Below, a response from Duncan Graham to Stephen Grenville's column of last Wednesday. But first, Dr Rick Boven writes:
The big issue is that NZ's principal 'exports', agriculture and tourism, have comparative but not competitive advantage. Reform is necessary if you have a regulatory deficit but it is not a basis for material competitive advantage. Lack of saving is an issue but more fundamental is the lack of a capital gains tax which has led NZers to over-invest savings in tax-advantaged residential housing, starving the value-add export economy of capital and reinforcing the structural problem with the current account, all exacerbated by a non-strategic approach to exchange rate management. The currency remains high, making it difficult for value-added manufacturing and high tech exporters and so condemning us to reliance on commodity exports without competitive advantage.
The root cause of all of this is intellectual reliance on the 1980s economic model and the resulting non-strategic approach to economic management – but there are signs that is now changing.
Duncan Graham:
New Zealand is a small country so maybe Dr Stephen Grenville can be excused for blinking while passing his eye over the accounts. Had he paused a few other factors might have become apparent.
[fold]
The present National Party came to power in 2008 when the economy was robust largely because the electorate was fed up with what it saw as Labour micro-managing people's lives. Consequently, National has shied from interfering too closely in almost everything, including reducing high alcohol levels for drivers. PM John Key's hands-off approach is best shown in his refusal to review the universal superannuation scheme that gives pensions to all at 65 with no means test. Many economists claim this is a prescription for disaster as the population ages.
The main action has been to scythe the public service forcing the nimble and knowledgeable overseas.
The Labour Party has still to recover from the loss of leader Helen Clark to the UN, leaving the Greens (a mild and rational version of the Australian party) as the defacto opposition. The lack of an upper house means the government can get its own way on most things.
Despite being a multi-millionaire who spent much of his working life overseas as a foreign exchange trader, she'll-be-right PM remains hugely popular. This is largely because he's a likeable pragmatist unburdened by ideology. He even supports marriage equality. Australia's hate politics have yet to cross the Tasman.
Like other classical economists Mr Key has no big picture, other than the usual hopes for market-driven prosperity. So when the economic crisis hit and a talkfest followed, the only project to get traction was a north to south cycleway. This is pedaling slowly against the heavy headwind of resource management rules impacting on development in NZ.
Factors hitting the economy beyond the government's control have included the Pike River coal mine disaster, a wrecked container ship oiling beaches, an ongoing drought, a high dollar and the 2011 Christchurch earthquake. Only now, two years later, is rebuilding becoming serious.
NZ's only aluminium smelter looks set to close, putting thousands out of work. The country remains a primary producer adding little value (apart from some milk products) to its exports. The most visible example is the raw logs heading overseas to be turned into furniture and building materials. Sadly the only credible counter-voice with the authority to inspire Kiwis to rediscover their vigour and ingenuity, physicist Sir Paul Callaghan, died last year.
What's wrong with the NZ economy? An absence of vision.