• 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

  • Do Businessmen Know It All?

    I was for a time the Shadow Secretary for Trade and Industry in the British Shadow Cabinet and, in that capacity, I frequently met business leaders. I was often surprised at how little they knew about the world beyond their businesses.

    So lacking in confidence on this score were some of them that they made some young friends of mine very rich by paying them large sums of money for the privilege of being introduced to supposedly important people who would have been happy to meet them anyway.

    All this is of course in marked contrast to today’s conventional wisdom that businessmen (and it usually is men) are the only people who are competent to decide almost anything. It is assumed not only that they know about business but that their business skills are essential for the resolution of otherwise difficult issues in every sphere of activity.

    It is not that they are assumed to know everything – far from it. It is just that they are believed to know all – little though it is – that is necessary.

    I was reminded of this by last week’s report that ambassadorial posts are to be advertised with a view to opening them up to a kind of competitive process. It is apparently no longer enough to graduate with a good degree and to be accepted against strong competition into the diplomatic service, to have gained years of experience and to have developed special knowledge and skills in foreign languages and international politics, and to have spent a good part of one’s life serving one’s country in sometimes difficult and even dangerous posts overseas.

    These qualities are not what we are now looking for. Anyone, it seems, can be a diplomat. Careful analysis, subtle judgment, accurate reporting, the ability to gain the confidence of people of different cultures and politics, are all beside the point. What is needed instead, apparently, is the ability to focus on the bottom line, to secure a proper return on capital, to cut costs and generally to bring the sharp lash of business realism to bear.

    I am a former diplomat myself and it may be thought that I am reading too much into this; but I can think of better ways of maintaining professional standards and morale if we want an effective diplomatic service. The Americans have for many years of course treated an ambassadorial post as a quid pro quo for financial contributions to political campaigns – and much good it has done them.

    But it is not just the diplomatic service that is in the firing line; it is only the latest bastion to fall to the cult of the omniscient businessman. From public service broadcasting to running prisons, from providing health care to protecting the environment, there is virtually no aspect of our national life that would not benefit, it seems, from being run as though it were a business. We scarcely have a public service any longer, so numerous are the highly-paid consultants who now compete for the work.

    Everything must be justified on purely business grounds. We are no longer citizens, but (if we’re lucky) shareholders – no longer people, but units of production. Workers in any case do not count; the business people we are invited to lionise do not include those who merely work for a living, since it is making money, not earning a living, that is held up as the pinnacle of achievement.

    Who cares whether there is any understanding of the complexities of conducting foreign relations, or of providing justice to the victims of the Pyke River disaster, or of the value of a national broadcaster in underpinning and helping to shape our own national identity? Who bothers with social, cultural and environmental goals, when everything revolves around the short-term return on financial investment? The only people who need to be satisfied are the accountants; the only measure that matters is the bottom line; nothing else is of value.

    We see the syndrome at its most virulent in the constant assertion that our economy must be run as though the country is a business. It follows that businessmen alone are equipped to make the important decisions. Nothing could be further from the truth.

    In hard times, a business will survive by cutting costs, laying off workers, suspending investment plans, delaying paying bills – the whole gamut of self-preservation measures. These are all sensible measures for a single business to take in its own interests. An economy that responds in this way, however, will drive itself into recession.

    Yet, so entrenched is the conviction that businessmen know best, that we continue to listen to individual business leaders who solemnly assure us that, in a recession, retrenchment is what the economy as a whole must pursue.

    No one can doubt that enterprising and successful business people are critical to our national future. Let us ensure that they are encouraged and helped to concentrate on what they are good at (and that they get better at it). But let us also recognise that there are many other facets of a healthy and happy society that do not lend themselves easily to the nostrums provided by the business manuals.

    Bryan Gould

    8 April 2011.

    This Article was published in the NZ Herald on 12 April.