I wrote a column in the National Business Review this weekend, and it’s driving right-wingers there nuts.

Bill English believes the government shouldn't bother with trying to promote added value exports. If the market wants raw logs, then that's what we should sell. (Listen to his interview on Newstalk ZB – he argues at length against the whole idea of government helping to create value in the economy.)

This is a clear fault line between left and right. The right believes that the best outcome for the economy as a whole is whatever the sum of individual market decisions adds up to. Individuals acting together in their own self-interest will act in the best interests of the community. 

Except we know that’s not how the market works if left to its own devices. Why, for example, would any business invest in a free primary and secondary education? If you just export raw logs, then you don't need a highly educated workforce to prune them, cut them down and load them on ships. You want to be able to grow them and sell them as cheaply as possible. You want queues of low-skilled people competing to work for as little as possible, helping to keep the cost of selling raw logs as low as possible.

If you have a highly skilled workforce aiming to making the incomes of workers in other developed countries, then that is going to drive up labour costs and land costs. Not good for raw log sellers. But very good for most people: most people in a high skill economy will be well paid, have great opportunities and the chance to succeed on merit and effort.

The only way you can make it work is through an economy that produces mostly high-skill jobs; those come from job-rich transformation of commodities into complex manufactured goods. They don't come from selling raw logs. 

That doesn’t mean tax-payer subsidies. It means tax incentives to encourage investment in processing, design centres, apprenticeships, access to overseas markets, and a razor sharp focus on our unique point of difference. Just as Icebreaker make something special the world wanted, with Merino wool, why can't New Zealand create an Ikea of the Pacific?

Why does the idea that this is anything to do with government policy enrage the right so much? Because an economy where we focus on raw goods exports and “wrapping around” a few services is an economy where only a few people prosper – the people who own the trees or the farms. 

So this is a classic struggle between the holders of capital and wage earners. 

Labour’s job is to be on the side of wage earners, and those who aspire to join them. This is the core stuff that  really makes a difference to people’s lives – high value jobs, higher wages.

It makes much more of a difference than spies and Judith Collins. As John Armstrong wrote in the Herald this weekend: “come September, nobody will be talking about whom Collins had dinner with in Beijing. Or how Parata could go to bed saying one thing and get up the next morning mouthing the exact opposite.” The 'crony capitalist' labelling – designed to drive a wedge between National and middle-income and upper-middle-income voters who possess a conscience – has so far been a flop.”

Exactly. 

People will listen to the earnest and articulate David Cunliffe talking about upgrading the New Zealand economy and how that will create better, higher paying jobs in your town, because it is genuine and sincere. Cunliffe really believes this. 

The announcement of Labour’s forestry policy last week was a win. The fuss around Judith Collins stole some of the oxygen from it. And yet, as John Armstrong mentioned, “To watch Cunliffe extol the virtues of what he calls 'intelligent hands-on' economic management is to witness the Labour leader at his most confident and self-assured best."

Many on the right of politics are deeply uncomfortable with John Key’s embrace of interventionist government and subsidises for the film industry for example. This is a divide within National that Labour should exploit. A job-rich, high-skill, high-wage economy is a Labour idea. Bill English opposes government activity to create it.  

If I were Labour's economic team, I would harp on about this difference in every opportunity this election year. It makes equality and opportunity Labour issues. It sets out a vision for a better New Zealand. And it leaves the Finance Minister at odds with what many of his supporters believe the National Government wants to do.

Comments (20)

by stuart munro on March 23, 2014
stuart munro

It wouldn't hurt to revisit English's lacklustre performance either. Never achieves Treasury projections - this is because of fratricide from his austerity pogroms withering even those sectors of the economy that escape his pernicious interventions. Cullen was the opposite - consistently overperforming as Keynesian multiplier effects breathed a little life into an economy rendered inert by the black decade of Gross National Incompetence.

by Alan Johnstone on March 24, 2014
Alan Johnstone

"Austerity pogroms" ?

Spending by the state as a percentage of GDP has gone from 34% in 2004 to 35.9% in the last figures I could find.

Of course the left can still win, but it's main problem is that John Key is willing to tack left and adopt any popular policy and claim to offer more efficent management of it.  Up to now, he's been sui generis in terms of his political ear, but there are signs that 6 years in office are starting to dull his abilities.

 

 

by Mike Osborne on March 24, 2014
Mike Osborne

I think this is an astute marker of a point of a significant point of difference. The key word in there is a "vision" all NZers can buy into (and I don't mean partiual asset sales). The current de facto "vision" from the transNational Party is what exactly? Trust us, we know what we're doing?

by DeepRed on March 24, 2014
DeepRed

The current de facto "vision" from the transNational Party is what exactly? Trust us, we know what we're doing?

"Country club economics", or "it's not what you know, it's who you know".

by william blake on March 24, 2014
william blake

Spending by the state as a percentage of GDP has gone from 34% in 2004 to 35.9% in the last figures I could find.

 That would include $3,400,000,000 on the road.
by DeepRed on March 24, 2014
DeepRed

"Spending by the state as a percentage of GDP has gone from 34% in 2004 to 35.9% in the last figures I could find."

What we're seeing isn't pure austerity per se. It's more like socialism for the already loaded or otherwise well-connected, and austerity for the rest of us.

by william blake on March 24, 2014
william blake

...and the one that rips the shorts, superannuation.  $10,500,000,000.

http://www.treasury.govt.nz/budget/forecasts/befu2012/080.htm

by Tim Watkin on March 24, 2014
Tim Watkin

Sorry Stuart, but there's no way you can use "austerity" to dscribe New Zealand's experience under National. If Brash had been in power, or Cameron, sure. But while there are all sorts of arguments to be made about opportunities missed – R&D incentives, public transport investment while borrowing rates were at record lows, the super fund – little has been cut. That's an often unspoken reason for National's ongoing popularity.

Josie's point, I think, is that opposition parties could flourish by offering new economic ideas as a counter to National has becoming stale, but there's little point in pretending this has been an austere or slash n' burn government.

by Wayne Mapp on March 24, 2014
Wayne Mapp

Josie,

You have painted an overly simplistic choice. National, hewers and tillers of wood and soil. Labour, a dazzling high tech nation.

New Zealanders who vote on these things know more than that. They see that there are a large number of tech firms and starts ups. There are simply too many articles, etc on Xero, Weta Digital and similar companies for people to think the choice is as simple as you postulate.

And of course Steven Joyce is Minister of Business Employment and Innovation. As campaign manager, he is going to make much of the Nats getting things going in the manufacturing and tech sectors.

by william blake on March 24, 2014
william blake

Tim I agree, austerity isn't accurate, in my opinion, the National are rearranging the deck chairs on the Titanic; the working poor, and underclasses get the deck chairs and the remaining middle and upper class get the lifeboats.

A good top end tax cut, raising of GST to compensate, various changes to the emloyment laws (Labour hasn't been good on this either), the ongoing re arrangment of secondary education, as well as the insidious ones you mention.

I think Josie is suggesting Labour has ideas to get people working at good jobs for good pay with equity and respect; sounds like a good future to me.

by Ian MacKay on March 24, 2014
Ian MacKay

Just after 8pm tonight Monday there was an interesting interview with a South Korean official and they talked about the Government choosing to promote/develop Technology in a very big way. Now S Korea is the front runner in using ultra fast Broadband to enable exports. They are working on 5G. The Government has been investing in this Technology as a very fruitful strengthening of the Economy.

Goverments can and should invest.

http://www.bbc.co.uk/programmes/p01tkbrt

by stuart munro on March 25, 2014
stuart munro

Really Tim? the GFC - the great get-out-of-jail argument the Gnats use for their consistent underperformance is a recession. A government which isn't scarily inept runs stimuli during a recession. These buffoons were so stupid they didn't.

On paper the government can be made to look generous, just as Bill English was able (by heroic feats of misinterpretation) to characterise the net change as being progressive. But borrowing to deliver tax cuts to the highest earners and to large foreign corporates has little or no stimulatory effect. (Krugman has a bunch of studies on it if you're interested) Back in real world NZ though, the median wage is not keeping pace with the median cost of living. Public service cuts are not merely miserable for those whose career paths are abridged, they have a knock-on effect to the whole local economy. GST and power price increases, together with increased costs of housing have made this period very austere indeed. If the child poverty statistics do not reflect austerity I'd like to know by what rationalisation they escape.

by Andrew Osborn on March 25, 2014
Andrew Osborn

It means tax incentives to encourage investment in processing...

Tax cuts for big business? This is the new policy for Labour? Did someone not get the memo?

I actually believe this was tested a few years ago. We allowed a tax cut for making a movie and developed a movie industry as a result. Who'd have thought!

Josie - have you considered running for ACT? If you carry on like this I might just vote for you.

 

by stuart munro on March 26, 2014
stuart munro

@ Ian - yeah the Korean economy didn't go from worse than Somalia to better than New Zealand in 50 years by accident. And no-one who knows how they did it can look at the charlatans that pretend to be economists in New Zealand with anything but contempt.

by Alan Johnstone on March 26, 2014
Alan Johnstone

@ Andrew O

"I actually believe this was tested a few years ago. We allowed a tax cut for making a movie and developed a movie industry as a result. Who'd have thought!"

Except for the fact that we didn't develop a sustainable movie industry that can stand on its own two feet. We built another subsidy junkie that continues to suck at the public teat, demanding more and more special treatment and tax breaks.

I'm all for targeted tax breaks to help build a business, but it needs to be with a clear timescale of them becoming a net contributor over time.

 

by DeepRed on March 26, 2014
DeepRed

I'm all for targeted tax breaks to help build a business, but it needs to be with a clear timescale of them becoming a net contributor over time.

Otherwise it becomes like Holden in Australia, or Rio Tinto in NZ. When a sunset industry finally shuts up shop, there should be a plan to retool the workers for other industries, instead of propping the industries up or throwing the workers on the scrapheap. I read somewhere that Sweden took such an approach, known as 'save the worker, not the job'.

by Andrew Osborn on March 26, 2014
Andrew Osborn

Alan: Except for the fact that we didn't develop a sustainable movie industry that can stand on its own two feet. We built another subsidy junkie that continues to suck at the public teat, demanding more and more special treatment and tax breaks.

Excellent point. Labour doesn't have a good track record for picking winners, does it? In fact few governments do. Which is why they should keep their nose out of what they don't understand, provide a business friendly environment and allow the best to thrive. It's not that hard really.


by stuart munro on March 29, 2014
stuart munro

AO, if

It's not that hard really...

How come we have 20% underemployment even with a third of our workforce in Australia? The truth is, it's quite difficult. And the private sector in NZ is no better at it than government, which is why they're always trying to score government funding (charter schools, semi-private prisons, monolithic ex-state utility monopolies...).

 

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