“Rock star economy already waning”

Recent figures for short term GDP growth caused one analyst to tag NZ as a “rock star” economy – at least compared to the lower growth statistics chalked up by other OECD economies.  However, such statistics are simply a snapshot in time.  The figures of 4% growth will look good in 2014. But with no changes in policies what will the economy (and the environment and society) look like in 2020? The recent growth figures do not delve into the fundamental character of the NZ economy.  For example if the figures related to one–off events, such as the Christchurch earthquake rebuild and the record high dairy prices, were backed out of the results our economy would more likely resemble a bloated, aging “has been” heavily reliant on old crowd favourites like dairy exports and showing only the occasional glimpse of innovation around hi-tech manufacturing or creative content.

That’s not to say that some of the current policy-settings have not been helpful. The commitment to balancing the government’s books and paying down government debt is helpful. Some of the welfare and labour market reforms have arguably been helpful – although it is important to get union buy-in if labour market reforms are to stick. Even the cheerleaders among the financial analyst community point out the risks with New Zealand’s worrying high level of overseas (public + private) debt as a percentage of GDP and our seemingly permanent Current Account deficit. This is not a healthy condition for New Zealand’s long term economic development.

If the NZ economy is to build a credible “rock star” brand then it must move on from being a one hit wonder and diversify both its product base and its export markets.

Our reliance on agricultural products makes us vulnerable to global commodity price changes and to external threats such as disruption of trade routes and foot and mouth disease. Durable change to the balance of our economy will take substantial political will and a commitment to a coherent longer term strategic plan. But we can’t go on as we are. Short term responses such as selling public assets is not the pathway to sustainable prosperity or rewarding employment opportunities.  Neither, by the way, is renationalisation of businesses operating in genuinely competitive markets.

Mining and oil exploration are at best short term “growth jump starts” rather than part of a long term plan for economic (or environmental) success. In the short term they might help buy us some time and to diversify export earnings. However, if such projects proceed then the government should use it’s powers to ensure that a fair share of the benefits remain in NZ, that local workers are trained and employed, are paid fairly and have safe working conditions before the projects begin. Such energy exploration projects are not the solution in themselves – but they could contribute export earnings while we move towards other hi-value product lines. A levied contribution from successful energy projects to a Kiwi Development Fund could, for example, provide longer term local capital for kiwi-owned, more sustainable, employment-generating business initiatives.

Small and innovative countries can prosper in the global marketplace but they need to take stock of their strengths today and build innovation and resilience if they are to compete successfully in the global economy. We cannot rely on a 1950s economic base in the 21st century. Let’s not hinder agricultural export growth – I wish them every success. But also let’s move beyond a rather myopic view that there is nothing else – and never will be. Like an aging rock star relying on past successes and short term thinking – we will go into a long slow decline if we do that.

Israel and Denmark can teach us some useful lessons about how small countries succeed in the 21st century. We also need to give much greater consideration to the development of new NZ-based industries around hi-tech: hi-value manufacturing focussed on export markets; IT software development head-quartered, and at least partially-owned here; high-quality NZ education training services based here but sold at a premium in offshore markets; and of course hi-value NZ creative content. These may involve strategic partnerships with offshore companies; they may involve some tax breaks and Research and Development support (which should be transparent) but if it contributes towards a durably prosperous, fair and more balanced economy then so be it. We should at least try innovative ideas and evaluate them after a sufficient time. If some of them succeed then perhaps we can finally begin to pay down some of our high overseas debt and chalk up our first Current Account surplus in 40 years.

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