Aburgeoning balance of payments
deficit, banking and corporate head offices, good proportion of our manufacturing sector, and too many of our skilled graduates, all have the words “offshore” in common.
So the question is then, is that how we want things to be or are we being swept down that track because no-one’s tacked the unique Kiwi vision to our collective masthead?
Even those who think we have the right economic recipe acknowledge that the cake hasn’t risen in quite the anticipated manner.
Which levers to pull
Others criticise the stubborn emphasis on the “how” of economic progress – the mechanisms for advancement, rather than the rather larger questions of “why” we’re headed down particular track or clear idea of “where” it’s all heading.
Manipulating economic levers to create short-term effects and then letting markets run doesn’t necessarily generate the best long-term results, suggests Berl economist Dr Ganesh Nana.
“The market is very good in terms of telling us where we should go to get an efficient outcome; unfortunately it’s not so great at telling us what happens in getting there, and in the process we can tend to lose our way.”
He cites “the decimation” of the manufacturing sector in New Zealand over the past few years as being unhelpful in the country’s quest to move from commodity-based to knowledge-based economy. The level of that decimation is quantified in recent report compiled by Employers and Manufacturers Association communications consultant Gilbert Peterson.
He puts manufacturing losses in the 18 months to September 1999 at around 7412 jobs – based on announced company closures or rationalisations, and the impact of the trans-Tasman business drift. (Some 17 companies in the past couple of years have shifted some or all of the processing capacity to Australia; those that have shifted head offices and/or transferred marketing functions are harder to track.) Peterson’s report criticised policy makers for their lack of vision and failure to advance models for how the economy could develop.
Hands across the water
So, what are some of the future economic scenarios out there? Our place in the global scene. Does standalone New Zealand look tad vulnerable as various global trade blocs realign to pitch us firmly in an Asia-Pacific setting.
Union with Australia has popped up in the crystal ball of several local seers. Just how far do we want to go down that track?
We’re already more than half-way there. For many companies, straddling the Tasman is an everyday business reality. Carter Holt Harvey’s trans-Tasman sales have ramped rapidly up past one third its total over the past couple of years and are still climbing. The company now has two divisional head offices, billion’s worth of assets and 2000 people working for it in Australia.
The reality is that CHH is no longer just Kiwi, it’s an Aussie as well, notes the company’s chief executive Chris Liddell. “The ‘them and us’ characterisation is breaking down.”
For some, more togetherness can’t come soon enough. It is suggested that monetary union would have helped protect New Zealand exporters from the swoops and wallows of forex volatility. Banging up against an unwanted rise in interest rates and an appreciating Kiwi dollar has put the brakes on economic recovery several times in the past few years and may well do so again.
In fact, the issue of common currency is under scrutiny and research so far has cast doubts on whether the existence of an “Anzo” dollar would have had much impact on currency volatility.
“To be honest, the argument doesn’t stack up,” says Arthur Grimes who heads the Institute of Policy Studies at Wellington’s Victoria University and has been investigating common currency implications on behalf of the Australia-NZ Business Council.
“We’ve looked at what would have happened since 1986 and it would have made very little difference on average and in terms of volatility – which is interesting because my impression would have been otherwise before we started the study.”
While his study is an initiative taken by industry rather than the Government, Grimes believes it’s one of those areas where longer term planning makes sense. He agrees that there’s feeling right across the political spectrum that maybe more should be done in the way of economic planning but says it needs fairly clear definition.
The sort of “planning” that plays industry favourites gets pretty cool reception from most economic commentators. How to get the information to sensibly plan, asks Alex Sundakov, director of the Institute of Economic Research.
“Could anyone, 10 years ago, have planned, say, for growth in our telecommunications exports. Is that something they’d have thought of?”
Auckland a-skew
On some issues, there’s more agreement on the need for longer-term strategies. Apart from the trans-Tasman drift and areas such as skills training, Ganesh Nana cites the issue of Auckland’s “skewed” influence on the rest of New Zealand’s economy.
“Auckland is increasingly becoming de-coupled from the rest of the country and that’s having implications way down south in Invercargill. For example the building boom that followed the immigration boom in the mid-’90s saw house prices soar out of kilter with the rest of the country which had implications for the Reserve Bank. They can’t just manipulate interest rates for Aucklanders.
“That carries on into the whole issue of Auckland development. Should it be encouraged to become strong industrial manufacturing base or would it be simpler to have that strong base further out and let Auckland do the high-tech servicing of it – clip the ticket as it goes through the port?”
While there are also arguments for concentrating commercial/manufacturing activity, the city infrastructure is already quivering under the load of population drift that shows no signs of slackening off. So do you just let it run until we have four million living north of the Bombay Hills and half million scattered elsewhere, asks Nana.
“Sooner or later the bubble will burst – so it would make sense to foresee that potential and push development in the direction you’d like it to go rather than have major adjustment 20-30 years down the track.”
If satellite centre growth is preferred option, it’s unlikely to just happen; it needs encouragement and planning. He notes that in the past few years, the pendulum has swung from heavy handed regulation to totally hands-off approach. While the concept of “planned economy” in the old sense remains dirty word (or two), there is, he says, an urge to find new point of balance and some means of instituting longer-term planning horizon.
“You don’t want the heavy hand of government telling industry where it should go but bit of leadership or guidance wouldn’t hurt.”
Lead and they will follow
So what sort of planning guidance will the new Government deliver. More, according to Minister of Finance Michael Cullen. He says that while governments of the past have tried to set long-term goals, there has been lack of connection between mechanisms for getting there and the desired results.
“I think we’re still stuck in discussion which says that if we get certain framework elements rights – low levels of regulation, fiscal responsibility etc – then the rest will automatically follow. And clearly it hasn’t, to satisfactory or desirable extent, particularly in terms of the transformation of the economic base.”
There’s now realisation that the framework, even if it’s the right one, is just that – framework on which achievements can be built, he says.
“Yes, we’ve achieved the mechanisms but not the objective. So there IS need for longer term planning which clearly articulates the connection between what government is doing, what it is trying to influence, and the attainment of the objective which is stated.”
As to specific areas where longer-term planning could be applied, the issue of Auckland’s growth is one that has bee
