Policy Spastics

Gareth MorganEconomics

Gareth Morgan, Director of Gareth Morgan Investments

Last week’s London “Economist” magazine drew the distinction between Australia’s recovery and our own. The magazine noted the export-led nature of NZ’s upturn and postulated that in contrast Australia’s would be accompanied by a balance of payments crisis. The article more ominously questioned whether our appetite for reform is “being dulled by economic success”, and submitted that “slower change [maybe] the formula for [National’s] re-election”.

With the make-believe employment policies of yesteryear finding favour again under Mr Birch; Mr Burdon’s penchant for protectionism straining at the leash; and Finance Minister Richardson overseeing structural budget deficit deterioration – the question of reform rot is pertinent. Consider the rationale used by each in justifying the degeneration in their portfolios.

Firstly Richardson, who has boasted that because the government spending to GDP ratio is falling, creditors can take heart. As an economy recovers it’s to be expected that this ratio will fall naturally – simply as a result of GDP rising. Government spending is growing in real terms, a sure sign this government has surrendered its plans for pursuing sufficient structural reform of its outlays. This was obvious the day she surrendered the National Superannuation reform.

Secondly, Mr Birch and his employment and training initiatives, ostensibly to provide the long term unemployed opportunities to re-enter the workforce. This approach was tried when National was last in government and failed then to bring a halt to the secular rise in the unemployment rate. Once the plans were ditched in the mid 1980’s the unemployment rate bounced back up, indicating that such approaches to unemployment are superficial. The subsidy needs to remain in place permanently, meaning the positions created are fantasy jobs. A cynic would argue the strategy is designed simply to lower the HLFS measure of unemployment.

Recently Mr Burdon has accused critics of his anti-dumping duties of being “intellectually dishonest”, his rationale being that consumers have to get their income from somewhere and for that they need jobs – which protectionism delivers. This rationale can only be described as “intellectually” deficient. Firms that produce internationally competitive product face an infinite demand. Yes that’s right, infinite! There is no reason such firms cannot provide little NZ with so much income as to guarantee full employment. Policies forcing firms to move to such product must be the priority. Protectionism does the opposite, sheltering those producing Third World products but paying First World wage rates. In addition, a high real cost of investment capital – thanks to an insatiable demand for funds by government – impedes investment by competitive businesses.

The Ministers are guilty of obstructing NZ’s sustainable economic recovery and employment growth – two by negligence of the budget deficit requirement, and one through nostalgia for naked protectionism, albeit devoid of an economic rationale. The “Economist’s” fears are well placed. Unless the current Cabinet can be convinced their current contributions are counter productive, the magic of NZ’s export-led recovery will all too soon be dissipated. Coherent, consistent policy is rapidly fading, superseded by policy spasticity.

Policy Spastics 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.