Archive for March, 2010
Check out the New Zealand Institute’s nzahead website. There’s heaps of great stuff from people such as Bridget Liddell, Sir Peter Gluckman and Lloyd Morrison on the real state of our nation and what’s required to get us back on track.
I’ll read the site more thoroughly during the day and pass on the best snippets.
For an overview the NZ Herald’s Fran O’Sullivan has written a searing piece on nzahead’s findings.
She writes: “Frankly, the metrics the institute has dug up on this score are deeply shocking and suggest that unless there is a co-ordinated response from Government at central and local levels, many more Kiwis will find themselves compelled to look outside NZ to build their futures – particularly in Australia.”
David Brooks, The New York Time’s columnist has brilliantly skewered the science/expert school of economic thought as having a “stick-figure view of humanity” and performing an “amputation of human nature”.
BigCake agrees, but he’s no economist, though he passed Econ 101 – twice.
One text book (Begg for those who did Econ 101 in the early 90s) did mention two schools of economics – positive (hah!) dealing with objective and scientific explanations and normative (personal value judgements).
Begg then went on to almost completely ignore the latter on the basis that economists are experts and the normative stuff is something that anyone can get involved in.
I think that’s it.
Old-school economists, says Brooks (who elsewhere is described as the Times’ ‘house conservative’) have a crude vision of human nature based on a belief that everyone is perfectly rational, seeks the most satisfaction possible and is completely self-sufficient.
Then they built “elaborate models based on that creature”.
BigCake thinks this old-school thinking about this mythical creature has swamped our debate over economic growth.
The real and rich world of economic thought of the like’s of Philip McCann is drowned out by the sterile statements of Don Brash, Treasury, the International Monetary Fund (IMF) and the Business Round Table.
Brooks notes that economist Russ Roberts has pointed out that ”…in economics, old thinkers cycle in and out of fashion. In real sciences, evidence solves problems.”
The world is much more complicated (and interesting) than these old thinkers would have you believe.
The house of cards constructed by the science economists came tumbling with the economic crisis of 2008 and 2009.
This crisis, Brooks says “is a climax of sorts because it exposed the shortcomings of the whole field.
“Economists and financiers spent decades building ever more sophisticated models to anticipate market behaviour, yet these models did not predict the financial crisis as it approached.
“In fact, cutting-edge financial models contributed to it by getting behaviour so wrong — helping to wipe out $50 trillion in global wealth and causing untold human suffering.”
Brooks says economics now appears to be heading in a humanist direction. Economists are rediscovering “the humility of an earlier time.
“[They] are taking baby steps into the world of emotion, social relationships, imagination, love and virtue.
“The moral and social yearnings of fully realized human beings are not reducible to universal laws and cannot be studied like physics.
“…economics will be realistic, but it will be an art, not a science.”
In its report on mining, the New Zealand Institute of Economic Research points out that New Zealand is “relatively well provided with protected areas but relatively poorly endowed with the income to maintain them”.
Of course it’s the poorest countries that have the worst environmental records.
The World Health Organisation found those with the baddest environments were:
• Burkina Faso
Best were Iceland, Israel, Italy, Germany, Spain, France, Britain and the US.
At the moment New Zealand can’t afford to look after vast parts of its conservation estate which are being wrecked by possums and other introduced animals.
“What’s going on now is forcing us to realize that the real way to create wealth is not by sloshing money around in the financial markets or by speculating on real estate. It’s by investing in real people and real communities — it’s the only way out of the crisis.” Richard Florida, author of Who’s Your City? and The Rise of the Creative Class, and director of the Martin Prosperity Institute, University of Toronto. Full excerpt here.
Capita tunnel syndrome
For the last 10 years, government economic growth targets have missed the mark with the Kiwi public.
We’re more motivated by national wellbeing, our health, education levels and environment than by pure wealth which is how the last two governments have chosen to measure our place in the world.
Basically we’re much more interested in a better quality of life than a higher standard of living.
Our politicians’ tunnel vision means they keep banging away at sterile comparative income measures, such as top half of OECD in income or matching Australia’s wealth by 2025.
This fixation actually goes back to the 90s.
As a result, attempts to prod us into action over our falling relative incomes will ultimately fail because they won’t have long-term voter support. There are five elections between now and 2025.
In fact all past ones have failed and we’re not off to a great start in the current run chase against Australia.
The targets of course are not just politically difficult. In fact this is probably the easy bit compared to organising our economy to lift its performance.
The New Zealand Institute is about to plug the target gap with its nzahead campaign for a “big picture” growth goal that has 16 measures including a traditional gross domestic product (gdp) one along with ones for inequality, education, unemployment, productivity, innovation and the environment.
The Institute wants New Zealanders to start talking about what really matters and how we measure those things we identify as important.
As I think the Institute found out when nailing down its 16 measures, this is a difficult exercise.
Calculations for standard of living and quality of life overlap – both include information on wealth and income, but standard of living uses it as the main measure while quality of life focuses more on general wellbeing.
But it’ll be the ‘big picture’ measure of how we’re doing overall as a nation that’ll motivate Kiwis to change, not harping on about falling incomes, gdp per capita etc.
The fact is we perform a hell of a lot better internationally in the ‘soft’ standard of living measures, such as education, health and environment than we do in income.
Economists have figured out that gdp measures are flawed; Kiwis just know it is by looking around them.
For example, in Mecer’s Quality of Living Global City 2009 rankings, Auckland comes in at fourth equal. Sydney is the top ranked Australian city at 10th; Wellington is 12th.
This compares our country ranking of 22nd in the OECD in terms of per capita gdp.
The Mercer survey evaluates social environments, health, education, public services, recreation, shopping (!), housing, and the natural and economic environments.
In the Growth and Innovation Advisory Board’s 2004 survey of Kiwi attitudes towards growth (there’s been nothing similar since) quality of life was rated the most important with 93% of respondents rating it very important or important.
Next highest was education (83%).
Standard of living wasn’t among the measures included, but the money ones came in well down with employment prospects appearing in 6th place (at 76 percent) of the 12 measures and the potential to increase personal wealth 7th (68%).
So our standard of living is not, to use the GIAB’s phrase, a “burning platform” for change. Well actually, this is a burning platform – we just don’t see it or feel it.
Our quality of life isn’t a burning platform. The latest New Zealand General Social Survey found that our level of overall life satisfaction (at nearly 86%) is broadly comparable with other countries including Canada, the United Kingdom and Australia.
You’d think someone along the line would have realised this reality when they tried to set and sell an economic target.
The latest mistake is the current Government’s “close the income gap with Australia by 2025”.
At one level it’s clever – it’s catchy and something easy to get your head around – but it presupposes that Kiwis actually see the need to do this.
Yeah, I know the target is there as a way of measuring progress, but BigCake is convinced that the Australia 2025 target mainly exists to impress voters.
The GIAB survey, and from what BigCake can see around him, indicates we don’t consider matching Australia as a meaningful target.
Same for Labour’s top half of the OECD in gdp per capita and Morrison and Co’s Measurable Goal project’s aim of gdp per capita in the top 10 by 2025.
We need a measurable economic goal, but it’s got to be one that motivates your average Kiwi.
As Peter Biggs from the GIAB said at the time of the survey: “I suspect New Zealanders have reached a point of confidence in their values that they are now a bottom line.
“If we are to encourage economic growth and innovation we need to start with these core values, create a values-driven growth strategy, and move forward on that basis.”
BigCake hopes the New Zealand Institute project may have at last started a public discussion on a broader confident Kiwi-focused approach to creating a target.
But any new target should not downplay the importance of what’s in the wallet. Our future as a first world nation depends on that.
Economist Brian Easton rightly points out there is no free lunch to be had if we are to lift our rate of economic growth.
To do this we need to invest more and that means New Zealanders consuming less.
That’s the ugly truth.
Easton doesn’t utter the words, but he talking about the old ‘no pain, no gain’ argument that was around in the 1980s and 90s and fell out of use as it became clear that there was only pain and very little gain.
However, Kiwis do need to change their behaviour in uncomfortable ways if we’re going to achieve a level of economic growth that allows us to maintain our quality of life.
We’re going to have to give up debt to fund our lifestyles, we’re going to have to invest in productive things rather than houses and for a while we’re going to have to get used to the government no longer forever trying to play catchup with our demands for more healthcare and education.
The key issue is who bears the pain. During the 80s and 90s it was mainly the poor.
This time around there needs to be a fair distribution of the pain (and the gain).
In yesterday’s Sunday Herald Easton points out higher growth is subject to laws that can’t be avoided.
“One of the simplest is that if we wish to grow faster we are going to have to invest more. The tradeoff is that we are going to have to consume less, at least in the short run.”
He says overseas borrowing could fill the gap, but then we’d unwisely be borrowing for consumption. (Again).
So who’s going to lose their free lunch. (Dunno if it’s free, but someone is certainly going to have to go without – BigCake).
Easton says cutting government spending to make room for more capital investment does not enable offsetting income tax cuts, unless all the additional private income is saved.
“At the moment the economy is spending too much relative to production (evident by our high overseas borrowing). The government has been reluctant to cut back aggregate spending vigorously. Instead it is squeezing government spending, perhaps because it does not want to precipitate an economic crisis like the Richardson measures of 1990 and 1991 did.
“Accelerating the growth rate requires even more vigorous cuts to public and private consumption.
“Critics of the government strategy who aspire to markedly accelerate economic growth need to acknowledge that their approach initially involves markedly cutting consumption – that is, people’s standard of living. One of the most pervasive tradeoffs of economics is that there is no such thing as a free lunch.”
Over at the Policy Progress blog, David Choat has begun to map out his own take on policies to lift New Zealand’s economic performance.
He sees this as necessary for the “various forms of progressive social investment that we all want to see”.
Unlike some, Policy Progress is giving some thought to how we pay for this.
BigCake still thinks this type of work is putting the cart before the horse – we’re figuring out how to get somewhere when we don’t quite know exactly here that somewhere is.
What future do we want?
Policy Progress says doing this type of work is not its space and also he has doubts about the result of an exercise trying to envisage a particular model of our future economy.
BigCake doesn’t want to go anywhere near a command economy.
Even a public discussion (as opposed to media warfare) over the trade offs between growth (or lack of) and the environment, quality of life and standards of healthcare and education would be good.
As Rod Oram says about the current mining slogging match in yesterday’s Sunday Star Times: “…in our usual fashion as a nation we are once again failing to seek a robust, long-term solution.
“Rather than working to achieve the best, but hardest solution…we’re bashing each other’s brain out.”
In the end, he says we’ll end up with another fatally flawed stalemate.
But BigCake thinks we can do better than a civilized public discussion.
One thing could be setting a quality of life measure (as opposed to a pure income one) that the majority of Kiwis can buy into.
For sure not everyone would agree with the results of such an exercise, but any subsequent debates could be framed in the knowledge that opponents don’t represent the will of the majority.
The idea of this post began with scented toilet rolls – Western civilization has brought us to this?
It’s an example of the complete and utter madness and waste done in the name of the consumer.
I don’t know if the manufacturers did any consumer research to show there was any demand for scented arse wipes, but they probably saw an chance to differentiate from the ones that don’t leave you smelling of roses after a sh!t.
Or maybe I’ve missed the point.
Anyway, this is but a small and seemingly innocuous example of a humungous problem called the Zombie economy.
A larger more offensive example is food waste. It’s estimated that 40% of US food production is thrown away and that food waste per person has increased 50% since 1974.
“Food waste now accounts for more than one quarter of the total freshwater consumption and 300 million barrels of oil per year,” says a study by the National Institute of Diabetes and Digestive and Kidney Diseases in the US.
According to the study, food waste also accounts for:
• more than one quarter of total freshwater consumption
• about 300 million barrels of oil per year.
I first spotted the term Zombie economy on a friend’s blog (H1BPositive). He describes it as “the massive brainwashing people are getting this century into thinking that if you don’t have a 50″ flat screen Sony TV, XBOX, surround sound, $10,000 on your credit card, an iPhone 3GS, 2,000 Facebook friends, the new Commodore and a 6 figure mortgage, you are not actually living”.
Just checked – got none of those.
But a lot of people do, or want to, along with scented poo paper.
And this type of behaviour is the foundation of economic growth – new consumer wants and needs are stoked by marketers to feed the never ending growth demands of business.
And does it make us any happier? Mostly not.
But as mentioned in a previous post There’s more to growth than more, more .
The Zombie economy represents a dumpster-sized target for opponents of economic growth. And they have a point.
Our desire to fill our lives with bling is not sustainable – we’re going to run out of resources to keep pumping this stuff out.
Turning the bling ship around before it runs aground won’t be easy, but there are signs that more of us are wising up.
As mentioned in a previous post (Kiwi authenticity – Crafars v Icebreaker) “clean and green” has been a huge hot trend in major markets for a while and on a list of micro trends for 2010 produced by Marketing Week was authenticity.
H1BPositive thinks this is an “equal and opposite force of the zombie economy”.
[Maybe not equal... yet - BigCake]
“As things get more fake, buying local produce, riding a bike (not a hipster fixie though) or going to live music becomes a life-enhancing thing,” says H1BPositive.
Dunno if I’m being overly optimistic, but I think Kiwis get this more than many other countries. (Note: H1BPositive is based in Melbourne).
As a gross generalisation, our lifestyle is seen as more important than possessions beyond the ones to put a roof over our heads, get from A to B, watch sport, cook dinner, catch fish…
“Be clear: the rich don’t pay taxes anyway. That is why they are rich.”
I don’t know if Peter Harris actually said this at last night’s Fabian Budget lecture, but it was in his paper that formed the basis for his speech.
Maybe he was going for effect, but what he said reflects what a lot of Kiwis think, but it’s not true on two counts.
Firstly the rich do pay tax – lots.
According to the Tax Working Group “The top 10% of income earners now pay 44% of all personal income tax.
“If the impact of Working for Families, New Zealand Superannuation and other benefits including the unemployment) benefit are included, the top 10% of taxpayers now pay 76% of net tax.”
The top 1% of taxpayers pay 15% of income tax.
Secondly, they are not rich because they don’t pay tax. They are rich because they work hard and because they have had the guts and ambition to back an idea and turn it into (or maintain it) as a viable business.
Now Peter Harris is a clever and well-informed man, and generally his speech last night was insightful on the nature of New Zealand’s economic problems, but if he believes what he said…
BigCake has friends and family in Auckland, so Aucklanders don’t take this personally…but pull your finger out.
Your country needs you, as the country’s largest city by far, to be an accelerator not a handbrake.
In most countries, the leading city you know…leads.
But not Auckland. As BERL Chief Economist Dr Ganesh Nana says, there are “few signs that the Auckland economy is leading the nation into recovery. On the contrary, the picture for Auckland seems to follow that of nation.”
Business as usual then for New Zealand’s property and consumer hub.
Throughout the world, leading cities are the motors of their country’s and region’s economic growth. Economically they’re more dynamic and productive than other secondary and third tier cities.
Sound like Auckland? Not much.
Here’s a grab bag of evidence of the Supercity’s under achievement:
• Wellington’s even got a better value add per worker than Auckland (NZIER work for Committee for Auckland)
• “International evidence highlights the importance of having at least one outward facing, global city to lead a nation’s economic development. Auckland doesn’t yet play this role to the extent that major cities do in other economies. (MED)
• Auckland export-to-gdp ratio is lower than other New Zealand regions (Auckland Regional Council)
• Auckland’s productivity is 15% below that of major Australian cities (AREDs)
• “…it has been suggested that most – if not all – of the gap in performance between New Zealand and Australia in recent years can be attributed to Auckland’s performance compared to that of Australia’s leading cities. (MED)
• Internationally leading cities have an economic performance about 25% higher than their share of the population. Auckland, however, is about on par with the rest of New Zealand. (From Computerworld mag, but not sure of original source of this one)
• The Blues (‘nuf said).
The last government had a wishfully named programme (Auckland – an internationally competitive city) to fix all this, but it looks like this has disappeared under the umbrella of the Supercity project.
Of course one of the aims of this project was to improve Auckland’s economic performance.
But a lot of interesting work that Labour had its officials doing on fixing Auckland appears to have now disappeared, as signified by its consignment to the netherworld of the MED’s website’s archives.
A transformed Auckland, the programme’s publicity said would “become the home of globally competitive firms supported by a first-class pool of skilled labour. Auckland will be seen as one of the best places in the world to live, do business, and visit”.
The programme identified the barriers to this:
• Top of the list – lack of effective leadership that could put together and deliver a vision and plan for the city
• Fixing infrastructure problems
• Attracting or growing more globally competitive businesses
To be fair, the Government is getting stuck in to fixing the first two of these.
But last word to Dr Nana. “…looking beyond the short term, with New Zealand’s export revenues increasingly concentrated in primary commodities and associated processing, the question of the role of the Supercity within such an economy needs to be urgently addressed.
“Auckland could continue as a property and consumer-oriented economy operating as a transport hub for New Zealand. Or, it could look to truly lead by providing that point of difference for NZ Inc to leverage. Such a transformation has proved elusive for some time, and there is little sign that we are any closer to finding that export and wealth-generating leader for the nation.”
So Auckland, where the bloody hell are you?