The Maori Challenge
When I left New Zealand for the first time in 1962 to study at Oxford University, I took with me an LP (yes, real vinyl!) of the St Joseph’s Maori Girls Choir. I was amazed to discover over my years in Britain that the one thing guaranteed to make me homesick was playing that record.
Wiki Baker’s beautiful voice was only part of the explanation. I realised that the sound of Maori music awoke in me unsuspected emotions – as though I had throughout my early life picked up from the ether as part of my own heritage a cultural sensitivity to which my emotional antennae, even 12,000 miles from home, were still attuned.
This was all the more surprising to me, since – while I had always got on well with my Maori classmates, and recalled with pleasure the rivalry I had enjoyed with Johnny Tapiata when we contested the Oratory Prize at Tauranga College – it had never occurred to me that Maori language and culture were still alive and (comparatively) well.
When I returned to live in New Zealand in 1994, however, I discovered a country very different from the one I had left three decades earlier. There was a widespread recognition that New Zealand was – in its foundations – a bicultural society and that Maori had an equal part to contribute to that audacious enterprise. And I had the pleasure at Waikato University of working with Robert Mahuta in the committed work he was doing to bring about a raupatu settlement for Tainui.
One element of that settlement was that Tainui became the owners of the University’s campus. There were those who found this prospect disturbing – and it is true that a few days after the settlement was signed, an enthusiastic young man arrived in my office and demanded a guided tour of the estate of which he was now part-owner!
But Tainui proved to be ideal landlords. They saw the relationship with the University as a partnership, and substantial parts of the rent we paid each year found their way back to the University in the form of scholarships and other help for disadvantaged students.
The University derived a further benefit; we became one of the few tertiary institutions in the country to have a proper legal title (in the form of a perpetually renewable lease) to our own campus. Tainui, of course, has gone on to become an economic powerhouse in the Waikato and beyond.
How, then, should pakeha regard this Maori resurgence? Is it a threat to be nipped in the bud (assuming that to be possible) or is it an opportunity to be seized for the benefit of us all?
Let us first be clear about one thing. Maori and pakeha should have no difficulty in treating each other with mutual respect. Our joint presence in this beautiful land is the outcome of two of the bravest odysseys in human history; first, the great Polynesian navigation of the vast Pacific, and secondly, the voyage undertaken by my forbears, when families from small rural communities who had never seen the sea in their lives before boarded tiny sailing ships on a three-month journey to an unknown destination, the most distant point on earth.
I am proud of that achievement, as my Maori compatriots are of theirs. The difference was that the Maori journey took place much earlier, so that knowledge of the huge changes that had taken place in the rest of the world over a thousand years was denied to them. Pakeha have little understanding of the huge adaptation that has been required of Maori over the last relatively short 180 years or so.
It is greatly to the credit of both of us that we are committed to creating out of these historical givens something new and wonderful. If we succeed, we will have achieved something never before attempted – the synthesis of two very different cultures as the foundation stone of a tolerant and inclusive society where difference is seen as a source of strength rather than conflict.
But we are still far from that achievement. We cannot call it success when Maori – by virtue in most cases of just being Maori – have a less than a fair share of our effort at partnership.
We pakeha cannot be happy when a significant element in our country has worse health, poorer education and job prospects, and less chance of self-fulfilment than the rest. If we want to build a strong and successful country, who do we prefer as partners – a perpetually aggrieved, underprivileged, racially defined underclass or proud and successful brothers-in-arms, confident in their own heritage and identity?
There are those, of course, who say that it’s for Maori to get themselves to the starting-line, that they must take their chances like everyone else in a market-based economy which rewards the strong and leaves the rest to fend for themselves. But we can do better than that.
Yes, of course, there will be extremists on both sides of the issue who claim more than is justified. But the best defence against extremism is to recognise the justice of moderate claims.
This is not the time to be fearful and mean-spirited. A divided society is a weaker society. We should grab the chance to understand and value each other, to support each other, and to build together.
This article was published in the NZ Herald on 12 July.
Don’t Be Wimps!
“Don’t be wimps,” seems to be the advice on offer to exporters groaning under the burden of the overvalued dollar. “Lie back and enjoy it,” advises one sage. “Get on with it – there’s nothing you can do about it anyway,” says another.
Such wrong-headedness would matter little if it involved only a handful of disaffected exporters. But it affects us all – as it has done for decades now, and will do for the foreseeable future.
But surely there is nothing we can do about it? The rate for our currency – floating as it is – will be decided by the foreign exchange markets, and not by the policy-makers? The answer to that is a resounding “No!”
There is no such thing as a clean float. The view that foreign exchange markets take of our currency will be influenced by many factors, most of them inevitably within the control of our policy-makers.
The legendary Japanese housewife or Belgian dentist knows nothing of our economy; if they knew about our slide down the OECD tables and our perennial trade deficits and record overseas borrowing, they might have been less keen to buy our dollars.
But what persuades them to buy our currency is the virtual guarantee that we will go on, as we have done for decades, paying them an interest rate premium. And, because so many are attracted by that risk-free windfall , and the demand for and price of the dollar therefore go up, short-term investors can usually expect a capital gain as well.
To top it all off, they are confident – after nearly thirty years’ experience – that we will not change our willingness to keep on doing it, even though it is plain by now that the more we borrow, the higher the interest rates we have to pay, and the higher rates we pay, the further the dollar’s value rises, and the further the dollar rises, the less we are able to produce and export, and the less productive we are, the more we have to borrow.
But isn’t the dollar’s recent rise (except against the Aussie – they have their own similar but more manageable problems) the result of high commodity prices? Yes, high commodity prices have helped to fan the flames, but the baseline was already established at an overvalued rate, where it has been for most of the past three decades. High dairy prices have simply exacerbated the long-term problem, making life even more difficult for other producers.
But what about the up-side of a high dollar – the cheap holidays and the low-priced imports? Aren’t they worth having?
Yes, there has always been an argument in the short term for overvaluation. Politicians are particularly fond of it, because it means that every overvalued dollar will buy more imports (or foreign holidays) than it should, so that people have the temporary illusion that they enjoy a higher living standard than they can really afford, at least until election day.
But the price we pay for that illusion in the longer term – in jobs, services and living standards – is a heavy one, particularly if governments (with our three-year terms) try to maintain it from one election to the next.
The high dollar means that our producers get less for everything they sell into international markets, including our own. Even our most successful enterprises and exporters find it harder to penetrate international markets, and when they do, their margins are decimated.
With smaller market share and lower profits, they find they have less capital to re-invest in new technology, new capacity, new product development, new skill training, new sales promotion, new export support – all the bases covered by their successful competitors from overseas. So, job growth is held back, service levels fall behind, the living standard gap with Australia widens still further.
Even our most successful exporters – currently our dairy farmers – find that the cream is blown off the top by the overvalued dollar, so that even in the goods times they have less to spend and invest in our economy than they would otherwise have.
If the over-valuation, or the threat of it, persists for any length time, there is then a second-order range of consequences. Bright graduates cease to go into productive industry; they prefer to try their luck in asset speculation, finance and retailing – anywhere that is protected from foreign competition. People look to non-productive assets like housing as the place to make their fortune. Capital moves to wherever it is possible to make a quick buck. Our successful businesses move overseas or are sold to overseas buyers. Corporate headquarters move to Sydney or Shanghai. Does any of this sound familiar?
In the longer run – a generation or more – the culture itself changes. Borrowing – in the belief that the word owes us a living – becomes a way of life. We lose faith in saving, investing, and producing goods and services for sale as a way of providing for ourselves.
It was Einstein who said “Insanity is doing the same things over and over again and expecting different results”. Our results are not about to change any time soon.
Bryan Gould
21 June 2011
Catching the Knowledge Wave?
The briefcase I use to carry my papers and laptop to meetings bears a multi-coloured logo and the words “Catching the Knowledge Wave”. As Fran O’Sullivan recalls, the outcomes produced by that high-level conference in 2001 – designed to unlock the secrets of economic success as overseas luminaries revealed brilliant ideas and initiatives that had hitherto eluded us – proved disappointingly humdrum.
It turned out that there were few mysteries to divulge. The explanations for economic success were all too obvious and commonplace. Ireland, for example, in whose apparent prosperity there was a great deal of interest, was the beneficiary of European Union largesse which created an asset bubble that eventually burst. Australia, as has become increasingly clear, has the great advantage of being able to dig up its barren interior and sell the product to a mineral-hungry world.
Other explanations are equally obvious. Developing economies like China and India now, and Japan and Korea before them, do well if they can access mass international markets and exploit economies of scale by combining cheap and plentiful labour with rapidly growing technological expertise.
And wealthy mature economies that focus on re-investing in new wealth creation, like Germany, will do better than those, like Britain and now the US, that give priority to the protection of existing asset values and to consuming more than they produce.
Developed economies that suddenly benefit from a new source of wealth, like the discovery of oil, will do badly if they simply spend the proceeds through allowing the exchange rate to appreciate – as the British and the Dutch did, as the Australians may be in the process of doing with high mineral prices, and as we are in danger of doing with high commodity prices.
Those, like Norway on the other hand, that invest the proceeds in new assets so that they go on producing wealth after the initial benefit has dissipated, can enjoy a long-term benefit to economic development.
Yet, despite these commonsense conclusions, we in this country still persist in seeking the magic elixir that will propel us into the economic top league. We still believe that one more Jobs Summit, one more nostrum from the latest management guru, one more ministerial exhortation to improve productivity, one more brilliant new piece of research, will do the trick.
We have been unwilling to face an obvious truth – that economies are such large, complex and multi-faceted fields of activity that it is very unlikely that single, focused initiatives – even if worthwhile – will make much, if any, difference.
Of much more importance in determining whether economies perform well or otherwise, and whether or not they are stimulated to innovate and develop, is the broad context in which they operate. It is that context we should focus on. But that is precisely what we’re not prepared to do.
There are of course some contextual factors, such as the terms of trade, we can’t control. But even when those factors are, as they are today, the most favourable in nearly thirty years, we still manage to negate that advantage by allowing the rising dollar to reduce the return to our primary producers and to create a two-speed economy by penalising the rest of the productive sector.
And we insist that every such improvement in our national income is an inflationary threat, rather than an opportunity to strengthen our productive capacity. It is as though we have no faith in the propensity of a market economy to grow and develop.
But it is when it comes to managing those factors that we can control that we fail most spectacularly. We kid ourselves that we are focused on the need to save, invest and export more, and that we must consume, borrow and import less. But our policy settings actually encourage exactly the opposite.
Our narrow focus on inflation means that every opportunity for growth is sacrificed to shackling the inflation bogey. The decades-long use of high interest rates means that investment is constantly deterred. And because perennially high interest rates create an over-valued dollar that buys in the short term more than it should, we encourage people to consume rather than save and to import rather than invest in our own productive capacity.
The poor return on productive investment –and the high dollar means that margins and market share are driven down, and our productive sector is less profitable than it should be – further discourages saving and investment, other than in non-productive assets like housing, where asset inflation is fuelled by reckless bank lending. Our attempt then to maintain a standard of living that our poor performance means we cannot afford makes overseas borrowing and asset sales more and more necessary.
These are not short-term issues. They have been endemic for nearly three decades. And we are about to do it all again, as overseas opportunists drive up our dollar, confident on the basis of thirty years’ experience that we will be stupid enough to continue to pay them a premium.
If we really want to change our fortunes, these are the issues we must address. Instead of vainly looking for the silver bullet, what about catching the commonsense wave?
Bryan Gould
11 June 2011
This article was published in the NZ Herald on 14 June.
Rebutting Tina
Much of the comment on (and criticism of) the budget has focused on the impact of the specific measures designed to rein back the government’s deficit. But, as the dust settles, we can see that the budget’s real failing was not in the specifics. Quite simply, it identified the wrong strategic target.
A casual observer could be forgiven for assuming, on the basis of what we were told about the budget’s objectives, that the country’s most pressing priority is to cut government spending. But, on the facts, that should be the least of our concerns. As Brian Fallow showed conclusively before the budget, our government’s gross financial liabilities as a percentage of GDP are the third or fourth lowest in the OECD.
Indeed, we could say that the government’s financial position is, comparatively speaking, one of the few bright spots in an otherwise pretty gloomy scenario – and it is strong because the government’s predecessors ran surpluses and prudently paid off debt over most of the preceding decade.
So, why is there so much emphasis on the deficit? And why do so many people believe that, because “we” are living beyond our means, the government must therefore cut back?
The answer is that confusion rules. There is of course a debt problem – but it is not the government’s. It is ours. While the government’s financial position is amongst the strongest, the country’s indebtedness – what we owe to others – places us at the bottom, along with Greece, Ireland, Spain and Portugal.
So, the budget – and much of public opinion – addressed the wrong problem. Does it matter?
Yes, it does. It means that, contrary to the story we have been told over recent years, we can and should be using the government’s financial strength to build our recovery. That was the point of paying off debt in the good times.
We have to assume that our policy-makers understand this perfectly well and that it is not economic rationality but political dogma – the ideology that, whatever the circumstances, government should play a smaller role in the economy – that determines that priority should be given to cuts in public spending.
But that focus means that our recession drags on for longer than it should. Those who pay the price are the unemployed, the sick and the poor, but it is also bad news for small businesses and producers, for the profitability, productivity and competitiveness of our industry, and for the economy as a whole.
Paradoxically, it is also a recipe for continuing government deficits, since a contraction in government spending, allied to contraction everywhere else in the economy, makes it virtually certain that the recession will endure and that tax revenues will stay flat.
Yet many people are persuaded that, until the government cuts back, we cannot afford to expand the economy.
But both common sense and overseas experience confirm that this is to get things the wrong way round. There is increasing evidence that recovery must come first, and deficit reduction second, and not the other way round.
Those countries, like Greece, Ireland, and now the UK, which have pursued an austerity programme in the hope that this will build confidence and thus stimulate recovery, have found that contraction is exactly that – contraction – and not the path to expansion through the hoped-for ministrations of the confidence fairy.
Other countries, like Canada, have demonstrated that getting recovery under way, by stimulating economic activity, is the best and necessary pre-condition for tackling a budget deficit. The Canadians have successfully undertaken – in that order – both exercises.
Moreover, while it would be good to return to government surpluses as soon as it is sensible to do so, it is not as though debt is itself such a frightening concept. A modern economy depends on debt, largely created by the banking sector; and the debt that really is a cause for concern is not the one we owe to ourselves but the debt we owe to overseas creditors.
That outsize debt – the one we all, you and I, owe to foreign lenders – is a function of our overall economic failure and our insistence on consuming more than we produce. That is the problem we should prioritise.
A government that applied common sense rather than ideology would, in other words, have identified quite different strategic targets. They would have focused on substantially reducing our overseas borrowing – the most significant step we could take towards protecting our credit rating.
As stepping stones towards that goal, they would encourage, not discourage, savings. They would give priority to restoring full employment. They would set about reversing the increase in inequality and the growing poverty in our society. They would halt the selling off of our important assets to foreign owners. And they would back this up with a reformed macro-economic policy that gives priority to the competitiveness and profitability of our productive sector.
None of these goals featured in the budget. Each should have had a higher priority than the strategic focus that was in fact selected. Shouldn’t we expect better?
Bryan Gould
22 May 2011
The Mark-Time Budget
The fact that this week’s budget will do no more than mark time should come as no surprise. We now have getting on for three years’ experience of a government whose idea of managing the economy is simply to wait to see what turns up.
Some of what has turned up has not been very helpful. The Christchurch earthquakes, in particular, plus the collapse of a couple of dozen finance companies, have not made things any easier. The government, of course, has seized on these factors to explain why their do-nothing policy has not produced better results.
But other developments have been very advantageous. World commodity prices – and prices for our commodities in particular – have soared to record levels. Our major export markets – Australia and China – have been the two economies that have best been able to shrug off the global recession. Our Australian-owned banks, while having to grapple with the higher cost of international borrowing, have ensured that we have been largely insulated against the global financial crisis.
And, as independent agencies like the IMF and Standard and Poor’s have made clear, (and has been conveniently ignored by media who prefer to focus for their own reasons on the government’s deficit) our public finances are – both historically and comparatively – in a reasonably healthy state, reflecting the prudent management and repayment of public debt carried out by earlier Finance Ministers.
These factors should surely have meant that we, too, like our two major trading partners, were able to rebound from recession and resume a rate of growth that would restore something like full employment and – with higher tax revenues – achieve an immediate improvement in the government’s accounts. But, disappointingly, having fallen into recession before most other countries, we are still bumping along on the bottom.
Economies are robust things. You can kick them, neglect them, starve them, but sooner or later their natural buoyancy will bring about a recovery of sorts. But that recovery will be longer delayed, and will be from a lower base and less strong and sustainable than it should have been.
The failure to get the economy moving is in other words not a cost-free dereliction of duty. Over a three-year period, the failure to move forward could well have cost us up to $20 billion in lost national income and will mean that growth, when it does resume, will be from a lower base and on a lower trajectory – penalising us for years to come.
Many remain without work, many more are worse off, our public services are underfunded, our investment in our future is undermined, our ability to protect our environment is weakened, all because recession continues to hold us in its grip.
We can ill afford such a loss. Little wonder that Australian living standards continue to outpace ours (as the current disparity in the value of our respective currencies makes clear) and that the exodus across the Tasman is again gathering pace.
One does not need to support Act to have some sympathy with Don Brash when, faced with government by inertia, he accuses the Prime Minister of taking no action to grapple with our problems – which is not to say that the good doctor’s prescriptions would not make matters a good deal worse.
We may be grateful that the Prime Minister declines to follow Don Brash’s advice but why does he not bestir himself of his own accord? It is partly a matter of political calculation. The Prime Minister no doubt reasons that he continues to do well in the opinion polls without doing anything, so why take the risk?
But it is also a matter of experience and temperament. Many voters will have concluded, when John Key became Prime Minister, that the economy was in safe hands. A self-made millionaire would certainly know a thing or two about what makes the economy tick.
But experience in the frenetic and short-term world of the foreign currency trader – a world of snap judgments and overnight deals – is not necessarily the best preparation for managing a whole economy at the macro level over a long period. That requires something very different.
And John Key has another characteristic, which he shares with my former colleague, Tony Blair. His basic pitch to the electorate is that he is a nice guy who can be trusted to take the pain out of politics – and, to some degree, the politics out of politics. A winning smile and a telegenic personality – both possessed in large measure by both Blair and Key – will get you a long way; but that advantage is put at risk when hard decisions have to be made and people are disappointed.
We need a budget this week that faces the tough issues, that sets us on course to save and invest, to reduce our national indebtedness, and to improve the competitiveness of our productive sector – and to use the comparative strength of the government’s finances to help us achieve these goals. It seems unlikely that we will get it.
Bryan Gould
14 May 2011
This article was published in the NZ Herald on 17 May