VIEWS FROM OUTSIDE THE APIARY: IAN FLETCHER
I’ve written several times about productivity, which I (as many others) see as the central challenge facing the New Zealand economy – too little output per worker, or per dollar of invested capital. The situation seems to be slowly worsening, and we’re not dealing with it very well. This matters.
The current situation: the economy is in a recession. The government says (and surely hopes) this is a cyclical downturn, and that things will just get better (before the next election, the government’s earnest but unspoken hope).
Others (including me, and the OECD) disagree, saying the recession exposes underlying structural issues within the New Zealand economy. The OECD (Organisation for Economic Co-operation and Development) is a developed country club that develops and offers generally sensible policy advice. For New Zealand, the OECD points to high household debt, an overheated housing market, and overdependence on tourism and agriculture, border delays (an issue I hadn’t spotted) and the risk of declining house prices (actually good for labour mobility). They recommend raising the superannuation age (obvious – it should be means tested too), easing building restrictions (good), and reducing government spending to address these structural challenges (irrelevant, except that wasteful spending is never right).
There’s more to it than that: low wages, very low savings, a loss of skills to Australia (which will worsen as the gap between the two economies widens and as Australia follows its now explicit ‘hire Kiwis’ policy). And – maybe worst of all – we have politicians across all parties who confuse profitability with productivity. Low taxes increase profits, but give companies neither the incentive nor the means to get better. Higher taxes alone would transfer money around, but not necessarily change the system. I’ve written before on all this. Why again, and what might it mean?
We are stuck in a doom loop: low productivity means we pay low wages, which limits savings and taxes. That makes it hard to invest in the infrastructure to lift productivity (both physical, like better transport, and institutional, like better schools with well-paid staff). Meanwhile, the population ages, healthcare costs rise, skilled people leave, and migration is slowing, ending the economic sugar high we’ve survived on for a long time.
More taxes would help, but only as part of a revamped savings and investment system, and higher wages. Imagine being able to feasibly buy a decent house and save for a decent pension when you retire, at the same time. That should be the goal, as well as decent schools, hospitals, police and all the rest. We need a bit of ambition. Sliding into genteel poverty (our current track) is romantic, but it’s still poverty. And poverty sucks.
We also have institutional sclerosis – as well as cutting the public service in silly, show-off ways, the government is re-hiring former CEs of departments. This is only a symptom, but a telling one. They appear to lack the energy, or willingness to engage in original thought, or to challenge the tired focus on balancing the books that dominates what now passes for debate. More junior public servants are just keeping their heads down, I’m told, and not seeking promotion. Again, another symptom of a very tired outlook. The bottom line: we can’t cut our way to growth nor just tax ourselves to a better future; we need a strategy for investment and institutional renewal that actually changes the system.
My holiday reading has included delving into the last days of the Austro-Hungarian Empire (yes, it’s been raining here). The frightening insight is that the New Zealand political and administrative class looks very similar in age, outlook, attitude and lack of imagination to that unhappy state. Comparing our current PM to the late Emperor Franz-Josef is insightful, but not comforting.
In the past, governments have tried to break free by big borrowing to invest in schemes – like Muldoon’s 1970s “Think Big” policies. The original attempt was the Vogel Plan in 1870. Vogel (a journalist who started the Otago Daily Times) was Premier, and his idea was to borrow big abroad to build railways, to ‘open up the country’. It fell apart for other reasons (worth studying too, but not for this column). Big-bang, win-the-lottery type policies are not the systemic change we need. There is no quick fix.
People (including senior folk in Wellington) tell me they share this analysis. They expect things will continue to steadily decline until a crisis that makes the current system obviously untenable. Most of them see eventual Federation with Australia as the best outcome. I agree with that, but I’d rather join Australia on reasonable terms than as a bankrupt failure.
You may say that’ll never happen. To which I say: Newfoundland. Newfoundland was once a self-governing Dominion adjacent to Canada. Newfoundland is now a Canadian province. New Zealand is not doomed to survive.
To some extent all this is obvious. My real fear is the extent to which we are all wilfully, cooperatively blind to these issues. Partly that is because our system of government is overly centralised, so there is no established and politically legitimate source of other ideas or proper criticism. Local government is financially hobbled, and lacks the resources to tackle bigger issues (with the notable exception of the Auckland Mayor). The media is in a Darwinian struggle for survival based on lowest-common-denominator rubbish content. Universities lack resources, the mandate and the courage to really challenge the status quo.
And we all have the private option of quietly slipping away to Australia. No one actually has to stay, so no one really has to care enough or be desperate enough to act to make things better. That’s a tragedy. It may also be destiny.
Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.
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