The next million

Written By: - Date published: 12:35 pm, February 12th, 2011 - 20 comments
Categories: Economy, exports, jobs - Tags:

Once upon a time New Zealand was the most prosperous country in the world, living on the sheep’s back. But that was when its population was only two million. The fruits of a raw commodity export sector now have to be spread over more than four million. We could provide decent jobs and income for all by processing these commodities in New Zealand.

All this was anticipated in a 1953 article by John Cox called ‘The Next Million‘ in which he proposed a regional inventory and the development of industries that would add value to our commodity exports.

The tragedy of New Zealand’s economic history for the next sixty years is that this was not done. Instead, we got into real estate, into ‘wealth creation’ by borrowing money overseas and investing it, not in industry, but in real estate speculation, as an online New Zealand Herald graphic succinctly puts it.

More recently, Coriolis Research have argued that New Zealand could still climb the value chain in food processing, but that this would by now require “deep pockets … Massive capital investment … Willingness to accept losses for long periods”. See here and here. In practice this means a government that is prepared to back such investment and at the same time curbs the real estate market in order to channel capital into development, in the same way that successful European and East Asian economies have generally done.

If there is no political will to do that, then we seriously have to look at our population policy, because if we remain a raw commodity exporter, where will the jobs for the next million come from? As Cox said,

“Shall we take [initiative] or shall we drift on dully, without objective, from crisis to crisis, constantly surprised at the results of our own mistakes and lack of foresight. If we do, the increased export of one commodity is certain—our native brains and initiative.”

Ironically, that is what’s happened, so Cox’s next million could be regarded as the million Kiwis already living overseas. If they weren’t, things might be even worse.

– ChrisH

20 comments on “The next million ”

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  1. Colonial Viper 1
    12 February 2011 at 12:58 pm

    Interesting ChrisH – I had guessed that there were now about 600,000 Kiwis living in Australia alone. Would be interested to know if you have any more up to date figures on the numbers of expat Kiwis.

    As for the Govt backing the food industry for the long term and helping the industry absorb losses as it climbs the ladder of global scale: sure. But the Government must take an ownership stake for the people of NZ in exchange for their commitment to additional public investment. My preference would also be in the setting up of new, NZ worker owned co-operatives.

    This takes into account that large chunks of our food industry are already foreign owned. Heinz-Watties is but one example which springs to mind and why would we care to support such a foreign conglomerate when it has all the resources needed to do the job itself?

    Overall though, we need industries which can generate $250K p.a. of exports per employee. Ag and hort will be hard pressed to ever do that. Electronics, software and design is where it has to be at.

    The next million jobs for NZ can’t be based in milking sheds or even vineyards.

  2. ianmac 2
    12 February 2011 at 2:31 pm

    I have asked many times but am not satisfied yet.
    They say that the Economy needs a percentage growth of say 3% per annum.
    Surely all those clever economists could work out a strategy which would allow for a stable population. Enough housing. Enough food. Enough schools. Enough transport

    At what point do we say enough? When we reach 5 million? 8 million? 20 million? 60 million like UK?

    • Draco T Bastard 2.1
      12 February 2011 at 2:43 pm

      The politicians and economists will never say “enough” under capitalism as capitalism requires market growth to sustain itself due to the imposition of interest bearing debt and market growth requires an increase in people to sell goods to.

      • Marty G 2.1.1
        12 February 2011 at 3:08 pm

        right. if you don’t have growth so that everyone’s incomes can increase at least somewhat then (eventually, and it’s taking an awful long time this time) the people with little – most people – start asking why a tiny elite own nearly everything and begin to question the system that has made it so.

        • Draco T Bastard 2.1.1.1
          12 February 2011 at 3:35 pm

          And people should really be questioning why NACT want to sell off even more of our assets especially considering that doing so won’t benefit us at all. It will benefit that small clique of elites though.

          • Deadly_NZ 2.1.1.1.1
            12 February 2011 at 9:21 pm

            They want to do it because they do not give a flying fuck about you, me or anyone who don’t make at least a million a year. Their schooling is in how to rape companies, Asset stripping, tax evasion, lying , and cheating. And after we get rid of them how long are we going to be paying for their folly????

      • Rex Widerstrom 2.1.2
        12 February 2011 at 8:15 pm

        Capitalism is like cell division… it can be a positive and even necessary activity but if it starts to go too fast and isn’t controlled it’ll kill the host.

        ZeeBop below describes the problem:

        For thirty years the experts come out and say we need more manufacturing, more value adding exporting, and every year the government does nothing to stimulate retaining people and investment, because the government tax regime makes it too easy to take profit now rather than leave it to risks.

        Ask the owner of any small business – especially those with ideas to develop into products or products to develop into exports – and they’ll tell you they could do with more “real” capitalists: people who want to invest their excess wealth and watch it and the business in which it is invested, grow.

        But successive governments have created the perfect petrie dish in which the cancerous form of capitalism can divide and grow unchecked and unchallenged.

        Excellent article ChrisH… a message that bears repeating from time to time.

  3. ZeeBop 3
    12 February 2011 at 2:40 pm

    Roger had this brain wave, he built this huge edifice, a huge dam. Every-time it rains and fills up its more profitable to drain the dam dry than store up a wealth of water. For thirty years the experts come out and say we need more manufacturing, more value adding exporting, and every year the government does nothing to stimulate retaining people and investment, because the government tax regime makes it too easy to take profit now rather than leave it to risks. And so whenever NZ gets a down pour, the dam is drained asap. This is why we live from one boom to the next, and it was easy living, and people could build homes, and sell them at inflated prices, but we did not build up capacity off the good years, investment capacity, people capacity, manufacturing capacity, we don’t do big in NZ, our companies grow and stop. In fact our most successful company is a worker collective! We’ve removed all notion of society from economics and so the only companies that grow big have to reimpose society into their dna. Trademe, Fonterra. Only when we sack politicians who ignore people, are ignorant of society, deluded about how a no parking on capital gains denudes the NZ economy, only when we value capital gains by taxing it will we start marching in the right direction again.

    • prism 3.1
      12 February 2011 at 5:14 pm

      Zee Bop – This summary of our progress seems a cautionary tale which reminds me of the folk tale of The Three Little Pigs. Perhaps Roger Douglas is the big bad wolf that blew our house of straw down. after which we built one of wood but then sold all our standing timber which we had to buy back at inflated prices. The wolf adopted a different approach and used new building methods that sharp operators from abroad had used and found unsatisfactory but he still followed them and then the wooden houses fell to pieces.

      Brick seemed a good and reliable material and we trusted then in solid brick for our houses but then the Christchurch earthquake shook them all down. To finish it all off Roger Douglas came back, put on a blue bedtime cap and spectacles and when little Red Riding Hood visited, he ate her all up.

      Are we simple-minded, cursed or what?

  4. vto 4
    12 February 2011 at 2:52 pm

    Maybe all this hasn’t been done because it hasn’t needed to be.. I mean, pretty easy life in these isles really. Why extend so much? It’s not all about the almighty dollar.

    One other thing… when commentators commentate on this commentary they tend to speak with a blaming finger pointed at naughty Mr & Mrs Everyday Kiwi. (maybe tho it is just white man guilt). You need to innovate! You need to save! You need to spend! Well this aint accepted. From what I see most New Zealanders have made good choices about what they do with their lives. At least as good as all these ‘experts’.

    Perhaps these experts are like a whole bunch of ostriches with their heads in some underground sand cavern all talking and gobbling to each other while the rest of us get on with our lives in the sun.

  5. Bill 5
    12 February 2011 at 3:05 pm

    So he advocated for an export growth strategy. And that is what NZ has done. But the point about export strategies is that a competitive advantage is gained by impoverishng the domestic population. And that is what NZ has done and continues to do.

    Domestic production for domestic consumption serves to lessen comparative advantage as it requires a high enough wage rate that workers can buy the things they produce. So while we are still subjected to the fairy tale of the domestic economy and encouraged to believe that if we can generate or attract more wealth than the mythical other domestic economies we are supposedly in competition with, we will all enjoy higher standards of living, the reality is somewhat different. It is the elites of various countries that are in competition with one another. Not us. Domestic populations are simply a resource elites can gain leverage from and on whose backs is accrued power or influence, and money.

    We’re meant to produce for wealthier sectors of foreign countries and settle for buying cheap, and often inferior import goods. And we’re meant to settle for the illusion of continuing material wealth, afforded by those cheap imports just long enough for sovereign countries, or societies, to be ‘captured’ by global capital.

    Not too much longer to wait.

  6. Colonial Viper 6
    12 February 2011 at 4:36 pm

    Eliminating the use of interest bearing debt in the economy (that’s going to be tough), rewarding people for roles in society which are not based on growing financial capital (a real head spinner for anyone of a right based persuasion), and encouraging the localisation of activities within individual communities is what we need if we want a sustainable, well off, zero financial growth economy.

    In the mean time however, NZ still has to use the systems which exist today (yes the current capitalist, trading and market driven systems), in order to fund, motivate and evolve the changes needed. Any transition plan – unless you want one which is totally disruptive and economically revolutionary – is going to have to take the status quo as a starting point.

    • TightyRighty 6.1
      13 February 2011 at 3:24 pm

      Are you anti humanity? A zero growth economy means that as population expands, its inhabitants get poorer, unless of course some smart buggers work harder and smarter and control the wealth. Which option is less abhorrent to you?

      • Colonial Viper 6.1.1
        13 February 2011 at 4:14 pm

        Well there are so many bad assumptions in your comment that its not really worth exploring.

        Other than saying that having the population continually expand so that there are an extra 3 billion people on this planet in the next 30 years is a really really bad idea.

  7. ChrisH 7
    13 February 2011 at 1:48 am

    I’d just like to follow up on TNM with this thought. Suppose we developed serious export processing industries for our raw commodities? This would mean locking the primary producers into long term contracts to supply the secondary industries, in ways that might limit their options in the event of a higher worlds price for raw logs, etc. Indeed, relatively low farm gate prices might even be a source of competitive advantage for NZ Inc. You see where this is heading? There is a conflict of interest between local industrial development and absolute freedom of action for the primary producer to export raw commodities offshore, or to whoever is the highest bidder (increasingly one and the same). This could be overcome by some sort of corporatist (i.e. European-style) political economy, in which all the various factions support each other in the hope that it’ll be best for all in the long run. But my feeling is that in NZ we’ve failed to stitch that agreement together, leading to a version of the ‘staples trap’ or ‘resource curse’, in which the political system is ultimately captured by the landowner, with “liberty” the common creed of the rural and urban landowner alike. And likewise, of the banks that lend to landowners for increasingly speculative purposes. Maybe somebody like Brian Easton or W B Sutch came to the same conclusion ages ago. I’d be interested to know.

    • prism 7.1
      13 February 2011 at 10:15 pm

      Rex – they could do with more “real” capitalists: people who want to invest their excess wealth and watch it and the business in which it is invested, grow.
      There are some venture capital funds in NZ one is called No.8 Wire I think.
      What others are there? Could the concept of the magic 10th be promoted where people put that part of their investment portfolio into higher risk developing businesses while understanding that dividends will not be forthcoming soon?

      Sheep farmers are beginning to get behind a new approach at marketing their product part of which involves contracting to supply to a required standard. This would stop the sort of spot-price competition that seems to have been usual of recent years. Could we have town milk suppliers again who are contracted to produce milk for us at reasonable prices?

      The timber industry seems to be messy, I hear that there are high prices overseas for logs. I think that NZ needs have to be paid for at high world prices, but then cannot be sold on to NZ users at a price that allows reasonable profit which would mean that the timber companies operating here are on short or no rations. We had a state timber industry and it was decimated by the right

  8. RedLogix 8
    13 February 2011 at 10:39 am

    There are only about 6m dairy cows in this country. That’s about 1.5 cows per person. And this is supposed to lead us to prosperity?

    The average Masai tribal leader would probably be quite worried if his wealth producing resources had dropped that low.

    • ChrisH 8.1
      13 February 2011 at 11:43 am

      Quite indeed.

      • Colonial Viper 8.1.1
        13 February 2011 at 11:57 am

        And consider the environmental/animal welfare consequences of trying to bring this up to 2.0 cows per person, and then matching NZ’s population growth over the next 10-20 years. Ouch.

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