Gareth Morgan, director of Gareth Morgan Investments
As the major economies struggle to regain the momentum of recovery last enjoyed collectively in 1989, and the emerging economies expand exponentially, NZ has over 1993, at last regained 3% economic growth. That achievement is coming without a fiscal or balance of payments blowout, nor with inflation – an achievement last made in the early 1960’s.
It’s evident some of the world’s leading economies have in prospect a protracted period of mediocre growth, leaving the global economy running 1 cylinder short. Germany battles ongoing uncompetitiveness now its productivity levels have fallen so far behind wage rates, and Japan cowers from more meltdown in its financial sector. The latter prospect casts a shadow over the whole of the Asia/Pacific region. That we all look to China – Communism’s last major jurisdiction – to provide the salvation, indicates some degree of virtual reality to consensus forecasts.
Japan’s disorder is chronic. Sharemarket PE’s there have long been justified as the product of special Japanese accounting methods and a restricted market for scrip. These excuses were shallow when their asset values were rising 30% plus a year – but are simply pathetic now. The issue’s simply whether the Nikkei’s fall to 10,000 will come quickly or be ground out over most of this decade. If it’s to be the former then the economic starlets that comprise the rest of East Asia will struggle to escape unscathed.
As the Yen has climbed so it’s kindling the export of Japanese industry to more competitive locations. This process is fuelling the Japanese current account surplus via two mechanisms – rising exports of machinery to equip the re-located production facilities; and curbed consumer goods imports as Japanese workers have thought twice about their future income prospects. A core aspect of Japan’s economic adjustment has yet to hit. That’s the disposal of thousands of “window seat workers” – still in employment though with little to do but stare out the window. As has become the Japanese way, speed of adjustment to the inevitable is gradual. The legend of their lightning adjustment to the oil shock seems a long time ago now.
For the Asian starlets the issue remains whether economic liberalisation of their own domestic markets, China’s expansion, and the modest recovery in America, can offset the impact of a Japanese implosion. China has massive potential but the battle to control the pace of expansion is being lost – inflation threatens to destroy the futures of millions of folk and political factions are positioning to “capitalise” on that misery. America provides good if not spectacular prospects, leaving the least risk avenue for expansion the economic democratisation of domestic consumers.
For NZ the least risk policy strategy is not to sit back and wait for salvation from Asia but to press on toward the efficiency goals that deliver greater international competitiveness regardless. If the population weren’t so revolting our politicians would buy that prescription. Departmental papers to the incoming government though – written by mandarins who know when they’re beaten – have already rejected that course. “Politically correct” advice now gives priority to redistribution – 1994’s policy question being, at what (if any) cost to economic efficiency.
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