Always to islanders danger
Is what comes over the seas
‘Landfall in Unknown Seas’ (Allen Curnow)
Six economic issues external to New Zealand, which will greatly impact upon us.
1. The Diminishing Global Dominance of the US.
Since 1941 America has dominated the world economically and politically. Probably it could have done so from an earlier date but it chose not to. The narrative has it successfully contesting for global power - Russia/USSR, Japan, Europe/EU and now China. Less obvious is that it its dominance is diminishing as other powers have become better organised (EU) or economically stronger (China).
Smart American observers are aware of this diminution. Obama was struggling with maintaining American world leadership with diminished power. Trump acknowledges the issue with his ‘Make America Great Again’ but his analysis – that it has been weak presidents – is shallow. His solution of isolationism and bullying will fail. The approach of the next president is uncertain. Sadly the US Senate is likely to remain isolationist (even if it has a Democrat majority).
Global leadership involves a moral dimension, albeit with attention to one’s own interest. Sometimes the captain has to take a hit for the team. Perhaps the best example is the postwar Marshall Plan when the US transferred vast resources to Europe to facilitate postwar reconstruction. Certainly there were direct benefits to American business, but they could have been gained with less generosity.
China’s global traditions have been imperial without moral leadership. Nor should we expect it or some other country to be the hegemon succeeding America. Rather we are entering a multipolar world of contesting large players which presents an enormous challenge to bit players like New Zealand. Lee Kuan Yew reminded us that whether the elephants make love or war, the grass gets trampled on. There is no longer a dominant elephant with an interest of ensuring healthy grass.
2. Global Warming, Climate Change and Rising Seas
Global warming began with nineteenth century industrialisation based on burning coal. In the last century, New Zealand’s sea level has risen 30cm on average – ‘average’ because seismic activities has shifted the levels of our coastline differently. (When I am by the sea I think of a rise of another 30cms – it will take less time in the future.) The climate change from a warmer world also includes more common storm surges, which compromises our shores even further.
Global warming is the best understood of the trends described in this column. It well-illustrates that whatever we do, the great influence it has on us is from activities offshore.
3. The Global Financial Crisis and the Changing Economic Paradigm
The truest words about the GFC were spoken by Alan Greenspan who presided over the ‘Great Moderation’ as Chair on the American Fed (central bank). ‘I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ... I discovered a flaw in the model.’
But what is the alternative model? The whole world is abandoning the neoliberal paradigm, but the replacement is unclear with the economic profession all over the place: ‘if you know the answer, you have not understood the question’. There is some comfort that in the 1930s many economies were pursuing Keynesian policies before Keynes published The General Theory which provided their theoretical underpinnings.
New Zealand will be influenced in two ways. First, we are not intellectually isolated from the rest of the world, even if I grumble that, like colonials, we adopt overseas approaches without adapting them for our local particularities. Second, our heavy offshore borrowing hooks us into the world financial system. What happens there, impacts here.
4. Secular (Longrun) Stagnation
There is a view that economic growth is going to stagnate in the rich world. The near zero real interest rates are evidence, indicating that businesses do not see significant investment opportunities.
Not everyone agrees. Much of our policy rhetoric, as elsewhere, is that we should be increasing productivity.
There is even less agreement about the causes of secular stagnation. Among the most prominent are
- there are no new stunning technologies equivalent to those which drove economic growth in the past;
- if there are new technologies, they are difficult to commercialise – unlike those in the past. (That could mean we get improvements in our wellbeing which do not appear in the economic growth statistics.)
- key resources are running out;
- the affluent in the rich world are not as interested in a standard of living based on accumulating and consuming more material goods than as they had in the past; they can afford to value other things such as a cleaner environment and nonmaterial wellbeing.
This does not mean that poorer countries will also stagnate. By adopting better existing technologies they will lift their material output converging towards – but not necessarily attaining, or if so only very slowly – the material living standards of the rich.
At least two implications for New Zealand. Our intellectual inertia, which puts us behind what is happening overseas, means we may uselessly pursue economic growth policies at a cost of a better quality of life.
But second, the trends may be more in our favour than for other rich countries. Rising material income in poorer countries increases the demands for the foods we supply, rasing their prices relative to manufactures. (This has been happening already for about forty years.) We may not be able to lift farm output much, but rising prices for many of our farm products will benefit them and ultimately New Zealand as a whole (if we do not blow it with stupid economic responses).
5. Covid and Global Connectedness
It is difficult to predict the course of the Covid pandemic, and in any case there will be more of them. Covid-19 is the fourth this century – a particularly vicious one.
It has drawn attention to the importance of connectivity. (An illustration is that the lockdown would never have worked, had we not had the broadband roll-out.) Currently there is global disconnectedness especially where people movements and related activities (such as airfreight) are involved, but also in some supply chains.
There are strong protectionist pressures to reduce global connectivity. This week’s instructive example is the British Internal Market Bill. Human borders are artificial – we are lucky not to have any. The attempt to deal with the border between the Republic of Ireland and Northern Ireland as the United Kingdom exits the European Community would be funny is it was not (potentially deadly) serious.
6 Threats to the Ability of Nations to Regulate
The essence of global regulation has been the actions of a confederation of nations. They have been under pressure in regard to capital flows and tax avoidance. Social media has added a new dimension with its impact
- on information flows which may not be in the public interest and difficult to counter;
– intellectual property including that which is undermining traditional media and the integrity of the public debate.
We are at the end of the line with little influence except to encourage the big players to be active and to be a fast follower.
Conclusion
There is my list of outside influences. What struck me is that except for climate change, they are not at the heart of the election campaign, nor can I think of any central public institution engaged with them (although some government departments struggle with various aspects).
I remain comfortable with the central theme I set out in In Stormy Seas and repeated in Not in Narrow Seas. Overseas influences greatly impact on New Zealand’s destiny. We cannot do much about them but how we handle their impact domestically is crucial for our future wellbeing.