Oh in the Stonegut Sugar Works
The floors are black with grime
As I found out when I worked there
Among the dirt and slime;
I think they must have built it
In Queen Victoria's time.
James K Baxter (“Ballad Of The Stonegut Sugar Works”)

It is sometimes said that the more things change, the more they stay the same. Nowhere is this adage truer than with the practice of large companies bending governments to their will by forcing them to adopt policies and programmes under the threat of some form of economic and/or punishment. This practice has been pursued in New Zealand most recently by Rio Tinto Alcan NZ Limited, which used the threat of closure of its aluminium smelter at Bluff and the resulting mass unemployment it would cause as a means of obtaining even cheaper, subsidised electricity from the Government (it was helped by the fact that the closure would also have damaged the Government’s partial float of publicly owned Meridian Energy in 2013). 

This article is, of course, not about Rio Tinto. Rather, it is about another international company which used a similar threat on an earlier Government to equally great effect. In this previous situation the Government of the day also decided that it was more economically and political prudent to give the company what it wanted and allow it to continue trading rather than to be held responsible for the economic and political distress which could follow if it did not. This then is the story of events which caused considerable Parliamentary and public debate and which saw one MP describe the company concerned as a “combination of profiteering brigands who are presenting a pistol at the head of the Government”. (1)  It is the tale of the proposed protective duty to the Colonial Sugar Refining Company – The Sugar Kings.     

The significant issue which caused these events to unfold was the ending of State control in the sugar market and the threat by the Colonial Sugar Refining Company (CSRC) to shut its sugar refining factory which was based at Chelsea, in Auckland. The Fiji and New Zealand Sugar Company (FNZSC), which operated the Chelsea refinery, was a subsidiary of the Australian-based Colonial Sugar Refining Company, which had been established in 1855. Although it was Australian-based, CSRC saw potential in New Zealand. Such potential was no doubt aided by the announcement of the New Zealand government in 1882 that it would award a bounty to the first company which produced local sugar. A New Zealand subsidiary of the company (New Zealand Sugar Company) was quickly established and the North Shore of Auckland was chosen as the place to build a refinery. This was due to the closeness of the port and its deep harbour, plentiful fresh water, land and timber. The name Chelsea was apparently chosen by the refinery’s first customs officer after his hometown in England. (2) 

However, despite early hopes, the refinery was not successful. Shortly after its establishment the world sugar market collapsed and the New Zealand Sugar Company faced financial ruin. Subsequently, it was disestablished and re-amalgamated back into its parent company in 1888. In 1915, the CSRC partially re-established its New Zealand agency under a new moniker, the Fiji and New Zealand Sugar Company, which took back the operation of the Chelsea refineries. (3)  Fiscal stability for the refinery was provided by the war time financial measures of the Liberal-Reform ‘National’ Government. It introduced State control of the sugar supply to ensure the refinery’s economic viability and its ability to maintain production. Under an arrangement reached between the company and the Government, the State fixed a price for sugar and guaranteed the company a monopoly in the New Zealand market. (4)  

However, in 1923 the conservative Reform government of William Massey proposed ending State control. It suggested that the sugar supply of country be returned to pre-war conditions and that the supply of sugar would be determined by the free market through free trade. As the Minister of Customs, Downie Stewart, informed the House, such an action would allow sugar to be: “.... obtained by merchants and others from any source they liked for the purpose of supplying the wants of New Zealand”. (5)

The issue became a political flashpoint for the company and the politicians. After considering the matter in the relevant Select Committee, Parliament voted to end State control and to instead impose a duty for one year to September 1924. During that time Massey committed the Government to consider what could be done to retain the industry when (or if) the duty was lifted. (6)  However, in May 1924, the company, in an economic pre-emptive strike, informed the Government and Parliament that it was unable to meet the continued costs of refining and selling New Zealand sugar. Its directors asserted that the only solution to the problem that the company found itself in was to further extend the duty on imported sugar thereby enabling it to keep the Chelsea refinery open. Otherwise, the refinery would close, its employees would be laid off and the considerable economic benefits of the refinery to the local Auckland community and the wider economy would be lost.

The possible ending of State control and the imposition of a sugar duty in its stead had prompted animated discussion in Parliament when it had first been mooted in 1923. The Reform government had decided that it was time that those controls and tariffs which had been which introduced as a result of the First World War, were lifted and that pre-war economic conditions were returned. However, there remained concern about the impact that such a decision might have on the supply of various goods such as sugar. New Zealand was one of the world’s largest users of sugar and any impediment to the sugar supply could have serious economic consequences. (7)  Subsequently, the issue of whether controls should be maintained or lifted were discussed by Parliament’s Industries and Commerce Committee. However, the Committee was unable to reach a decision and its report was provided to Parliament where MPs were asked to choose between which of the two options put forward by the Committee were preferable – the retention of State control or the imposition of a duty.  (8)

The Reform government proposed, after taking advice from the company, that a duty of £180,000 per annum (or £2 18s. 4d. per ton) be imposed. (9)  The opposition Liberal Party and the fledging Labour Party were both opposed to the extension of the duty on sugar. The Liberals’ opposition to the options were principally due to their belief in free trade or a “free breakfast table” as one of their principal MPs was to describe it. (10)  Labour’s opposition was based around its belief in State ownership and its reluctance toward supporting duties and protection. However, both parties were agreed on the fact that the CSRC was a corrupt entity which was attempting to deceive Parliament and the public as to its financial situation and its motives. Statements by the Company’s representatives that any decision not to impose a duty might mean the closure of its Chelsea refineries and the laying off of workers further incensed opposition MPs. 

In a robust debate, Liberal and Labour MPs attacked the Government’s proposition that the CSRC was an organisation which would be severely financially disadvantaged if it was forced to return to its pre-war situation. (11)  R Masters, the Liberal MP for Stratford, described the CSRC as the “biggest octopus the country has ever had”.(12)  Labour Leader Henry Edmund “Harry” Holland produced figures to the House which were gleaned from publicly available documents and media reports, that the company had been extremely profitable before and since the war and it additionally held considerable reserves. Holland further alleged that it had paid its shareholders generous dividends through its own manipulation of its share prices. The New Zealand Worker later reported that the company had first reduced its share price in 1920 (£20 to £16), and that the difference was given to shareholders as a bonus. It had then increased its shares back to £20 with the additional £4 in bonus stock being appropriated by the shareholders without paying an “extra farthing””. (13)  Even the £3,250,000 proved by the CSRC to establish the FNZSC was issued as a 6% bonus to shareholders. Consequently, Holland asserted that the CSRC had ensured that its shareholders had got a nice return on their investment:

“In 1920 capital returned amounted to £650,000; in 1921, £1,625,000. In 1921 cash bonus amounted to £203,125. At the present time the Fiji and Maoriland company is in the process of liquidation, but the profits and reserves are not disclosed. The capital returned, however, is £1,625,000 while the cash bonus from the Fiji liquidation is £325,000, and the reserves capitalised £6,050,000”. (14)  Holland alleged that the Colonial Sugar Refining Company was lying about its current financial situation as a result. “There is no company in Australasia that has so systematically lied about its position as the Colonial Sugar Refining Company has done. There is no concern in Australasia that has so repeatedly falsified its position as this concern has done”.

The Government’s limp response was that the company’s representatives appeared to be honourable men and that the options for the company were limited.(15)  Either State control was retained or a duty was imposed, or the company would be faced with a considerable financial loss in its New Zealand operations which it could only resolve by shutting the refinery. (16)  However, Labour’s speakers alleged that attempts to get the CSRC to prove its financial state in that regard had been thwarted by the company representatives who had refused to present their books and records. (17)  Holland observed that the Government was allowing the CSRC to hold a whip over the New Zealand public and Parliament by asking for a duty.  

“Indeed, it is not a whip they hold, it is a pistol that, metaphorically speaking they are presenting at the head of the Government, just as any ancient highwayman presented his pistol while demanding money from his victim”. (18)  Despite unsuccessful attempts by Labour to amend the motion, Parliament voted to impose a temporary duty for one year and then discuss the issue again at that point. In the interim, the matter was sent back to the Industries and Commerce Committee for further discussion and investigation. (19) 

While Labour’s Parliamentarians might have been satisfied to call the Company’s bluff over the matter, Auckland employers and the refinery’s workers were not. They were adamant that the company was sincere in its desire to shut the refinery if a duty was not granted. The subsequent granting of a duty allowed the company to continue refining in the short term. However, this situation was brought to a close in 1924, when the company informed the Government that it would halt production unless it got guaranteed protection in September. The CSRC alleged that the cost of refining sugar in Auckland was prohibitive due to its production costs, landing costs and the high costs of labour. Whereas, it could take advantage of the lower production and labour costs in Java and simply import sugar into New Zealand. (20)  

The Secretary of the Auckland Chamber of Commerce informed the Minister of Finance, Downie Stewart, by telegram of the seriousness of the company’s intention. The company had, he asserted, already stopped all new and non-urgent work.  “...40 hands have already been discharged, and others have been definitely informed that the refinery will close unless the present duty is maintained”. (21)  The President of the Chamber, AA Martin was especially blunt, simply stating that unless the Company received the duty, the refinery would close. (22)  

Of course, the Government and employers were already aware of the situation. The New Zealand Herald had dutifully recorded a meeting of the men employed at the refinery on 24 May 1924. (23)  At that meeting it was reported that the company was to close the refinery if the duty was not extended and a measure of protection given. (24)  Although the men had not been officially informed by the company they were aware that alterations and maintenance at the refinery had been halted and some men had been discharged. (25)  Not surprisingly, fearful for their jobs, the meeting unanimously supported a motion regarding the sugar import protective duty and “....that some measure of protection is absolutely necessary if the interests of the workers is taken into consideration”. (26)  The meeting additionally elected a committee of eight men to bring the “workers’ view[point] before Members of Parliament and other[s] concerned”. (27)

On 24 July 1924, the committee of workers met with Massey to do just that. Massey, Downie Stewart (who was also present) and the workers discussed the duty, the benevolent nature of the company, the possible loss of work to sweated “black” labour in Java and the islands and the reaction and position of the Labour Party over the issue. (28)  Massey was at his gregarious best during the meeting, offering the workers his “strong personal support” and sympathy. (29)  He emphasised the Government’s concern about the loss of work and confusion about the actions of the Labour Party, which appeared to have deserted those very men it professed to represent. Press reports held that Massey had informed the delegates that “we must look for a remedy” for the situation. Such a solution was to be found, he averred, in providing the Government with a majority to pass the necessary measures of protection.

“I think that it will be found in a majority in the House on this question .... it was a very close thing last session, only one or two votes, and according to hearsay there are one or two who voted for the resolution last year not inclined to vote for it again .... ‘What you have to do’, continued Mr Massey, ‘is convert some of those people you spoke about’, referring to the ....action of the Labour Party”. (30)  Lulled by Massey, the workers thanked him and left. The New Zealand Herald recorded that the arguments of the men “carr[ied] great weight” and they disposed of the arguments that have been repeated with “parrot-like monotony ” by opponents of the duty. (31) 

The Chelsea Sugar issue did place Labour in a dilemma. On the one hand it was opposed to the duty.  Yet, on the other hand it was very opposed to 350 workers losing their jobs. The governing Reform Party made the most of the difficult position that Labour found itself in. In Parliament and in the press, the Party was criticised as lacking practical answers and only concerned with ideological attacks on the CSRC. Labour also found itself increasingly assailed about its lack of compassion for those very people it was supposed to represent. Speaking to reporters on the matter, Prime Minister Massey accused the Labour Party of being concerned solely with tactics: “In this particular case it is a matter of small moment that almost 400 men will be thrown out of work. Tactics are everything ...Labour is more concerned with the general question and less with the living of 400 men at Chelsea and their dependants”. (32) 

However, contrary to press reports and Reform Party utterances, Labour was acutely aware of the situation regarding Chelsea refinery workers. Labour MPs and branches were in touch with the workers. (33)  The Party additionally took time to discredit some of the claims of the CSRC, the Government and their allies in the press who were alleging that the company treated its workers generously and that they were well paid. The New Zealand Worker and Labour spokespeople noted that the company had applied for an exemption from the arbitration awards so as to ensure that workers’ wages were kept low. Additionally, workers at the plant were on the minimum allowed for under the Arbitration Court. (34)

Further, Labour’s James McCombs noted the discrepancy in the company’s and the Government’s claim that £180,000 was to be used to simply pay the workers’ supposedly high wages. He observed that the amount asked by the CSRC would amount to £514 per year per worker. But, the present yearly output of the plant was valued at £195,000 and the total yearly wages came to £90,000. McCombs commented that under the amount asked by the company, workers would get their wages more than twice over. (35)

On 24 July 1924, the Labour Party caucus met with the Chelsea worker delegates to discuss the issue of wages and work, especially the issue of sweated labour in the islands against that of domestic labour. It was as a consequence of this meeting that Labour eventually decided to support a duty, although at a lesser amount than what the Government was proposing, if their own amendment in favour of State ownership and control failed. (36)  The decision to support a duty no doubt grated with the Labour Party caucus given the finances and behaviour of the company. However, there was little recourse available given that 350 men were facing a most uncertain future. As Holland was to wryly observe later in Parliament: :I would not be concerned about those working men if there was a Government on the Treasury benches that would say “if these men are thrown out of employment we will put the responsibility on the country of maintaining them until they have work to go to”.” (37)

Labour’s preferred solution to the problem was State ownership of the refinery. There were two reasons behind this policy. The first of these was as a simple rejoinder to the threat by the CSRC to close the works at Chelsea. As Labour’s Peter Fraser forcefully stated in Parliament, the Government should tell the company that it would not agree to the company’s terms and that it would “commandeer your works” and run them. (38)  In response to questions as to where Labour would receive sugar supplies from, Labour spokespeople said that new supplies would be sourced from Java. This sugar would then be refined at Chelsea. (39)    

The second reason lay in the belief held by the Labour Party that those industries which lay at the centre of the productive process should be in the hands of the Government, which would control them on behalf of the people. It was obvious to the Party that the Colonial Sugar Refining Company was a perfect example of a private profiteering concern using its position to exploit the Government and the people of New Zealand for its own private gain. Either its demands were met, Holland observed or it would bring ruin upon the economy. 

“If you will not pay us tribute of £180,000 a year that we demand, we will close up the refinery, we will withhold sugar from the people of the country, we will destroy your jam factories, we will destroy your other industries in which sugar is necessary, and we will make you pay for having refused to bribe us with a duty of this kind”. (40) A State-owned refinery would halt this type of exploitation from occurring. It would guarantee a supply of cheap sugar to the people as well as ensuring that workers at the refinery kept their jobs and their pay packets.  

Labour’s proposal that the sugar refineries be owned by the State as a means of preventing the closure of the refinery and the loss of jobs was derided in Parliament by the Reform Party and in the pages of the conservative press. Although, more importantly, it did receive guarded support from the refinery workers, who stated to the Labour Party caucus that they would be happy with State ownership, but not State control. They were wary of the works being owned under the Reform government. This was because they feared that Reform would not provide them with the current terms and conditions which they received under the company. (41)  

Unsurprisingly, the Industries and Commerce Committee’s report to Parliament in 1924 opted for protection of the sugar works. However, while it met the Company’s demands in that area, the Committee could not agree on as to the “amount of protection” which would be required. A motion was moved: “That the report does lie upon the table”. (42)  The intention was that Parliament would now decide on the level of protection or the amount of duty that the company would receive. Labour’s Peter Fraser moved an amendment which provided for State ownership of the refinery and new negotiations with the company based on that ownership.    (43)

Overall, the discussion which occurred in 1924 was similar to that which had occurred almost a year previously. However, this time the Liberal Party remained largely mute. Liberal Leader Wilford recommitted the Party’s opposition to the duty, its support of free trade and its decision to withdraw from the Parliamentary debate on the issue. (44)  The Party’s actions in this respect might be explained by its perilous political situation. While philosophically in favour of free trade, the Liberals were now fighting for their political lives.  It is possible that they sensed that political catastrophe could overtake them if they publicly and strenuously opposed the duty, especially since they appeared to have no other solutions rather than proposing free trade. As Labour speakers noted during the debate, Liberal MPs, while wanting to oppose the Government’s policy, were not prepared to openly speak against the duty or to openly speak in support of Labour’s proposals for the nationalisation of the sugar works. The Liberals had additionally decided that they were not going to support Labour’s lower duty proposal. Michael Joseph Savage was moved to inform Parliament that the Liberals had not shouldered their responsibility in the matter. (45) “Apart from a negative action, the Liberal Party have done nothing.  They have suggested nothing”. (46)

The response from Liberal MPs was that the logical solution was to support options in the “middle of the road”. (47)  Labour’s solution, the Liberal MP R Masters informed the House, was as extreme as that of the Government. (48)  The situation became increasingly farcical for the Liberals when the Parliamentary vote on the nationalisation option put forward by Labour was lost. (49)  Labour MPs wasted no time pointing out to the Liberals that they previously had supported Labour’s position of nationalisation as a sensible and “middle of the road” option. However, nine Liberal MPs had voted against the measure and in favour of the Government’s position. As Savage retorted to Masters the vote meant that some members of the Liberal Party must have “...taken to the bush”.  (50)

The loss of Labour’s nationalisation amendment saw the Government put forward its amendment that a duty of £2 18s 4d per ton should be granted to the Colonial Sugar Refining Company. (51)  Labour’s response was to put forward its second option which was a duty paid at a lesser amount than proposed by the Government. That amendment was lost as well with the Government’s proposed duty eventually being accepted. As far as Parliament was concerned the matter was over. The Government had granted a satisfactory duty to the company which guaranteed its continued operation at Chelsea. As a New Zealand Herald editorial was to gleefully inform its readers a year later when a reduction in the price of sugar was announced: “The firmness of the Government, backed up by the wisdom of a majority in the House, kept this fatuous Opposition (Labour) from having its way. The upshot has absolutely justified the action of the action of that majority. There is now the enjoyment of a cheapened commodity; side by side with the keeping of the employees in continuous work ... it is evident that there are occasions when the workers may well ask to be saved from their professed friends”. (52)  

The fight over the sugar duty was one of the issues that eventually helped clarify the Labour Party’s position on trade in relation to the other two parties in Parliament. The Liberal Party, in line with Liberal philosophy elsewhere, supported the concept of free trade. The Reform Party also supported free trade and would have ensured that there was a free trade in the sugar market. However, for their own (political) reasons the Party instead supported the imposition of a protectionist duty.  Massey had attempted to portray the Labour Party as being more interested in tactics, scoring points about the CSRC, rather than helping the workers. Consequently, there was the implication that Labour supported free trade on this issue no matter what the cost. This implication was referred to at the meeting of refinery workers in May 1924, where Labour’s opposition to the protective duty was put down to it being committed to a policy of free trade. (53)  The accusation that the Party had an ideological commitment to free trade which meant that it was indifferent to the needs of affected workers certainly caused the Party some inconvenience. Yet, despite the comments of Massey and some of the workers at the refinery, the Labour Party was decidedly ambiguous over the matter. In 1921, Holland had remarked that the Party was supportive of neither option but would consider each separate issue on its merits. (54)  While, it could be suspected that the Party did support free trade in this particular issue, it never specifically committed itself to such a policy during the debate. Rather, it advocated for the nationalisation of the refinery arguing that such a move would eliminate the need for a duty in the first instance. This position was no doubt due to Labour’s insistence that the entire need for a duty was a means by which to pay off the CSRC. 

However, this conviction was contested by Reform Parliamentarians and by the workers at the refinery. As one worker, Mr H Stewart, commented: “.... [that] as a professed socialist and supporter of the Labour Party [my] first idea ‘was that they should take any opportunity for pin-pricking trusts or combines’. But there was no use biting off their noses to spite their faces. If the company were driven out of New Zealand, not only would, they have lost their jobs; but they would still have to fight trusts outside the country, which could not be controlled”. These arguments must have had some effect, as in moving Labour’s amendment seeking the nationalisation of the refinery, Peter Fraser expressed his personal belief that such a move would render a tariff unnecessary. But, he then proceeded to admit that such a duty might be needed and that he “would be open to conviction on that point”. (55)

Simply, Labour was in a dilemma in relation to the issues of free trade and protectionism. There were a number of Labour members and supporters who were supporters of or opposed to either doctrine.  Consequently, Labour attempted to pacify both sides. Holland was to admit in 1927 that while Labour parties were traditionally seen as advocates for free trade; the New Zealand Labour Party was reasonably pragmatic when it came to the issue. (56)  This was in stark contrast to its British counterpart (the British Labour Party) which was strongly supportive of free trade. It was this pragmatic attitude which eventually led the Party to support the call for a protective duty on sugar despite the inclinations of its MPs. This was in contrast to the Liberal Party which supported free trade throughout the entire debate. 

Managed Protectionism

Labour was soon confronted with other similar issues in industries such as timber. Further, the Party’s own economic development policy meant that it could no longer placate both sides in the debate. It needed to make a firm decision. Such a decision occurred at the 1928 Party Conference with the report of the Party’s Trade Committee. The Committee was of the opinion that trade should be managed and that duties and tariffs had a role to play in domestic economic development. It opined that the Party should be opposed to tariffs and duties when they were used as revenue gathering entities. (57)  Both the Report and Holland’s introductory statements to it dispelled any lingering belief that the Labour Party was an advocate for free trade. 

In the late 1920s and early 1930s, Labour’s managed trade positions became an integral part of its developing economic agenda. The Party began to promote reciprocal trade agreements, principally with the United Kingdom, but with other countries as necessary. Reciprocal trade agreements underwrote Labour’s new policy of guaranteed prices and the Party’s emphasis on industrial development. By pursuing reciprocal trade deals Labour had moved from a position of pragmatism about trade to one of formally opting for a managed, protectionist position to protect New Zealand’s economic situation. The Chelsea Sugar issue had proved to be a pivotal point in this debate.