deployment of gas and coal toward self-sufficiency targets like 50% energy independence, grounded in the causal imperative to match resource endowments with national security needs over speculative offshore sourcing.[3]Stated Goals and Strategic Priorities
The Think Big policy sought to diminish New Zealand's vulnerability to imported oil through major energy infrastructure developments, including the production of synthetic fuels from natural gas to serve as substitutes for petroleum products.[27] These initiatives focused on leveraging domestic resources, such as gas from the Maui field, to generate synthetic petrol, methanol, and other fuels, thereby enhancing national energy security amid global supply disruptions.[27] [28] Strategic priorities encompassed export-led industrialization by expanding facilities for fertilizers via ammonia-urea plants and steel production, intended to boost foreign exchange earnings and reduce trade imbalances.[29] The approach also prioritized job generation through extensive public works, aiming to invigorate employment in construction, engineering, and related sectors while mitigating recessionary pressures via sustained capital investment.[30] Muldoon articulated Think Big during the 1977 election as a doctrine of bold, self-reliant development, rejecting passive dependence on international markets in favor of harnessing New Zealand's resource potential for long-term economic resilience.[30] This framing positioned the policy as essential pragmatic nationalism, countering tendencies toward diminished ambition and import substitution without domestic productive capacity.[30]Historical Development
Announcement and Initial Planning (1977-1979)
The National Party's victory in the 1975 general election positioned Prime Minister Robert Muldoon to pursue a more assertive economic strategy, diverging from the Labour government's prior emphasis on gradual adjustments amid oil dependency challenges. Policy groundwork for large-scale infrastructure initiatives accelerated in 1977, influenced by ongoing energy vulnerability assessments, though formal conceptualization of the Think Big program crystallized closer to the 1978 election campaign.[31] On 1 September 1978, Muldoon publicly announced the Think Big strategy in a policy address, delineating five flagship projects focused on exploiting domestic energy resources to enhance self-sufficiency and foster export-oriented industries. This announcement preceded the 25 November 1978 general election, where the policy featured prominently in National's platform, contributing to their re-election with 51 seats against Labour's 25. Early implementation planning ensued, including commissioning feasibility studies by late 1978 to evaluate technical viability and economic returns of projects such as synthetic petroleum production and methanol synthesis.[6] Stakeholder engagement ramped up through partnerships with multinational corporations, including Mobil for offshore gas exploration tied to the Maui field and local entities like the Todd family interests in resource development, to leverage expertise and capital. Initial funding mechanisms relied on overseas loans, with borrowing costs ranging from 10% to 12% amid elevated global interest rates, marking a shift toward external debt to underwrite domestic investment.[1] The second oil shock in 1979, precipitated by the Iranian Revolution and resulting in oil prices surging from US$13 to US$34 per barrel, intensified urgency, prompting Cabinet approvals for accelerated project progression in mid-1979. These decisions committed the government to a total investment envelope of approximately NZ$10 billion over the subsequent decade, prioritizing energy infrastructure to mitigate import reliance equivalent to 70% of consumption at the time.[32]Government Implementation and Funding (1980-1984)
The implementation of the Think Big program during the early 1980s was coordinated primarily through newly established or expanded state-owned enterprises, including Petrocorp Exploration Ltd., which led efforts in natural gas utilization and synthetic fuel development as part of joint ventures with private partners.[33] Administrative execution emphasized centralized government oversight under the National administration, with project management delegated to these entities to accelerate construction timelines amid domestic energy shortages. By 1980, initial phases transitioned from planning to active construction, focusing on leveraging domestic resources like the Maui gas field for downstream processing.[6] Funding relied on a combination of overseas borrowing and public-private partnerships, often structured as 50/50 equity splits to share capital costs and risks. The government raised funds through international loans, contributing to a peak in external debt that reached approximately NZ$4.5 billion by the mid-1980s, directed toward infrastructure outlays estimated at over NZ$10 billion across the program's portfolio.[3] Private sector involvement, such as Mobil's partnership in synthetic fuel initiatives, supplemented public funds but required government guarantees amid volatile global markets. This model aimed to mitigate fiscal strain on domestic budgets while advancing national self-sufficiency goals.[34] Key milestones included the 1982 groundbreaking for the Motunui synthetic fuels plant, a flagship project converting natural gas to methanol and gasoline via Mobil's methanol-to-gasoline process, marking the operational ramp-up of core energy initiatives. As global oil prices declined sharply from 1982 onward—dropping over 50% by 1986 due to oversupply—adaptations involved scaling back full synthetic petrol output at facilities like Motunui, redirecting capacity toward higher-value methanol production to improve economic viability.[35] These adjustments preserved core infrastructure investments despite reduced returns from oil-linked products. The program's momentum halted following the National Party's defeat in the July 1984 general election, with the incoming Labour government under David Lange suspending further expansions and initiating reviews that led to partial asset sales, such as minority stakes in Petrocorp.[2] This transition effectively wound down aggressive implementation by late 1984, shifting focus from growth-oriented borrowing to fiscal consolidation amid inherited debt burdens.[4]Key Projects
Energy Infrastructure Initiatives
The Motunui synthetic fuels plant in Taranaki, a cornerstone of the Think Big energy initiatives, commenced construction in the early 1980s and opened in 1986 as the world's first commercial-scale facility converting natural gas to synthetic fuels via the Mobil methanol-to-gasoline (MTG) process.[36] The plant processed natural gas primarily from the nearby Maui field to produce synthetic petrol, with operations focusing on high-octane gasoline and other hydrocarbons until production of synthetic petrol ceased in 1997.[37] Complementing Motunui, the Kapuni plant in Taranaki, operational from 1982, utilized natural gas for ammonia and urea production, supporting energy-derived fertilizer output integral to the program's resource utilization goals.[38] This facility processed gas from the Kapuni field, discovered in 1959, to generate between 240,000 and 270,000 tonnes of urea annually, leveraging syngas intermediates akin to synthetic fuel pathways.[39] Gas infrastructure expansions centered on the Maui field, discovered offshore Taranaki in 1969 and brought into production in 1979, which supplied up to a significant portion of New Zealand's gas needs for downstream energy projects.[40] Development involved substantial investment in pipelines and processing to feed synthetic fuel and power generation, peaking as a primary domestic energy source during the 1980s.[33] Hydroelectric capacity was bolstered by the Clyde Dam on the Clutha River, with construction starting in 1978 and the facility achieving full operation by 1990, featuring four turbine generators for a total installed capacity of 432 MW.[41] Designed as New Zealand's second-largest hydro dam, it harnessed the river's flow for base-load electricity to support industrial expansion.[42] Proposals for coal gasification in Taranaki, aimed at converting local coal reserves into synthetic gas for fuels or chemicals, were explored but scaled back due to technical and economic challenges, resulting in only pilot-scale efforts rather than full commercial plants.[43] These initiatives sought to diversify energy feedstocks amid oil vulnerabilities but did not advance to the scale of gas or hydro projects.[6]Industrial and Resource Development Projects
The Think Big initiative encompassed non-energy industrial projects aimed at processing domestic resources to substitute imports and generate exports, particularly in fertilizers, metals, and chemicals. A primary project was the ammonia-urea plant at Kapuni, commissioned in 1982 to convert natural gas into fertilizer for agricultural self-sufficiency, reducing reliance on imported nitrogenous products. The facility, utilizing gas from nearby fields under government contracts, initially targeted production to meet domestic farming needs, with ongoing operations yielding around 265,000 tonnes of urea annually from syngas synthesis and urea granulation processes.[38][44] In the steel sector, the Glenbrook mill—operated by New Zealand Steel—received major expansions during the early 1980s to boost output from local ironsand and scrap inputs, enhancing domestic supply for construction and manufacturing while aiming to export slab products. These upgrades, including new electric arc furnaces and rolling facilities, significantly scaled production amid global oil shocks that raised import costs.[45][46] The Waitara methanol plant, operational from 1985, processed Maui field natural gas into methanol for international markets, leveraging abundant domestic feedstock to diversify exports beyond traditional commodities. Constructed as a standalone facility adjacent to earlier synthetic fuel infrastructure, it produced high-purity methanol via steam reforming and distillation, with initial capacity supporting trade volumes that offset energy import vulnerabilities.[47][48] Feasibility assessments for a new aluminium smelter were pursued under Think Big to exploit hydroelectric potential for energy-intensive reduction of imported alumina, but plans stalled due to power generation shortfalls and high capital demands, limiting realization to expansions at the existing Tiwai Point site rather than greenfield development.[2][45]Implementation Challenges
Technical and Logistical Hurdles
The Think Big energy infrastructure projects grappled with formidable engineering and geological obstacles that protracted timelines and escalated expenditures. Construction of the Clyde Dam, intended to harness hydroelectric potential from the Clutha River, encountered pervasive fracturing in the underlying schist bedrock, complicating foundation stability and necessitating extensive grouting operations.[49] Unanticipated active faults traversing the dam site demanded additional seismic assessments and remedial anchoring, while pervasive rock breakage hindered excavation efficiency.[50] These issues culminated in the project's delayed completion and budget overruns, with the dam opening later than initially projected in 1992.[51] Parallel challenges arose in pioneering gas-to-liquids conversion at the Motunui synthetic fuels facility, the first commercial-scale implementation worldwide, which integrated methanol production from Maui field gas followed by Mobil's methanol-to-gasoline process. Scaling this nascent technology from pilot to industrial volumes involved iterative troubleshooting of catalytic reactors and process integration, imposing unforeseen technical refinements during the 1980s commissioning phase.[36] Logistical impediments compounded these efforts, as New Zealand's limited domestic manufacturing capacity compelled reliance on overseas procurement for specialized machinery and components, amplifying vulnerabilities to international shipping disruptions and material scarcities prevalent in the post-1980 global economic downturn.[6] Heightened union militancy during the era further impeded workflows, with frequent industrial actions across construction sites disrupting schedules and inflating labor expenditures.[2]External Market Shifts and Adaptations
The collapse in global oil prices from approximately $37 per barrel in 1980 to an average of $14 per barrel in 1986, driven by Saudi Arabia's increased production and waning geopolitical tensions, fundamentally altered the assumptions underpinning Think Big's energy projects.[52][53] Synthetic fuel initiatives, including the Motunui plant designed to convert natural gas into methanol and then gasoline, relied on oil prices remaining above $25–$30 per barrel to compete with imported crude; the downturn rendered domestic production uneconomic, as the cost of gas-to-liquids conversion exceeded market alternatives.[6][54] In response, the government mothballed the synthetic gasoline module at Motunui in 1987, shifting focus to methanol output for export to markets in Asia where demand for the chemical as a feedstock remained robust.[36] This adaptation preserved some operational viability but required ongoing state subsidies to offset losses from the original high-cost design, with total government support for fuel projects exceeding NZ$10 billion in nominal terms across the program, including post-crash interventions to maintain infrastructure.[6] Compounding these pressures, the New Zealand dollar's pre-1984 peg at elevated levels—sustained by foreign exchange controls and wage-price freezes—amplified debt-servicing burdens for Think Big's overseas borrowings, as export revenues in local currency lagged import costs.[55] The currency's 20% devaluation in July 1984, prompted by a balance-of-payments crisis, inflated the domestic value of foreign-denominated obligations, further straining adaptations to the oil market shift despite improving export competitiveness thereafter.[56][57]Economic and Fiscal Outcomes
Quantitative Measures of Costs and Benefits
The Think Big initiatives entailed total public and company investments of approximately NZ$8.2 billion between 1979 and 1985, equivalent to about NZ$29 billion in 2022 dollars, with some estimates for flagship energy projects reaching as high as NZ$11 billion in period dollars.[6] [3] These expenditures financed major energy and industrial developments but were marked by widespread capital cost overruns, averaging over 50% across key projects. For instance, the synthetic fuels facility experienced a 37% overrun totaling NZ$1.887 billion, while the Marsden Point refinery expansion saw a 102% overrun of NZ$1.84 billion.[6]| Project | Overrun Amount (NZ$m) | Overrun Percentage |
|---|---|---|
| Ammonia-urea | 125 | 94% |
| Methanol (Waitara) | 262 | 102% |
| Tiwai Point potline | 237 | 35% |
| Synthetic fuels | 1,887 | 37% |
| Refinery expansion | 1,840 | 102% |
| Steel expansion | 2,250 | 61% |
| Rail electrification | 250 | 150% |
| Clyde Dam | 1,400 | 142% |
Job Creation and Short-Term Stimulus Effects
The Think Big projects provided a short-term macroeconomic stimulus through substantial public investment in construction, generating direct and indirect employment in sectors such as energy development and heavy industry between 1980 and 1984. These activities contributed to sustaining relatively low unemployment amid the early 1980s global recession and oil shocks, with New Zealand's rate rising modestly from 1.5% in 1980 to 4.3% in 1983, lower than many OECD peers experiencing double-digit increases.[60] [61] In resource-dependent areas like Taranaki, initiatives including the Motunui synthetic fuel plant and Maui gas field utilization created construction jobs and bolstered local demand, temporarily stabilizing regional economies reliant on energy extraction. Fiscal spending under the program exhibited front-loaded multiplier effects typical of infrastructure outlays, with New Zealand Treasury analyses estimating government consumption multipliers around 0.7 on impact, potentially higher for capital-intensive projects due to supply chain spillovers.[2] [62] [63]| Year | Unemployment Rate (%) |
|---|---|
| 1980 | 1.5 |
| 1981 | 3.4 |
| 1982 | 3.8 |
| 1983 | 4.3 |
| 1984 | 4.5 |