While more sophisticated governments elsewhere are focusing on smart and sustainable growth, our government seems to think wealth comes from more milk and selling off our irreplaceable natural resources as quickly as possible.
RIP, SHIT and bust is a classic strategy, seductive to many corporates and countries.
It often looks good in the short term. Exponents exploit abundance such as natural resources, cheap labour or lax regulation to make quick profits.
Yet in their careless haste, they sow the seeds of their own destruction. They over-exploit their present opportunity and under-invest in their future. In due course, the enterprise or nation goes bust.
Yet, this is exactly the economic strategy our government is proposing for New Zealand. Its language says it all. It talks of “growing the top line” to achieve a “step change” in economic growth. This is corporate speak for doing more of the same.
The government says it will make it easier to produce more in dairy farming, mining, aquaculture and other existing sectors. Superficially this is appealing. Why not do more of what we’re good at? The trouble is more of the same won’t fix our economic problems. For 150 years we’ve earned a living from exploiting our natural resources to produce low value commodity products. As a result, we’re relatively poor and, worse, competition is intensifying fast from far cheaper producers overseas.
Take the dairy sector. To try to keep its high volume, low value model working it is throwing increasing quantities of water, nutrients and capital at increasingly poorer land. The ultimate expression to date is the plan to bring cows indoors in the Mackenzie Basin.
But most dairy farmers are profitable only at peaks in commodity prices. So how will more production, thanks to increasing costly inputs, make them more profitable? Or generate real wealth for the country?
Yet, the government says we will prosper by doing more of the same. It is a very 1990 view of a simple world, one where the cold war is over and unfettered opportunity beckons to produce lots of cheap food and energy.
But it is 2010 and the world is very different. Scarcity is the absolute crux of any corporate or country strategy. All resources human, financial and natural are in chronically short supply.
Thus the smart strategies are dedicated to producing the highest value possible from the least resources. Crucially, successful companies and countries are doing so by pioneering new clean technologies and astute new business models.
How could the government miss this epoch-defining insight? By shonky analysis. At one point before Christmas, the course it is charting for the New Zealand economy “took the form of a dozen or so A3 sheets of paper, each covering a sector,” Colin James wrote in his February 8 column in the Dominion Post.
Honestly, what kind of amatuer operation are these twerps running? A few A3s full of brainstorming (cycleway! party central! drill baby drill!) is their idea of a plan for the economy?
Here are some of the government’s favourite ideas:
Energy Minister Gerry Brownlee believes the government can unleash a “bonanza” of oil production. It is already our third largest export, generating $1 billion a year of revenues for the government of which $543m is royalties. He says there is the potential for “many billions more by 2025”.
Well, the world will certainly need oil for a long time yet before alternative fuels displace it. So we should contribute what we can to the world’s needs, although we would be wise to hold back our reserves until the price is even higher. But we won’t get much out of that extra oil production except some commodity export earnings, jobs and government revenues. The government is likely to spend the money on the likes of tax cuts rather than, as Norway has done with its North Sea riches, ring fence it in a sovereign fund to ensure it is invested in the country’s future.
Exactly. The last thing we want is to spend the one-off endowment we have in natural resources and be left with nothing to show for it in the end.
More oil won’t increase the sophistication of our science, innovation and commercialisation skills. Worse, it is a short-term distraction from investing in clean technologies such as geothermal, wind power and biofuels on which the world will ultimately depend and in which we have natural advantages, affinity and brand values.
This is the rentier state trap, the economy becomes over-dominated with one extraction industry and technology progress largely ceases, leaving the country unprepared when the resoruce runs out. We’ve encountered this problem time and agian through New Zealand’s history as the economy goes from being focused on exploiting one natural resource after another.
Likewise, minerals. Again we should contribute what we can to world supply. But we should do so by being a pioneer in green mining, thereby developing some valuable new science and skills.
That is not an oxymoron. It is possible to extract minerals in an entirely responsible way environmentally. And increasingly there are users who are prepared to pay more for that.
But the government doesn’t see it that way. It wants to ease environmental rules and, possibly, mine in national parks in order to compete on world commodity markets. Its idea of using some of the royalties to establish a conservation fund is an insult to intelligence and common sense. What’s the point of saving kakapo in one corner of the country if landscape is destroyed in another?
Establish an offshore financial services centre for managed funds. The idea is we can be a trustworthy back office, clipping for ourselves a minute faction of the multibillion-dollar flow of funds in and out of the country.
This is so 1980s it’s laughable. Back then we reckoned we could be “the Switzerland of the South Pacific”. Instead, we’ve seen a rapid atrophying of our financial sector as multinational companies consolidate services in larger centres far closer to major markets.
Why does the government think a tweak in tax regulations, a few incentives to lure expat workers and a marketing campaign can turn that around? Back office operations are the ultimate commodity business in finance, devoid of creativity, innovation and genuine economic value to the host country. Ask Ireland, the example the prime minister touts, how it feels about the swingeing job cuts multinationals are making in Dublin.
The Key government is living in the past and presenting the same old failed ideas – more intense use and abuse of the environment, tax cuts for the rich, social service cuts, privatisation. It’s never worked before and it won’t work now.
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