A Dose of Reality
As the cheerleaders for economic recovery build up to a Christmas frenzy, it is worth injecting a dose of reality into the optimism. Let us recall that the so-called recovery comes off the back of five years in the doldrums – a period of policy failure that has cost us an immense amount of lost national wealth, thrown thousands on to the scrapheap, relegated thousands more (and not least their children) to poverty, and left public services, including the defence force, in tatters.
The recovery, such as it is, owes much to the Christchurch re-build, begging the question of why we had to wait for an earthquake before finding the money to get the economy moving again. But the real questions arise in respect of where the recovery is likely to take us and – most importantly – whether it means that we have at last resolved our deep-seated economic problems.
The key feature of the government’s policy is, after all, – as the Herald identified in its leading article on Monday – short-termism. The government’s apparent strategy has been merely to apply a series of sticking-plasters rather than to find long-term solutions.
Asset sales, for example, have filled an immediate gap in the government’s finances, even though in the longer term there will be a significant loss of government income; that, apparently, is something for future governments to worry about. The so-called industrial strategy amounts to no more than large taxpayer-funded subsidies to film companies, ill-judged deals with the likes of Sky City, and jeopardising our environment by backing any overseas project to dig up or drill for hoped-for mineral wealth under our land or sea.
None of these strategies helps in any way to resolve our economic problems – indeed, the opposite is true. Our dangerously narrow productive base? We are more dependent than ever on high dairy prices which won’t necessarily last forever. Turning our backs on investment in new productive capacity in favour of an overheated housing market? Much of the increase in economic activity comes from the greater spending power home-owners imagine they have as a consequence of the rise in house prices.
Our predilection for consuming and importing? Stronger than ever. The need to borrow from overseas and to sell our remaining assets to foreign owners in order to fund our spending spree? No change there. Our continued use of interest rates to restrain inflation as the sole goal of economic policy, with the consequent overvaluation of the dollar and its damaging impact on our ability to compete in the world? No lessons learnt. All of these familiar problems are about to rear their heads again.
We are enthusiastically getting back, in other words, on to a money-go-round that means a damaging failure to pay our way and a weakened productive base. It is a safe bet that – after a brief consumer bonanza – there will be (with much wringing of hands) a new outbreak of bewildered concern as to why our powerful new competitors in Asia and elsewhere are doing so much better than we are.
In the meantime, the government will carry on with the bizarre conviction that our economic future depends essentially on sucking up to overseas corporates whose sole interest is in cherry-picking our assets – actual or potential – and leaving us to pick up the pieces after they leave with the booty. At the same time, it is apparently believed that the plight of an increasingly large proportion of our population – with no jobs, poor prospects, worse education, sub-standard housing, third-world health standards – is irrelevant to our economic prospects and is merely a matter of individual responsibility.
The government certainly cannot be accused of proceeding by stealth; it has loudly proclaimed its sadly misplaced faith in international finance and overseas corporates coming to our aid; it has been equally clear in its casual dismissal of any thought that our fellow-citizens might be worth consideration, not only as essential elements of a healthy and integrated society but also as important contributors to our economy.
There will be, quite understandably, those who accept this critique of current strategy but look in vain for an explanation of what an alternative strategy might look like. But we can’t even begin to understand the need for an alternative until we understand why the current strategy is doomed to be self-defeating. And the case for an alternative is inevitably more complex than can accurately or persuasively be described in 800 words; readers might like to look out for my next book!
The first important step towards a better strategy, though, is to avoid misplaced optimism as the economy recovers from a long period of stagnation. And one point is clear; the best guide to a better economic future is to enable our own people to become economically active and productive, so that everyone can share in economic success – everyone, after all, is entitled to a merry Christmas – rather than accepting the doubtful benefits of the self-interested whims and vagaries of overseas bargain-hunters.
Bryan Gould
17 December 2013