It is too early to say that New Zealand’s strategy of elimination has defeated Covid-19 – although the signs are positive if we stick to the game plan.
But it is not too early to think about what life might look like once the lockdown continues and we set about rebuilding not just our economy but our whole way of life.
Let me stress this point. Covid-19 has disrupted our whole way of life. While the focus is rightly on the economy, there is much more for us to consider.
In no way is this going to be straightforward. A Covid-19 free New Zealand will be marked by job losses, business closures and disrupted trade. To avoid recession, the Government will have to spend freely on public works, public services and financial support for those who have lost their income. The national debt will rise.
The erratic strategies adopted by countries that New Zealand has close ties with mean the borders will have to be kept closed for many months/years to avoid reintroducing the virus. This may change when a vaccine is available, but that is said to be 12-18 months away.
Closed borders mean that any activity requiring people to move internationally (think tourism, international education – worth around $40 and $5 billion respectively - as key examples) will cease, be severely limited or require substantial reorganisation.
Migration, the main driver of the sustained housing boom, will slow to a crawl.
At some point the stock market and banks are going to start reacting to the fact that the businesses are not worth what they used to be. A sharp adjustment will follow.
Global trade will continue, but globalisation in the form we have known it may not. Covid-19 has shown how vulnerable national economies are to changes in the global marketplace. Following the Global Financial Crisis, many governments took a more protectionist path. This is likely to continue with efforts to diversify supply lines (to avoid dependence on a single nation) and build more resilience into national economies by producing a wider range of products.
Covid-19 has shown (again) how important it is that countries work together to solve global problems. But many nations, the United States being the main example, seem to have not received the memo. Self-interest is the spirit of the times – something that is bound to undermine the trust needed for collective action.
Once the extent of the disruption being caused by Covid-19 becomes clear, talk of ‘reopening’ the economy as if it has merely been in hibernation will seem inadequate. Reset is a word that is being more frequently used. But rebuilding may be a better word because it forces us to confront the reality that our economy will be (and will have to be) different along with every other aspect of our lives.
Rebuilding might also encourage us to treat Covid-19 as an opportunity as well as a threat. Given the level of disruption a return to the old normal is not on the cards. A new normal in some shape or form will emerge. This is, then, our opportunity to do something different.
A debate about what ‘different’ might look like needs to start now and be resolved quickly. Given the damage Covid-19 has caused and will continue to cause we cannot take our time. We need to approach rebuilding with the same sense of urgency and collective effort that was evident once the threat presented by Covid-19 became clear.
This is the broad policy framework I would like to see us work within.
A rules-based world order
As a small trading nation, New Zealand has always supported a rules-based world order. We should continue to champion the need for rules while pushing for change. The current rules aim to create a borderless world where corporations and capital can roam at will. While this has resulted in some positive outcomes, it has also led to unsustainable inequality both within and between countries. New rules must deal with this problem. A look at what Keynes had to say at the time Bretton Woods was negotiated is a good starting point.
A value-added resilent economy
At the heart of the current economic system is the belief that it is best for countries to specialise in what they do best. Once again this has led to significant benefits. But the Covid-19 crisis has revealed how vulnerable this arrangement makes individual nations.
We should seek to be less dependent on world trade. As a small trading nation, this does not mean adopting an import substitution strategy – something we did during the middle part of the last century. Rather, it means doing more with what we produce before it leaves our shores. .
A value-added economy would be characterised by networks of technologically sophisticated, highly flexible manufacturing (but its applicable to any form of production) firms; a strategy of permanent innovation - accommodation of ceaseless change, rather than seeking to control change; flexible, multi-use equipment, skilled workers and managers; and, the creation, through politics, of communities that support innovation. This is an economy of small firms employing craftspeople to produce high quality products tailored to the needs of consumers. Scale is gained not by firms growing ever larger but by collaboration.
Where this might be most usefully applied now is in what is New Zealand’s greatest strength – the food sector. I have long advocated that New Zealand be, among other things, a ‘food nation’. In a post-Covid-19 world, our ability to produce high quality branded food is something many countries will want access to.
A sustainable economy and society
New Zealand has set itself the goal of being zero carbon neutral by 2050. To achieve that target we must shift from the use of fossil fuels in transport, transform our agricultural model, encourage innovation in industry and change the everyday practices of many households. The effort to “reopen the economy” may encourage many people to argue that now is not the time to place what they will see as burdens on the economy. If we are making substantial changes to the economy in the wake of Covid-19, this is the time for sustainability to be a central part of the agenda.
A national strategy for education and training
To maintain our status as a trading nation and build a more self-sufficient economy, New Zealand must have a national education and training strategy that ensures it has a workforce with the necessary skills and knowledge. Ideally, a broad liberal education should be taught through until level 10. In the last two years of school students should choose between a vocational or professional education pathway.
Lifelong learning opportunities, enabled by new technologies, should be available post the first qualification.
Flexisecurity
The traditional welfare system is organised around eligibility for a range of entitlements. Ideally, we should move towards an insurance based system tailored to changing employment and family circumstances.
The question front-line staff should be asking is not, “What are you entitled to?” but, “How can we help you?”. A very active flexisecurity system should enable people to take opportunities when they arise, cope with risks and remain full participants in their communities.
Full Employment
We should aim for full-employment. If we adopt the kind of economic policy suggested here, the tradeable sector will produce more high skills, high wage, high productivity jobs that are better distributed throughout the country. But the sector will not produce enough jobs to ensure full-employment.
It is the non-tradeable sector where a large number of meaningful jobs can be created. In areas such as health, eldercare, education, care for the environment and urban renewal there is no shortage of work to be down.
Universal Basic Services (UBS)
Guaranteed access to services like healthcare, local transport, education, information access, legal support and low cost housing is fundamental to a society that wants to eliminate unjustifiable inequalities. This is much better option than a Universal Basic Income if we accept that full employment and meaningful work are still important policy goals.
Strong families and communities
Early start policies should ensure all children grow up in an environment that meets their needs. Government support for community development and non-government organisations should be substantially increased. Secure quality housing should be available to all whether it is provided by the central or local government, the private rental market or home ownership. To allow more decisions to be made at a local level, more power should be devolved to local and regional government.
Tax and Grow
Borrowing and taxation are the two main sources of revenue for governments. To deal with Covid-19 the government has made use of the low interest environment to make available around $52 billion – so far. Given the time it will take to both cope with the fallout from Covid-19 and rebuild our economy/society, more tax will have to be collected. Capital Gains Tax, a Carbon Tax and a Transaction Tax should be implemented. A special time limited tax linked to ‘Renewal’ could be considered. More of the tax burden should be shifted from earnings to activities that harm the environment or contribute to global warming. Those who earn higher incomes should make a greater contribution.
Regardless of borrowing or taxation, New Zealand must set its sights on growing its economy. Not just back to pre-Covid-19 levels, but to something much bigger. We owe a lot of money. This debt has to be paid. In an effort to find the money, we need to do what we have been striving to do for the last four decades - create a high skills, high income, high productivity economy.
Key to making this achievable is something I have written about elsewhere - creating a Food Nation. This is our greatest area of strength and should therefore be the first ‘cab off the rank’ in our new economy.
Making Change
We are all in this together. Each of us has a part to play in the creation of a new normal. But individual action will take us only so far.
Transformational change will require exceptional political leadership and a greater role for government. Given New Zealand’s mixed member proportional electoral system – introduced partly to put a brake on the kind of rapid change seen in the 1980s – decisive, urgent action will be difficult. But as Covid-19 has shown, not impossible.
In no way should this be taken to mean that New Zealand should return to the dictatorial days of Robert Muldoon. In the aftermath of Covid-19, the government should act more like the conductor of an orchestra, coordinating and facilitating the efforts of New Zealanders as we all make our contribution to the creation of a new normal.
In the immediate future, what is needed is agreement that New Zealand should not “waste a crisis”. It would be a waste if we expend billions of dollars to get us back to the old normal.
By the time we emerge from the lockdown and navigate the rough seas that lie ahead, we will be changed people. We could settle back into some version of what went before or make the kinds of changes we should have been making anyway.
This is the choice. We should make right one.