Auckland: Rise of the crony capitalists

By Graeme Hunt

As Auckland merges to create a supercity, the Herald looks back at how Auckland has changed over the years. Click here to view the full series.

Queen St Wharf during the 1880s. File photo / New Zealand Herald
Queen St Wharf during the 1880s. File photo / New Zealand Herald

Sir John Logan Campbell, an Edinburgh-trained doctor who never practised medicine, is today celebrated as the doyen of Auckland's 19th-century merchant class.

He and fellow Scot William Brown launched the town's first European trading enterprise from a tent on Commercial Bay.

Their partnership was the starting-point of New Zealand's most enduring business. In December 1844 it made the first direct shipment to England, using its barque Bolina to export flax, manganese, kauri timber and kauri gum. The business survives today as the brewer Lion Nathan, owned since 1998 by Japanese company Kirin.

In 1840, Campbell had no illusions about Auckland's purpose in life: "The whole and entire object of everyone here is making money, the big fishes eating the little ones," he wrote. He was first to observe Aucklanders' speculative, go-getting mentality - traits outsiders associate with the region today - and also their powerful commercial acumen.

The absence of rules and ordinances made setting up business easy and failure even easier. There were also few of the class and religious divisions that were to become apparent in the Dunedin and Christchurch settlements.

Orthodox Jewish traders David Nathan and John Montefiore did business with Scottish Presbyterians like Campbell, Brown and timbermiller/ shipowner Thomas Henderson, and Irish Methodists like commercial lawyer Thomas Russell.

The Governor's largely Anglican court during Auckland's 25 years as the colony's capital mattered little when it came to the commercial aspirations of the citizens. The interests of the British military garrison, a popular feature of the town from the early 1840s, were similarly subsumed in the interests of commerce.

The Northern War against Hone Heke, far from putting Auckland at risk, stimulated the recession-hit economy and provided opportunities for entrepreneurs like Robert Graham (great-grandfather of former National Cabinet minister Sir Douglas Graham) to transfer their businesses from war-torn Kororareka to Auckland.

The Waikato War, which started 15 years later, provided a similar boost to the Auckland economy. Profits could be earned by farmers supplying food to British troops. (Irishman James Dilworth, whose will founded
Dilworth School, was one to profit heavily from such commissariat
contracts).

By the time of the Waikato War, Auckland was an agricultural force to be reckoned with, the seeds of its agricultural revolution having been sown 20 years earlier when settlers scrambled for large tracks of land in town's hinterland or as part of shonky UK-based immigration schemes.

By the early 1850s the region was exporting produce to Australia
to feed the influx of miners to the new goldfields.

Auckland's success hinged on the town remaining a maritime hub, which explains why there was widespread support for extensive, if ugly, foreshore reclamation. This allowed port facilities to expand and provided flat, convenient land for shipping offices and warehouses. It also satisfied Auckland's merchant class, which shared an abiding interest in commercial land from the start of the start of European settlement.

William Brown and Logan Campbell were typical of the traders in this regard. They signalled their intention to be part of Auckland's future when, in April 1841, they bought a town lot at auction - Auckland's first Crown auction - on the south side of the then main thoroughfare, Shortland Crescent (now Shortland St), above O'Connell St.

Two months later they built a warehouse at the front of the lot from ready-sawn timber Campbell had brought down from the north and used the timber left over to build a dwelling, at the rear. The latter survives as Acacia Cottage, now in Cornwall Park, which was part of Campbell's One Tree Hill estate gifted to the nation in 1901.

Campbell's story is important because he spanned the whole period of European settlement in the 19th century and survived in business when many other proprietors fell by the wayside. The economy in European
Auckland's first 25 years was challenging and it was only by the late 1860s, when the impact of the Thames gold boom was felt, that Auckland town (as distinct from the huge Auckland province) started to make headway against its southern rivals.

By this time, Campbell (minus Brown who had gone overseas) was in the company of a small but confident commercial elite, ready to invest in a variety of financial and development ventures and willing to use whatever political influence and inside knowledge it could muster in the pursuit of profit. This was the age of crony capitalism.

The genesis for this behaviour, which today is viewed as commercial skulduggery, goes back to Auckland's earliest days during the weak administration of Lieutenant-Governor William Hobson, from 1840.

Hobson, sickly for most of his brief term, proved incapable of controlling the greed of his small team of public servants, most of whom engaged in blatant land-jobbing (land speculation) in defiance of strict Colonial Office rules.

Acting Treasurer and Collector of Customs George Cooper went so far as to steal from his own department, and as a result of reckless borrowing for land speculation, he also helped destroy the Kororareka-based New
Zealand Banking Co, of which he was a founding director.

Until George Grey became Governor in 1845, the colonial administration proved incapable of stimulating or maintaining economic growth. It struggled to pay its bills (even coins were in short supply), paving the way for the fledgling private sector to take the initiative.

The leading capitalist was the talented commercial lawyer Thomas Russell who, aged 30, established New Zealand's first capital market with the formation in 1859 of the New Zealand Insurance Co (NZI). This jointstock enterprise, with a nominal capital of £100,000, the largest
for any company in New Zealand at the time, was the first underwriting
company in the colony. It was formed as a direct result of a disastrous fire in Auckland's central business district the previous year that resulted in total losses of more than £30,000.

The group of businessmen Russell brought together for the formation of NZI, the Bank of New Zealand in 1861, New Zealand Loan & Mercantile Agency Co (Loan & Merc) in 1865 and a host of other companies became
known as the Limited Circle and they were to dominate the Auckland capital market until the Long Depression took its toll in the 1880s.

They included, in addition to Logan Campbell, such names as Russell's senior legal partner (and twice premier), Frederick (later Sir Frederick) Whitaker, Thomas Henderson, David Graham, Samuel Browning, William Buckland, William Connell, Hugh Coolahan, William Daldy, Walter Graham, Edward (later Sir Edward) Stafford, Josiah Firth, Thomas Morrin, James McCosh Clark, John Oliver, C.J. Stone, James Williamson and William Wilson (a co-founder of the New Zealand Herald).

Without this group of crony capitalists, some of whose names appear as directors or investors in company after company associated with Russell, Auckland would have been wholly dependent on loans from Australia or London and would not have been able to build the domestic economy on the success of the Thames gold boom.

Timbermilling, which expanded dramatically during the second half of the 19th century, and manufacturing, meat-processing and horse-breeding, would have similarly been held back for want of local capital.

But like many of the usual suspects exposed in the sharemarket crash a century later, the members of Russell's Limited Circle overplayed their hands.

When the City of Glasgow Bank, which had extensive Australasian interests, collapsed in 1878, few of Auckland's speculator class, including Logan Campbell, foresaw the longterm impact on the Auckland
economy. Retail and commercial property boomed in the early 1880s and suburban land prices rocketed until mid-1885 in the face of rising unemployment and unprecedented emigration to Australia. Investor confidence in Auckland's thin capital market finally snapped and the late 1880s became the bleakest years in the region's history - probably worse than during the Depression of the 1930s.

The effect of the downturn was exacerbated by dodgy related party
lending to Russell and others by the BNZ and Loan & Merc - transactions today that would be viewed as criminal; and Campbell, the self-proclaimed father of Auckland, was lucky not to join several of his business colleagues in bankruptcy.

It was only when his trading/brewing interests merged with those of brewer Ehrenfried Bros in 1897 that he could rest easy. The resulting enterprise, the Campbell & Ehrenfried Co (C&E), was the springboard by which an Ehrenfried relative, future Auckland mayor and national politician Sir Arthur Myers, entered brewing.

C&E was the vehicle by which Myers' grandson, Sir Douglas Myers, acquired control of Lion Breweries - the future Lion Nathan - in 1981 The Auckland and New Zealand economies had been slowly recovering from 1895 but the C&E merger, which Campbell himself saw as a turning-point in his finances, signalled that the new century would, commercially
at least, be better than the one coming to an end. And that proved to be the case.

Many factors account for Auckland's return to prosperity by the close of the 19th century. The rise of co-operative dairying and the Boer War account for some - but the main one seems to be Auckland's expansion as an export port and a centre of trade, and the ease with which business
could be done.

Nearly 50 years earlier in 1852 Attorney-General William Swainson had come to a similar conclusion. Writing in the New Zealander and in a subsequent book, he praised Auckland's good harbour, abundant, fertile land and its community, which he saw as largely free of class and
religious divisions.

For an important group of mainly Methodist shopkeepers and contractors - people who, with the notable exception of the Wilsons, had little in common with Russell's Limited Circle - Auckland provided the ideal opportunity to serve God and make money at the same time. They were able to operate without hindrance or discrimination.

This group included the founders of what became householdname businesses such as Smith & Caughey, Winstone, Rendells, George Court & Son, John Court, Wilson & Horton, Milne & Choyce, John Burns & Co, J
Wiseman & Sons, Snow Rainger, Arthur Yates & Co, Henderson & Pollard, and R&W Hellaby.

These businesses helped keep Auckland alive after bubble companies associated with Russell or his group had failed. These down-to-earth businesses, and many more like them, formed the backbone of the commercial sector in the decades following the Long Depression and most survived until the last quarter of the 20th century. (Smith & Caughey survives today as a family-owned business.)

Graeme Hunt is an Auckland based journalist and author.

VICTORIAN ECONOMY
1840: William Brown and Logan Campbell launch Auckland's first
business from a tent on Commercial Bay.
1841: First Crown land sales in Auckland spark speculation known
as "land-jobbing" or "landsharking"; New Zealand Banking Co moves from Kororareka to Auckland.
1842: Property bubble bursts; economy becomes depressed because
of a shortage of exports.
1844: Henry Keesing establishes the first finance company by lending
money against the security of property; Governor Robert FitzRoy issues junk bonds (worthless debentures) to alleviate the Government's financial crisis; Brown & Campbell trading house makes Auckland's first
direct shipment of goods to England.
1845: New Zealand Banking Co collapses.
1847: Auckland Savings Bank opens.
1852: Charles Ring discovers gold on the Coromandel Peninsula but the claim is not exploited.
1856: Auckland Chamber of Commerce formed.
1858: Fire guts Auckland central business district, destroying 50
houses and business premises.
1859: First joint-stock company, New Zealand Insurance Co, is formed
by Thomas Russell and his group of crony capitalists later known as the Limited Circle.
1861: Thomas Russell's Limited Circle forms the Bank of New Zealand.
1864: Mini-boom in Auckland as a result of commissariat contracts
being awarded to farmers to feed British solders in the Waikato War;
Recession following the withdrawal of British troops; Bank of Australasia sets up a branch in Auckland.
1865: Colony's capital moves to Wellington with consequent loss of government business; New Zealand Loan & Mercantile Agency Co ("Loan & Merc") formed in London.
1867: Gold discovered in Thames.
1868: Thames gold rush starts.
1872: Brokers' Association forms a stock exchange in Auckland;
Thames gold boom ends.
1877: Wool prices fall, leading to a rise in unemployment.
1878: City of Glasgow Bank collapses, leading a withdrawal of British
investment in New Zealand.
1882: Wool prices decline further.
1885: Auckland suburban property prices peak.
1886: New Zealand Industrial Association formed (forerunner of the Auckland Manufacturers' Association).
1887-90: Severest period of the so-called Long Depression. Numerous companies fail and many speculators are ruined; banking crisis
hits hard.
1893-95: Slowdown in private investment following a financial crisis involving the Bank of New Zealand, the Colonial Bank of New Zealand and the New Zealand Loan & Mercantile Agency Co.
1895: Higher commodity prices and a slowdown in capital flight signal the end of the Long Depression.
1897: Brown Campbell & Co, the successor to Brown & Campbell, merges with Ehrenfried Bros to form the Campbell & Ehrenfried Co,
1898-99: Auckland Industrial and Mining Exhibition.

- NZ Herald

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