• Light Cast on the Future

    Every now and then, a single event can cast a bright and unexpected light on a complex issue of much wider significance. Just such an event was the government’s decision to award the contract to build a new ferry to a Bangladeshi firm rather than a New Zealand boatbuilder.

    At first sight, the main reason for concern may be seen as the safety and reliability of the new vessel. Bangladesh does not have a boatbuilding industry of any repute; the New Zealand order will be their first contract for a foreign customer. Those who eventually travel on the ferry – bearing in mind recent bad experiences with ferries plying Pacific routes – will hope that the government’s confidence is justified.

    But the real worry lies in the reasons given by ministers for the decision. The factor that weighed above all others, we are told, is that the Bangladeshis could build the vessel much more cheaply. The reputation for quality and technical excellence painstakingly built up by the New Zealand industry, it seems, counted for nothing. The efforts made to promote that industry to world markets – as witness the taxpayer subsidies to the America’s Cup campaigns – were apparently just money down the drain.

    And if even our own government preferred to rebuff the New Zealand industry by buying foreign, why should any other customer reach a different conclusion? If the reasoning followed by ministers is sound, the decision means, in effect, the death knell of a proud New Zealand industry that has represented one of the few (and dwindling) instances of a technically advanced capability that can look world competition in the eye.

    But the light cast by this decision illuminates yet more. If the reasoning applied in the case of boatbuilding is correct, why would it not apply to any other New Zealand manufacturing sector? We have already seen the consequences of such thinking in areas like railway rolling stock and aircraft maintenance; what will be left if, setting aside all other considerations, price alone must always determine the issue?

    Why does the government not take a more strategic view, recognising that money saved on an individual contract may cost the economy hugely more over time? If one contract after another, each taken in isolation, is awarded on the single criterion of price, and one industry after another accordingly disappears, will that not threaten the destruction of our total manufacturing capability, leaving all our eggs (or milk) in the one basket of dairying?

    The answer constantly offered to these questions is that “the market must prevail”. If decisions do not comply with market realities, we are told, our economy will be weaker in the long run. But, as Keynes’ famous dictum put it, “in the long run, we are all dead”. By the time the last person turns out the lights, those responsible will have departed the scene and will not be around to see the results of their handiwork.

    Do they not wonder why so many of today’s economic powerhouses (including many who now enjoy higher living standards than our own) have found it advantageous to provide some protection to domestic industries while they are building up their strength? Why do we think that we alone are so invulnerable that we can successfully entrust our future to a global market place in which we are a tiny player whose interests will be wiped out without a moment’s thought?

    And if even our own government puts New Zealand interests second to the dictates of the “free” global market, what does that tell us of the government’s attitude to the protection of New Zealand interests in contexts such as the negotiation for a Trans Pacific Partnership? Must “market realities” prevail there too? Must New Zealand interests be abandoned – in areas like intellectual property and pharmaceuticals – if they run counter to the demands of the major players in the international marketplace?

    The ideologically driven insistence that the “free” market must always prevail might not be so damaging if the market really were “free”. But the market is rigged – and rigged against our producers and exporters in respect of precisely the issue that our government says matters above all – that is, price.

    Ministers have decreed that decisions on contracts must be made on price alone; and they then ensure that New Zealand manufacturers must, by virtue of the overvalued dollar, carry an enormous price handicap in the race for orders. Our dollar is overvalued because comparatively high interest rates, and the prospect of higher rates to come, offer easy pickings to overseas speculators; our currency, the tenth most traded in the world, serves the interests of those speculators at the expense of our own producers.

    We have learnt nothing from past mistakes. We are about to embark on another destructive round of raising interest rates, thereby pushing up the dollar’s value, destroying yet more of our industry, weakening our ability to pay our way, worsening our trade deficit, increasing our need to borrow, and leading to yet higher interest rates.

    The boatbuilding decision is, in other words, just the latest instalment in a deliberate but disastrously short-sighted policy – and it casts a warning light on our economic future.

    Bryan Gould

    14 January 2014