Archive for the ‘Solutions’ Category
I’ve nicked this next paragraph from New York Times columnist David Brooks, but changed one word:
…you could easily get the impression that New Zealand politics are trundling along as usual. But this stability is misleading. The current arrangements are stagnant but also fragile. NZ politics is like a boxing match atop a platform. Once you’re on the platform, everything looks normal. But when you step back, you see that the beams and pillars supporting the platform are cracking and rotting.
I switched the US for NZ. Brooks’ analysis is based on a more dire, polarised US political scene, but it still has a heap of relevance here.
Brooks writes: “This cracking and rotting is originally caused by a series of structural problems that transcend any economic cycle: There are structural problems in the economy as growth slows and middle-class incomes stagnate. There are structural problems in the welfare state as baby boomers spend lavishly on themselves and impose horrendous costs on future generations. There are structural problems in energy markets as the rise of China and chronic instability in the Middle East leads to volatile gas prices. There are structural problems with immigration policy and tax policy and on and on.”
Mostly sounds familiar, but you could add in a few Kiwi ones as well.
Because the US’s problems have gone unaddressed Brooks says ” Americans have lost faith in the credibility of their political system, which is the one resource the entire regime is predicated upon. This loss of faith has contributed to a complex but dark national mood. The country is anxious, pessimistic, ashamed, helpless and defensive”.
Okay, that’s bit over the top for NZ at the moment, but it is a warning.
More from the economic naturalist Robert H Frank .
He says critics of economic growth argue against it because of the alleged threat to the planet’s survival.
“Yet is not growth per se that threatens, but certain kinds of growth.
“Driving more SUVs causes harm, but taking more piano lessons does not. “
Fair enough, but do we have the wit and guts to change our ways.
Is the world “spikey” or “flat”?
BigCake’s in the “spikey” camp – technology is not diminishing distances, in fact is likely to be increasing them.
The gran’ daddy of the the spikists is Richard Florida. He says location still matters heaps innovation and economic activity remain concentrated in “spikes,” in certain urban areas reflecting a disproportionate amount of activity and talent.
In a Harvard Business Review guest blog, John Hagel III and John Seely Brown give more evidence that distances are increasing.
They say information technology is not reducing the incentive to gather in dense cities, rather it is likely to be accelerating the movement of people into cities.
NZ does not have dense cities (at least on a global scale). We are basically a small good guy in a fight against good big guys.
Hagel and Brown are co-chairmen of the Deloitte LLP Center for the Edge which conducts original research and develops “substantive points of view” for new corporate growth.
They say: “Of course, people still have compelling non-economic reasons for where they live — in the future, as now, family ties, lifestyle preferences, even aesthetics may cause a person not to relocate. Just don’t look for technology to eliminate the imbalance of economic opportunity and talent and innovation between geographies — those imbalances still exist and will tend to become more significant.”
They identify two key reasons for people shifting to cities:
• Rich exchanges of know-how (tacit knowledge) generally require face-to-face contact. Emerging technologies said to improve the creation and sharing of knowledge (for example telepresence) largely focus on explicit knowledge that can be expressed in data and written text rather than supporting the kind of informal gatherings that promote the sharing of tacit knowledge.
• Serendipity the ability to attract people and resources we need but don’t yet know exist. In a dense city, the probability of serendipitous encounters increases; if the city draws a specific talent pool (such as entertainment in LA or finance in New York), the number and quality of encounters improves.
“Far from making location obsolete, the digital infrastructure is actually fuelling spikiness. On the one hand, the Internet (and global transportation and mobile phones) have provided unprecedented access to the world for residents of small towns and distant countries.
“At the same time, this has made relocating to an urban area more attractive and reduced the opportunity cost. In the past, choosing to move to a specific city was a more significant commitment because it implied sacrificing contact with other parts of the world. Today, global digital infrastructures help us to stay in touch across urban areas, allowing us to benefit from richer interactions within a city while maintaining connections with other parts of the world.”
As I’ve posted before, geography has delivered NZ a bum hand.
Our small population and location at the bottom of the world (which is how most of the world sees us) is a major obstacle in our fight to keep up with everyone else in health care, education resources and wages. The OECD reckons distance alone lowers our ability to generate more wealth by around 10 percent.
NZ basically needs to recognise this truth when it starts looking at ways to get out of our economic rut.
And that say people like Philip McCann requires radical policy changes which would be at odds with how we see ourselves and our ‘kiwi’ lifestyle.
MacDiarmid Institute deputy director Shaun Hendy says we need to act like we are in a city of 4 million.
Size, as BigCake has said on numerous occasions, matters.
Our lack of size, along with our distance from markets, is a big factor holding us down in our economic rut. The OECD reckons distance alone lowers our ability to generate more wealth by around 10 percent.
People like economist Philip McCann argue that governments can’t do much about our our isolation and lack of size.
But they’re not impotent.
The Ministry for the Environment has released a discussion document that focuses on improving the planning system for the country’s urban areas and infrastructure.
A key acknowledgement is that our international competitiveness relies more and more on the competitiveness of our major cities.
BigCake figures a large part of the competitiveness picture is to do with size. Until our cities (well Auckland) can foot it with at least Adelaide and Brisbane across the Tasman, we’re basically a good small guy in a fight.
The discussion document identifies issues getting in the way of the competitiveness of Kiwi cities as:
• Planning and urban design – there’s inadequate recognition of the urban environment in the RMA
• Complex planning system
• Lack of consistency in decision-making
• Ineffective implementation tools
• Lack of national clarity and consistency of objectives, direction and standards
• Mixed access to RMA designations
• Complex and inflexible approval processes
• Lack of robust and integrated decision-making
• Inefficient and inadequate land acquisition processes.
The Spirit Level’s take on the consequences of inequality is proving a great way to frame a bunch of issues, including health.
Maori Party MP Rahui Katene’s bill to take GST off health food (including fruit and vegetables, breads and cereals etc) got dumped by Parliament yesterday.
Katene I think presupposes that the poor don’t spend as much on healthy foods as the more wealthy because they can’t afford to do so.
The Spirit Level (which I have posted on before) suggests this is not the whole story. It’s not only the absolute amount of money in a food budget that comes into play when explaining the poor’s poor health, it’s also their relative wealth or status.
What’s driving the poor to not eat enough healthy food is not just that they can’t afford it, but also a raft of psychological issues arising from feelings of not being valued, feeling inferior etc.
So making healthy food cheaper may not make as big a difference as the Bill’s backers had hoped.
You’ve got to go to the underlying causes of why the poor have higher levels of heart disease, cancer, lung disease, depression etc. And that, say the book’s authors, is income inequality.
“…in rich developed countries … material living standards are now high enough to have ceased to be important direct determinants of population health.”
It’s social status, social networks and stress in early childhood – “psychosocial factors” – that are increasingly important.
I still haven’t read the whole book, so haven’t seen whether the authors try to weight these two effects – what we can afford versus our relative wealth.
Anyway, they say numerous studies show the same thing – “…for most kinds of ill-health, low social status has a clear impact on physical health, and not just for people at the very bottom of the social hierarchy.
“There is a social gradient in health running right across society and where we are placed in relation to other people matters; those above us have better health, those below us have worse health, from the very bottom to the very top.”
The book has bunch of graphs to back this up. All of them show a direct relationship between income inequality and life expectancy.
The level of health expenditure doesn’t make such difference. The US spends more than twice as much on health as most of the other 23 countries the book looks at, but the highly unequal US has the fourth lowest life expectancy.
So understanding our social issues is a bit more complex than BigCake for one first thought.
But may be there’s a simple fix – reduce inequality.
One of the earliest ideas behind BigCake was that wealth is relative – if NZ wasn’t becoming less wealthy (or if you like, poorer) compared to the nations we usually liked to rate ourselves against, then no worries, no need to catch Australia by 2025.
A slightly newer idea was that wealth alone wasn’t a great way to measure how we’re doing as a country. A more accurate state of the nation would have to include life style factors such as the environment, education, health etc.
Economic growth is a means to an end, not just an end. And the end?…maybe just being happy.
And just arrived on the BigCake agenda is equality, mostly based on the book “The spirit level – Why equality is better for everyone”.
The guts of this book is that wealth inequality is tearing some Western societies apart. The greater the difference between rich and poor, the greater the problems such as crime, obesity, smoking, drinking…
The scary thing here is that NZ, relative to many Western countries, is a very unequal society.
Of the 23 nations the authors look at, NZ has the 6th highest income gap – as measured by the difference between the richest 20% of citizens and the poorest 20%. Worse than us were: Australia, UK, Portugal, the US and Singapore (with the biggest difference).
The book’s big weapon is a series of graphs that show the relationship between income inequality and a bunch of ‘bads’ such as health problems and social issues. (For the wonks, the graphs have regression lines). Basically countries with high levels of inequality are likely to have high incidences of health and social problems.
And mostly this is true of NZ.
Of course the opposite is true also –countries with low levels of inequality (such as Japan and the Scandinavian countries) enjoy better health and so on.
A lot of the time the ‘bads’ of the poor get dismissed as the result of poor housing, poor diets etc, so fix these and you’ll fix the big issues.
The challenging bit of “The spirit level” is the claim that this won’t work because they are symptoms not causes. “The problems in rich countries are not caused by society not being rich enough…but by the scale of material differences between people within each society being too big. What matters is where we stand in relation to others in our society.”
What corrodes society is high levels of inequality. The active ingredient at work here is the way we humans rate and compare ourselves. The thing that causes us greatest stress is being evaluated by others – what we wear, where we live, what cars we drive…
And how we measure up in these tests mostly depends on how much money we have.
As theBigCake moniker implies, I’m not much into a redistributive fix, but this is food for thought.
Anyway, still working my way through the book.
Expect more posts on inequality.
The questions in the Sunday Star Times’ “Dear PM” piece in yesterday’s paper revealed more than John Key’s answers.
Brian Tamaki asked him about getting advice from spiritual leaders, Oscar Kightley about the future of Pacific peoples and John Banks asked if the PM saw Auckland as the “aspirational capital of New Zealand?”
Presumably the questioners could ask PM whatever they liked, so what does Fed Farmers President Don Nicolson ask? A loaded question about clean and green:
“Do you categorically know if our assumed “clean and green” and “sustainable” brand is a primary reason why consumers in the growing markets of Asia, the Middle East and Africa buy New Zealand food products and if not, why not?”
Key gave a pretty much standard (and correct) answer about ignoring environmental concerns of customers at our peril, citing the UK, US and Europe, then saying the customers in the markets Nicolson mentions will eventually have similar concerns.
Consumers in Asia (not sure about the Middle East and Africa, but it’s a fair bet it’s the same) don’t particularly buy our food and beverage products because they are seen as clean and green, they buy them because they are regarded as safe.
Food safety is the big issue. But it’s wrong to see clean and green and food safety as somehow two different issues.
Food safety is hugely tied up in clean and green. You can’t be dirty and safe.
And New Zealand’s brand is clean and green in these countries – this is not assumed.
And as countries in Asia, the Middle East and Africa become more wealthy, they’ll become less concerned about food safety (like Kiwis now, they’ll regard it as a given), and will be following Western countries in concerns about carbon foot prints, how water is used and other sustainability issues.
New Zealand’s farmer leaders – well mostly dairy ones actually – seem determined to stay in (and win) the race to be the world’s lowest cost producer, cramming more cows into every available hectare, regardless of the consequences to the environment and the clean and green brand.
It’s not a war they are going to win.
Clean and green is not seen as an asset to be protected and built on, but one to be shat on on the way towards an imagined farmer salvation in land where the cow rules.
To be fair, not all farm leaders see it this way. Fonterra CEO Andrew Ferrier predicated his question on the need for an international consensus on how to increase economically and environmentally sustainable production. He asked how can we do both?
Which is a much better question.
ING’s “third industrial revolution” report (more on this yesterday) has another take on the expanders versus restrainers battle.
ING sees this fight not quite in the league of George Monbiot’s battle for civilisation, but a big scrap all the same.
It says criticism of capitalism is now widespread thanks the Global Financial Crisis and lines everyone up into three camps:
• The minority “cultural creatives” who want a more sustainable world
• The “populists” who have been hurt by capitalism and globalisation and want to hang on to what they have got left (ummm maybe the Greeks for example) and
• In the middle, a bunch of people who want to have it both ways – to save the planet (as long as it doesn’t cost too much) and consume pretty much the same as before.
ING says “It will take time, GDP growth and/or (unfortunately) disasters, in order for the minority group of ‘cultural creatives’ to grow in such a way that it can overtake the larger groups.”
BigCake thinks this means that while times are bad, and in the absence of a trajectory changing disaster, the majority will retreat to their bunkers seeing change as a threat.
The GFC for a while shaped up as such a disaster, but eventually its effects have (mostly) petered out.
It’ll be interesting to watch how the Greeks fare.
On the face of it, the brave new world the cultural creatives (and the ‘have it both ways’ crowd) want is a threat to Kiwi food and beverage exporters: buy local, concern about food origins, food miles, food safety, animal welfare, embedded water etc
These fads are quickly becoming mainstream.
But if New Zealand is clever it can harness these concerns by living the 100 percent Pure brand rather than ignoring and mocking it.
ING believes the populists will remain a large group (and possibly grow) because they’ll feel ever more threatened by decreasing government expenditure and higher taxes. Greece again thanks to the EU playing hard ball.
The have it both ways camp, says ING is characterised by consuming not less but better as long as it doesn’t cost too much.
ING says in this environment, complicated by the world now having seven or eight regional power centres compared to the old two of the Cold War, governments and consumers will be unable to take a lead.
This is the opportunity for companies.
“Increasingly, companies need to take action mainly based on their presence in the new power centres in the world. They need to transfer knowledge and corporate governance to these regional power centres and in this way become multi-committed companies. In particular, due to a lack of momentum at government organisations and the consumer level, the multi-committed companies can form a very valuable initiator of the move to a better world.”
This may seem a bit pie in the sky, and a bit dodgy. Corporates led the world into a financial crisis, so I’m not sure I’d leap to follow. Goldman Sachs transferring what they’re learned further afield. Don’t think so.
But businesses are already taking up the role of initiators. This is exactly what is happening with Europe’s supermarkets. Picking up on what they believe consumers want (or will want) they have become de facto regulators on consumer issues such as carbon footprints, country of origin labeling, animal welfare etc
Dave Pierce, Grove Mill’s chief wine maker, told Idealog last year that there was no law that his company had to meet a greenhouse gas emission standard, but it was a “market access imperative” – a virtual necessity if you want to sell in the British market”.
Dutch financial services company ING has very very big wraps on sustainability and let’s hope for New Zealand’s sake they are right.
In a report on the global consumer products industry, it calls sustainability the “third industrial revolution”.
Even if ING is half right, this represents a massive opportunity for our food and beverage export businesses.
The third industrial revolution it appears will be driven by scarcity. Number 1 was driven by steam and number 2 by computers, all creating a path for entirely new business models.
ING identifies eight interdependent crises that are powering our way towards this third revolution:
• demography
• ethics
• social-economic
• food
• water
• climate
• energy and
• political.
What do they all have in common? They’re areas where New Zealand has competitive advantages over nearly every other country in the world.
Even climate change on balance represents a plus for New Zealand.
BigCake can’t think of another country that can match our strengths across the board. Australia, no water; Asia has demographic, climate and political problems; Europe demographic, energy and food issues; South America, nah; Africa forget it.
Maybe North America comes close, in particular Canada.
We’ve been told about these opportunities before, but elements of the farming sector see threats where others see opportunity. The reaction to last month’s KPMG report, saying much the same thing as ING, was a classic.
And given farmers control most of what is produced, what it is turned into and how it is marketed, nothing will change until they get their sh!t together, bar a few honourable exceptions who are already on to it.
As ING says “Companies can reap profits from consumers’ social and environmental concerns.
“In our view, the third industrial revolution will on the one hand save the planet and, on the other, accommodate the consumer explosion we expect in the coming decade.”
Not sure if this term is new (it is ugly), but ING says it’ll be multi-committed companies (MCCs) that’ll reap hard business benefits from the 3rd industrial revolution.
“In the short term, the winners in FMCG (the fast moving consumer goods category which includes food) will be those companies that are able to mitigate the impact of food and energy price volatility and to accommodate the impact of demographic growth and Consumer Reset.”
But ING says a revolution in marketing and sales is coming.
“Brands have a responsibility to act. Against the background of demographic growth in developing areas and economic/social crises in the West, we are at a crossroads where consumption growth will have to be decoupled from impacting society.
“An increasing minority of consumers are choosing a sustainable positive lifestyle and are no longer willing to compromise on responsible behaviour from companies.”
Companies will also have to get used to resource scarcity (such as food, energy, water) and responsible sourcing, as this will be critical for their costs, margins and brand equity.
Doesn’t yet sound like the basis of a movement around. Let’s get moving – revolutions don’t wait.
Richard Florida’s new book “The Great Reset” has a vision for a post Global Financial Crisis world based on a “fresh era of growth and prosperity”.
Florida (famous for The Rise of the Creative Class and the business empire built on the book) says this will offer “surprising opportunities for each of us”.
One of the early topics that interested BigCake was one he called “What future?”
Some of it can be seen in content around the need for a balanced view of where we’re at, and heading to, as a nation as opposed to narrow income-based measurements. Also around things like the need for more ambition, the clean and green future…
A concept that appealed was the “resilient economy”, expounded by Jamais Cascio, one of Foreign Policy magazine’s Top 100 Global Thinkers of 2009.
“Any economy that enabled the creation of institutions that were too big to fail —that is, whose failure would threaten to collapse the system,” Cascio says “could never be thought of as resilient. And, as the early 21st century rolled along, resilience is what mattered, in our environment, in our societies, and increasingly in our economics.”
I see the Fabians have also picked up on the idea.
Anyway, back to Mr Florida and his future vision.
In an interview with the Atlantic magazine, he says he tends to be an optimist. “If you look at past crises—like the one in the late 19th century and the one that came with the Great Depression—they tended to last about 20 years from beginning to end. But most importantly, these are periods of great technological innovation, and they’re periods in which our economic geography gets completely and massively shifted.”
Promoting his book on his Creative Class website, he says among the forces he sees behind the next lot of shifts will be:
• New consumption patterns and new assumptions about “ownership” that are less centered around houses and cars.
• New forms of infrastructure that speed the movement of people, goods and ideas. Broadband figures big time here.
• A radically altered and much denser economic landscape organized around megaregions that will drive the development of new industries, jobs and a whole new way of life.
You get some ideas of what all this might mean in the Atlantic interview where he says he thinks it’s a waste to spend money on building bigger roads. “But it would be worthwhile building smarter roads, pricing our roads effectively and making some smaller changes in building regulations and zoning codes”.
Regarding housing, he asks: “How are we going to grow if people are forced to spend the largest share of their income on this product that isn’t really contributing to economic growth? And how we shift to much more rental housing could be part of that conversation” He suggests homeowners are a “little bit more miserable than renters”.
And on an altered landscape, Florida asks: “Who would have thought 150 years ago, when more than 50 percent of Americans worked in or around the agricultural sector, that those people could be absorbed and have higher incomes and live more productive and prosperous lives in cities? I think the same kind of phenomenon holds true today. My hunch is we have enough knowledge to build denser cities and mega-regions while preserving more of our natural spaces and becoming a greener, more sustainable nation across the board.
“This can happen if we give it some thought. We just have to understand that our urban, our geographic pattern is what really sets the conditions for growth.”
BigCake doubts it’s that easy, but it does fit the ideas in yesterday’s post that we need to cast a wider net in our search for ways out of our economic rut.