Time to stop talking about the Opposition and focus on what will really effect us over the next three years: what will the National government do to protect Kiwis from another looming recession?

It is human nature to be more interested in conflict than in peace. There is no story in “ship missed iceberg”. How else do you explain that the media has been filled with stories about Labour’s leadership turmoil, rather than the process of forming the next government? Yet it is the latter that will effect our lives over the next three years much more than who is the Leader of the Opposition.

So this item is not going to be about Labour. You can read about that elsewhere. As readers of my previous item will know, I obviously think that Labour should be more centrist, but that is their decision, not mine.

What does matter to me is what National will do in the next three years, and the risks that New Zealand could face.

Around three months ago Bill English was reported as saying that on average New Zealand has a recession every 10 years or so, and that you would think we would learn from that.

I looked back over the last 70 years and he is basically right. Here is the roll call: the “Black Budget” of 1958, the down turn in agriculture in 1967/68, the first oil shock in 1974, the second oil shock of 1979/80, the Wall Street crash of 1987, the Asian banking crisis of 1998, and the GFC of 2008 to 2011 (with Southern Europe still deep in its clutches). Now they don’t exactly follow a 10 year pattern, and they have different levels of severity. But the lesson is clear enough.

It does mean another recession is highly probable before 2020. And with the GFC being seared into the memories of most New Zealanders, the prospect of another recession within six years is pretty scary.

So this prospect is going to temper government policy over the next three years. The government will be determined to build as much resilience into the economy as possible to deal with the next recession. And because the GFC was so protracted, there may not be much time to do so before the next recession strikes.

It means an absolute commitment to staying in surplus. That means a tight rein on government expenditure. There will be room for modest (and perhaps not so modest) initiatives, but there will be no big flashy spending plans. It means a continual drive to getting a more efficient and flexible economy. In the pattern of the last six years that means lots of little things, which culmatively add up. They include RMA reform, employment law reform, local government reform, simplifying tax laws, improving quality of schools and tertiary institutions, further streamlining central government, and getting more free trade agreements.

One of New Zealand’s fundamental risks is that we have a narrowly based economy, among the vulnerable in the developed world. Of course when the world wants the things we produce, we do very well, as has been the case over the last few years. But it also poses a large downside risk. The received wisdom is that we should diversify and move into more sophisticated exports. This was the message of Sir Paul Callaghan’s influential book, Wool to Weta.

Sir Paul did not propose, as so many think he did, that the government should pick winners, such as Greentech or Biotech. Instead he said we should let the market decide, with no more than a gentle nudging by the government. But he was very clear that a lot more money should be spent on science, both fundamental and business facing if we are to make this transition. The government has done some of this. It has taken the old Industrial Research Ltd and turned it on its head. The re-naming of IRL as Callaghan Innovation is indicative that the message has at least been heard. Does Steven Joyce have the opportunity to take on board more of the message and claim a bigger share of the money set aside for new initiatives?

There will no doubt be many good proposals from all the Ministers of how to spend the money that has been set aside for new initiatives.  But how many of these will have any strategic impact?

The Prime Minister said throughout the election campaign that New Zealand was on the cusp of an exciting future. Now is the time for the Government to play its part in bringing it about. It will give New Zealand the resilience to withstand the recession that is due in the next six years.

But a recession in the next three years could blow all the cozy assumptions that John Key is on track for a fourth term to hell in very short order.

Comments (3)

by Tim Watkin on September 26, 2014
Tim Watkin

Damn but we miss Sir Paul.

I'm sure you're aware there's plenty of criticism around that Joyce is picking winners with all his grants, as opposed to across the board R&D levies or tax incentives. And our R&D ambitions, while National is talking about growing the share, are still well behind other developed countries. Don't we need more blatant incentives to get companies to spend on R&D and science?

by barry on September 26, 2014
barry

As opposed to picking winners the government should be assisting the already existing industries that sre struggling.  I don't mean coal which is a dying industry that is being propped up purely for political reasons.

I am thinking about things like the railway workshops that could have survived with a  little government support and would still have a viable future in a world where accounting is done properly.

or Invermay which is being closed for no obvious reason, and cutting costs at the expense of good science and regional development.

or fish processing where the produce is being caught by overease crewed boats and landed offshore and the only NZ income deerives from the quota rental.

or timber processing

or ...

It is all very well to invest in sexy new industries like tech and movies, but the traditional manufacturing could survive with a little of the help meted out to the goverment winners.

by Katharine Moody on September 27, 2014
Katharine Moody

I've often wondered if we want to build resilience into our economy, don't we need to look harder at what we presently import and determine where we haven't the knowledge, skills and/or resources (both natural and manufactured capital) to supply these things locally. Taking a sort of Maslows hierarchy of needs approach (i.e., what imports are critical/life sustaining that we do not or cannot produce locally, making these a top priority for concern and moving further up the hierarchy as we tick off/solve our self-sufficiency problems the lower order needs).

All our strategic thinking/focus seems to be on increasing exports, whereas true resilience to my mind equates to an ability to self-sustain in times of economic/political world crises.

I know it doesn't sound as exciting as growth but it seems to me that much of the current GDP growth in world economies has really only been off the back of credit expansion. And that, it seems, is unsustainable.

 

 

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