Cullen and Hewson, Different Planets

Gareth MorganPolitics

Gareth Morgan, Director of Gareth Morgan Investments

The appointment last week of Michael Cullen as shadow Minister of Finance cements the difference in policy emphasis that New Zealanders are being offered now compared to Australians. Here both parties are into fiscal expansion, slowing the pace of economic reform and trying to avoid offending any more sector groups. In Australia the Liberal opposition has seized the policy initiative by unveiling its “Fightback Package”of economic reforms reminiscent of Rogernomics. In Australia, Hewson’s party is ahead in the polls, in New Zealand both the major parties are contesting last poll position.

Both countries are in recession, have unemployment in the vicinity of 10%, inflation around 2%, a persistent balance of payments deficit of around 3% of GDP, and budget deficits that are ballooning. One though has experienced the Rogernomics balms of GST, legislated price stability, extensive privatisation, and deregulation of the labour market. The other is contemplating these delights.

In light of the economic indicators it’s reasonable to question whether the adoption of the reforms in NZ has made any material difference. The answer of course lies not in comparing current macro performances but rather the management performances of firms in the two countries; where they see their future growth; and what the important determinants of success will be.

In that vein I had occasion recently to address a meeting of Australian businesspeople interested to know more of the NZ experience, especially since Hewson cites Rogernomics as the course Australia must follow. They feel a significant degree of trepidation about the costs to their businesses of the policies. Indeed over dinner conversation, between important discussions about the size the Moreton Bay prawns his Board member’s Christmas hampers should have this year, one company senior bemoaned the inevitability of having to lift the company performance without the prop of regulatory protection. He had serious doubts as to whether his corporate could cope.

As a generalisation, it has tended to be the bigger firms in NZ which have been slowest to adjust to an environment which dictates that success can only arise via international competitiveness and that such competitiveness isn’t simply being the cheapest producer. That the larger corporates are now paying for their lethargy is evidenced by major shareholding shuffles, with large foreign parties replacing traditional Mum and Dad shareholders. This process will continue until our corporates earn international rates of return. It will result in NZ raising its growth rate to the global average- an outcome that must result given the international mobility of capital and skilled labour. The changes undertaken can be distinctly uncomfortable for managers who are not attuned to the need to adapt company strategies to cope with exposure to international market pressures.

So the Australian establishment should be concerned about the Hewson onslaught. It will necessitate major change to corporate strategy, and Board concerns will have to lift above what’s in their Christmas hamper. For NZ business the Hewson reform represents an opportunity to exploit that market while it is reeling from the onslaught.

Cullen and Hewson, Different Planets was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.