Pundit

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How sustainable is New Zealand?

One of the biggest issues missed during the election campaign was the sustainability of National's economic, environmental and even social policies. So what do you do if the government's not thinking long-term?

Behavioural economics is not a complete theory but it demonstrates that we are not the economic rational being usually assumed in economics theory. One of the most troubling divergences is that we make time-inconsistent decisions so our short run choices do not cohere over the longer term. Often this doesn't matter much in practice – we buy something we realise we don't really want shortly afterwards. Yet sometimes it matters a lot.

Why don't we have more great disasters when it does matter? What often seems to happen is that we look after our short term interests but expect the state to look after our long term ones. I am not saying the state always does this well, but it has far more resources than we have and – given that the long-term issues are complex – often does it better.

The danger is when we believe that the state is looking after us when it is not. One had always assumed that our buildings were robust. The Canterbury earthquakes and the leaky home disasters showed the state failing us by not regulating the building industry properly. A decade ago New Zealanders invested in finance companies in the mistaken belief they were protected from fraud and incompetence. You expect your workplace to be safe (it usually is).

We dont expect state intervention to be perfect – even if we grumble when things go wrong. Probably our not unreasonable expectation is that when things go really wrong there will be some kind of social insurance kicking in; when it does not the grumbling turns into public indignation.

Of course the government likes to assure us that they are looking after our long term interests. One of my objections to the Muldoon government of the 1970s was that it was almost as short-term as we were. Problems accumulated because they were not properly dealt with. Eventually many of them came to a head and were addressed by the Lange-Douglas Labour government – not well, but often courageously.

I have a similar worry about the current government. As with Muldoon’s, we assume that it is looking after our long-term interests. But some issues do not seem high in its thinking. Aside from the not insignificant environmental ones, there are those about our economic and social sustainability. Here are some of the most salient.

Our current fiscal policies are not viable in the long run. The big problems are population aging, rising demand for government spending in health (and culture and the environment although on a much smaller scale) and strong demands for lower taxes. The rule should be to respond early and respond incrementally. Otherwise you respond late, rapidly and at greater cost. (The smart politician, naturally, says ‘I wont be around when that happens’.)

Our overseas borrowing is also unsustainable, and it also generates unsustainability problems of excessive housing prices and an overvalued exchange rate which damages our export sector. We keep having to sell assets to overseas interests because we have not the savings to keep them.

We are also too dependent upon the Chinese market and dairy exports.

I am uncertain to what extent New Zealand’s inequality is sustainable. But there are unsustainable consequences of high poverty among children. It raises the current costs (or ineffectiveness) of our educational, health and judicial systems, but even more so in the long term with a loss of workforce productivity which makes it harder to pay for the higher costs.

The implications of the digital disruption appear huge but our law is trapped in the middle ages. I’d go far as royal commission on it.

I worry that the financial squeeze on the public sector is reducing its ability to help us think through such issues. Nor do we have a robust public debate necessary to think through the issues.

This is written in the week after the latest election.

What struck me during the campaign was how little these sustainability issues were addressed – by just about any party (your one excepted, of course). So where do we discuss them? How can you be sure that your government is taking a longer term view when it acts than you do?