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Time to Export More, At Higher Value

Written By: - Date published: 10:00 am, October 23rd, 2010 - 38 comments
Categories: Economy - Tags: ,

by Colonial Viper

NZ is no longer the same wealthy western nation which used to generously give foreign aid to poor underdeveloped, commercially backward countries like Singapore and which kept apparent economic pace with its far larger neighbour, Australia, until the Rogernomics reforms of the 1980’s. Today New Zealand is still reliant on low value added commodity trading for its sustenance. One which is struggling to pay its bills after a lengthy period of selling off its economic sovereignty, often for a song, and primarily on the recommendations of Chicago-school economic idealogues and right-wing politicians. One where its people have pretended that personal incomes weren’t falling behind year after year by offsetting their low wages with higher and higher levels of personal debt.

Although it is clear that the top few percent have radically prospered, the majority of individual New Zealanders now struggle to maintain a decent standard of living in a country which has been falling in the OECD rankings for years. And let’s be clear: this is not a failure of the working and middle class. It is a failure of leadership from our politicians and heads of business, the same ones who are rewarded with the highest salaries. But high paying, highly interesting, high fun jobs are now rare in a hollowed out employment market dominated by low wage, low skill, service sector and farm work.

Even now, the Bill and John led National Government makes it a point of pride to push wages even lower and devalue not just the monetary worth but the self-respect of the average New Zealand worker, whether they wear a uniform, coveralls or a shirt and tie. The result has been a massive cumulative talent and workforce flight from New Zealand. At least 529,000 New Zealanders now live in Australia long term, and since 2008, that number has been increasing at a record rate. These numbers do not even consider those who have left our shores to work in North America, Asia or Europe. Make no mistake, this is not a simple ‘brain drain’. It is a full scale haemorrhage and our economy – and perhaps our larger society – is on life support because of it.

The Fabian Society presentation around a ‘Resilient Economy’ at the 2010 Labour Party Conference provided powerful insights and economic antidotes to our current destructive right wing malaise. A total refocus on the ‘real economy’, the part of the economy involved in exportable tradeable goods must now be an urgent priority for Labour’s Battle of 2011. For too long, Governments of both Labour and National flags have favoured economic settings which have strengthened and encouraged the non-tradeables sector of the economy. Financial speculation, banking hyper-profits and property asset bubbles have resulted. At each step, our manufacturing, industrial and technological base has eroded as company after company has downsized, offshored or simply shutdown in the face of currency speculators and a deliberate, known deprivation of local investment capital.

And what have we got in return? An artificially strong dollar with highly liquid capital inflows enables us to buy cheap TVs and cheap overseas holidays with personal debt. But the cost of enabling this cheap consumerism is that our export and tourism industries suffer as a high dollar makes them look comparatively and unsustainably expensive. Our communities experience a hollowed out job market, a hollowed out economy, high unemployment, and property prices way out of reach for aspiring young home owners and young farmers alike.

The Fabian answer: to heavily invest in the general manufacturing and high tech sectors, where ‘investment’ means far more than simply providing financial capital and encouragement to individual industry sectors. It means providing political leadership, human resources and powerful, forward looking macro-economic change. To create and firmly use new monetary and macro-economic tools designed to expand the tradeables sector while squeezing the non-tradeables sector into a properly proportionate (smaller) part of the economy. To export far more, and to make sure that each unit of exported product is of far higher value.

For too long New Zealanders have been incentivised to put valuable financial capital in the wrong (non-tradeable or low productive) asset classes. Our love affair with property as the country’s primary way of apparent wealth generation must be put to the sword by gutsy economic and political leadership, however painful the forced separation prove.

This table says it all.

If we want a society with a surplus of $30, $50 and $100 per hour jobs, those jobs must be in New Zealand owned industries capable of creating high value added products and high return on capital invested. A typical dairy farm might require $4.5M of capital – but produces only a handful of typically lower waged jobs and a very poor export return on investment. In comparison, ‘General Manufacturing’ and ‘Software Development’ as example industries hold many advantages. Huge export earnings relative to the capital employed, as well as many more well paying jobs per dollar invested.

Yes, the age of cheap energy and unsustainable resource use is nearing an end, an end which will come about by undeniable necessity. It is now high time for New Zealand to de-emphasise low value soft commodities which rely on massive scale environmental extraction. However: New Zealand must and will remain an active player in the global trading economy. Our high value products and services must be known and sought throughout the world. And we must achieve that in a way which provides long term, high waged, high fun employment, for New Zealanders.

Sustainable prosperity and enduring wellbeing for all our people is the goal, not an unrealistic never-ending growth in GDP. Reductions in inequality and unemployment will bring with them significant flow on social benefits to our communities. Its now high time to manage careful, albeit painful, property value declines in order to redirect flows of investment capital to high value productive sectors. To focus on developing a high wage generating, high employment, advanced tradeables sector based economy. To ensure that we have the means and the vision for a progressive, caring, 21st century society which provides bounty for the many over the long term, not just the few over the short term.

38 comments on “Time to Export More, At Higher Value ”

  1. Brokenback 1

    “New Zealand is still reliant on low value added commodity trading for its sustenance. One which is struggling to pay its bills after a lengthy period of selling off its economic sovereignty, often for a song, and primarily on the recommendations of Chicago-school economic idealogues and right-wing politicians.”

    The crux of any reform ,as suggested by the Fabian society, which makes astoundingly good sense by the way , is the repeal of the Reserve Bank Act and the implementation of Tobin tax .

    The RBA is a corner stone of the client economy we have in New Zealand , controlled by its foreign owners.
    It created the the conditions which allowed scum to turn the NZ dollar into the plaything of the world’s currency speculators. ,which some say was the basis of current PM’s fortune.

    A managed exchange rate is the means by which an democratically elected executive of a nation state manages the external economy for the benefit of the nation as a whole.

    The Market, aka cyano capitalism, has been shown to be a total sham, nothing but gutter thieves , hucksters and rodents , whose orgiastic embrace of the reptile brain has the potential only to take us back to the dark ages.
    The current news regarding recent events in Europe bear consideration.
    Much as I generally despise the French for their past indiscretions in our peaceable corner of the globe , I do admire the penchant for direct political action.
    I often feel there are several well known pollies from the present and immediate past who could well benefit from an introduction to Mdme Guillotine.

    • The crux of any reform ,as suggested by the Fabian society, which makes astoundingly good sense by the way , is the repeal of the Reserve Bank Act… A managed exchange rate is the means by which an democratically elected executive of a nation state manages the external economy for the benefit of the nation as a whole.

      To me, a democratically elected government abdicating one of the main control levers of the economy to an unelected, unaccountable and mostly (except for the Governor) unknown (to most NZers) board has always smacked of dereliction of responsibility.

      Imagine the outcry if, for instance, the IRD were handed control of the tax system. But what’s the difference?

      By all means have the RBNZ advise the Cabinet, and make public that advice. But the responsibility to balance the competing and often contradictory demands within the economy – perhaps compensating for the effects of one lever by putting another at a different setting – should always rest with someone who is accountable to those whose futures he or she controls by their actions.

  2. Jim MacDonald 2

    NZ has not been that smart in opening up and modernising its economy.

    We did what the textbook said but we have not been putting our interest first and positioning ourselves so that we move from our existing strengths to new strengths.

    It is heartening to see emerging signs that Labour, the Left, and those newly convinced about a progressive agenda, recognising that the time is now due for NZ to repair the country, economically and socially, for the benefit of the many.

  3. bbfloyd 3

    i remember when the lange govt talked about the “value added” economy. part of which was the encouragement of”cottage” industry. this actually led to some enterprises stating up that went on to become rather good earners for NZ.. the shame was that this policy thrust was not sustained by the next admin. the result is plain to see today…

    kiwibank as a facilitator of small business ventures, allowing the ingenuity that has underpinned our development throughout our history as an independent country to re-emerge, would go a long way towards establishing a sounder basis for future economic and social security than anything else on offer at present..

    • Jim MacDonald 3.1

      Btw, who is the ‘banker for the New Zealand Government’?

      How about moving to Kiwibank to have that role?

      • Draco T Bastard 3.1.1

        Westpak and, yes, agree that the government should move to Kiwibank as it’s banker.

  4. Draco T Bastard 4

    New Zealand must and will remain an active player in the global trading economy.

    Although better if we do we don’t actually have to. There’s also the minor technicality that, as every other country develops the same capabilities, international trade will decrease.

  5. deWithiel 5

    Bill Sutch to ANZAAS in 1957:

    ‘As the country grows, New Zealand’s main assets can only be the skill, experience and intelligence of her people. Small countries like Finland, Denmark or Switzerland have even fewer natural resources than we have. Yet because of the skill of their people they are important manufacturing countries. Highly-paid labour should connote highly-skilled labour. […] Should we not be more concerned with producing goods which have as their main ingredient not raw materials but brains and skill?’

    Unfortunately for us, Sutch’s vision of an intelligent country was hijacked by the like of Holyoake, Marshall, Colin Hogg (president of the NZRFU and the chairman of the Trade Promotion Council) and other luminaries of the National party in the 1950s and 60s.

  6. deWithiel 6

    It’s inspiring stuff although, as Sutch warned, ‘Any projection discussing economic development for the next two decades (the subject of his paper) is a speculative rather then scientific exercise. The most that can be done is to ascertain the limits of the range of any trends, to be aware of all the qualifications and to exercise informed good judgement.’

    Obviously the speech was printed in the record of the January 1957 meeting of ANZAAS but it was reprinted as a monograph by the Department of Industries and Commerce and also, surprisingly (?), in the New Zealand Manufacturer, vol. 8, no. 8 (15 March 1957), pp. 25-38.

  7. KJT 7

    Since then. Muldoon taxed several sunrise industries out of existence.
    Labour sold our infrastructure for peanuts, opened up the economy to so called competition without any agreements from other countries to do the same, allowed more profits to go offshore without requiring off setting investment in NZ and took away any power workers and manufacturers had.
    The last Labour Government continued with “globalization” and the “way past its use by date “reserve bank act.
    NACT have continued to give away NZ to the finance sector and are now trying to make us the lowest wage economy in the OECD.
    Every Chamber of Commerce meeting I go to I am amazed by small business owners who still think NACT is helping them. A triumph of spin over reality.

    Every Government for 35 years has had a competition to see how many high value jobs they can lose off shore

  8. Carol 8

    CV, why are you putting so much emphasis on exports? Isn’t this just a re-worked neoliberal idea? I don’t get the logic of every country aiming to increase their exports.

    I do agree NZ can be smarter in its approach to the economy, putting more faith in selected kinds of NZ enterprises., eg manufacturing and software development, as you point out. But should we also be looking to be producing for our own needs as much as exporting? And the exports should be targetting selected niche markets, IMO.

    • Draco T Bastard 8.1

      Exports only work in niche markets – those markets that can’t produce the same thing for themselves and every country can produce manufactured goods and grow their own food from their own resources. That doesn’t leave us with a hell of a lot of room. Throw in the word sustainably and that cuts down trade even more.

    • The Chairman 8.2

      Carol

      Our debt based monetary system is why we are required to constantly grow our exports.

      There is never enough money in the local economy to pay the interest our debt based monetary system incurs.

    • Colonial Viper 8.3

      Carol, KJT, de Withiel, Draco, Chairman and others have addressed many legitimate aspects of the issue. Our current and *immediately* foreseeable problems in NZ are a huge shortage of good, interesting jobs which have decent pay. This situation sends NZ’ers out of the country long term by the thousand. On a personal and familial level, a $30-50/hr job is what I suggest might be the level of wages which would allow someone to get ahead in life, be comfortable, raise a family, express oneself to the full etc. with the minimum of debt and financial stress. (In contrast, trying to raise a family and save for a house on an $18-20/hr income is possible, but also very stressful). At a broader level we do not have the grassroots industries which generate many of this quality and value of jobs. For an employer to be able to pay this level of wages, they must be using a lot of smarts to add value to their products and services. WETA might be an example. F&P Healthcare might be another example. Scott Technologies a third.

      At a national level the Fabian Society focussed on exports not only because high value manufacturing exports create a large number of good, solidly paying jobs for us and our children, but because these industries pay the bills for our country. They create wealth by the production of valuable goods, and reduce our reliance on borrowing overseas funds to buy the things that we need/want to import.

      As for the idea that a high value add export-led economy is neo-liberal, not at all. These economies are often heavily Government influenced and led – quite the opposite of a neocon free market regime. Instead it does hark back to the days of wealth through more advanced industry and technology. In the 1960’s and 1970’s with Japan, in the 1980’s and 1990’s with South Korea, and over the last 15 years with China.

      Can we do it? Should we do it? I’ll only answer the first question for the moment. In 2009, foreign tourists, one of NZ’s largest sources of foreign income and jobs, injected roughly $9B into our economy. Most of the jobs were service sector at the minimum wage or not far off it. High tech exports, a generally neglected and discouraged sector, brought in roughly $5B into the economy. More professionals and highly qualified people were involved, for what I would expect to be much higher wages. So we can do it, and we can do it much better than we are now. And once we have our own advanced industrial and technological ecosystems in place, our reliance on overseas products and technologies will naturally decline.

      As for the ‘do nothing’ rely on mass commodities business as usual strategy – this is the course we are currently on with the National Government. By charting this course we can expect our country to get continually poorer over the next 10 years and for more of our young qualified talent to leave long term for career opportunities which do not exist onshore. We can expect not to be able to pay for basic facilities and services without increasing amounts of private and public debt, increasing taxation, and we can expect the income gap with Australia to widen to the extent that we become a worker nursery for the Australian economy.

      captcha: could

  9. prism 9

    A recent radio report said that there were hardly any exporting industries as a proportion of business in Auckland, supposed to be a power house for NZ. Good news though on the farming front. The new Campaign for Wool being spearheaded by Prince Charles talked about this morning on Radio NZ will grow wool exports once near 1989 $1.8 billion now merely $600 million.

    And entrenched interests have had a message after the action against the Supreme Court judge supposed to be impartially hearing the case for a share of the wool promotion money that should have gone to niche market promotion for the low micron merino wool market that was being developed. We must get more responsive. market oriented industry. Everyone talks about us being commodity suppliers but unless we advance and support exporters finding new markets with smart goods we will always be trailing after the cash cow.

    And we need to keep our creative juices and jobs flowing. When moneyed people have the basics they can afford to spend on art and pleasure. Let’s make films for them. Playing monopoly games by the actors union with real paying jobs has to change – better co-operative bargaining not all this rich bosses and poor workers stuff. I have been very sad to see so much rhetoric flowing along those lines re Jackson. And constant criticism of someone who has given a legacy of new opportunity, which the industry should be building up and profiting from in a reasoned approach not playing silly bugg..s with by stirring up instant boycotts and expecting the financiers to have respect for what seem to be whims.

  10. V 10

    Carol, you are right in that everyone cannot export their way to success at the same time. Hence the currency depreciations we see today as everyone sees a cheaper currency as a way to increase exports. Clearly this is zero-sum.

    The key question for our society is what are we doing to encourage entrepreneurship?

    The key is for government to ensure we have policies that deliver the very best outcomes for out citizens and has the institutions in place to foster this. Policy needs to be measured by their outcomes not their intentions.

  11. prism 11

    Entrepreneurship sounds good V. But showing it in changing exchange controls so that we don’t have violent fluctuations would help with exports. Which are essential for every country to advance itself.

  12. Wow, some good comments here. KJT, I specially like your “in a nutshell” summary of the failings of successive governments including that led by St Helen (who wasn’t the friend of the downtrodden many have been fooled into believing, or she’d have used her popularity to implement the kind of reforms to which you’ve alluded).

    From the post:

    The Fabian answer: to heavily invest in the general manufacturing and high tech sectors, where ‘investment’ means far more than simply providing financial capital and encouragement to individual industry sectors.

    From what source do the Fabians see this investment as coming? Private investors? Institutional investors? Government? Some combination thereof? And if government is to be involved in terms of actually risking taxpayer dollars, who’s to make the investment decisions, on what criteria, and with what expectations in terms of return?

    It means providing political leadership, human resources and powerful, forward looking macro-economic change.

    This would seem to me to be the area in which government can and should act, rather than via direct investment. Simply shutting down the tax advantages of property ownership would drive private investment towards genuine capitalism.

    It always amuses me when some activist waving a placard protesting against the bail-out of the banks, for instance, blames the whole mess on “the evils of capitalism”. Provided it’s properly regulated, genuine capitalism can help provide a way out of this mess. Someone in the 18th or 19th century who considered themselves a capitalist would be annoyed if the term were applied to someone whose sole wealth was derived from charging rents – though many were also landholders, they considered themselves capitalists because they were risking money on manufacturing or agricultural production. They knew property ownership wasn’t a risk.

    Not saying we ought to emulate everything about those capitalists of course. Just that capitalist has come to mean “anyone with lots of money”, when in many cases the correct term is just “landlord” (sometimes prefixed by “slum”).

    • Draco T Bastard 12.1

      …who’s to make the investment decisions, on what criteria, and with what expectations in terms of return?

      People?
      Put together a business plan and take it down the local Investment Office and see if it gets past the strict criteria for government investment.

      …rather than via direct investment.

      What;s wrong with a society directly investing in its people?
      I’d say that’s the reason why societies exist.

      Provided it’s properly regulated, genuine capitalism can help provide a way out of this mess.

      Not going to happen. The chase of profits will always end up destroying the environment and using up all the resources available.

      • KJT 12.1.1

        Nothing wrong with the capitalist who is your local builder, market gardener or even an SME manager. Not to mention the person who thinks up a new source of renewable energy, software that saves time or, dare I say it, entertains thousands of people.

        Paying someone lots of money for producing ever more inventive and non productive ways of taking money off people (E.G. Derivatives, bank fees, planned obsolescence etc) is the problem.

        The problem is we gave control of printing money to private banking. We should control our monetary system.

        The finance markets in the US now own so much money there is not enough resources or labour in the world to ever pay it back unless we have massive inflation.

        • Draco T Bastard 12.1.1.1

          My nephews a builder but he ain’t a capitalist. A businessman, yes.

          Not to mention the person who thinks up a new source of renewable energy…

          These are ideas people and often entrepreneurs but, again, not capitalists. These are the type of people that I’m thinking that should be supported through the community.

          We should control our monetary system.

          And once we do so we can actually give support through to where we want it to go democratically.

      • take it down the local Investment Office and see if it gets past the strict criteria for government investment

        Ugh, as someone who’s occasionally tried getting something past the government-appointed arbiters of investment in television and film production, no thanks. The form filling time would be better spent finding investors who actually understand the industry I’m working in (or alternatively, aren’t competitors taking their turn on the gravy train, handing the money to their mates who handed it to them when it was their turn).

        And from a taxpayer’s perspective, also no thanks. Unless the people doing the deciding are paid on commission, so there’s some real world personal consequences to their decision making. Otherwise we’ll have National appointees approving schemes to melt down the poor for soap, Green appointees investing my taxes in unprocessed flax underpants… 😀

        What;s wrong with a society directly investing in its people?

        Nothing, when they’re making their own decisions and doing so as shareholders. Which is why I want to see them given tax breaks for so doing… I’d like business investment to become the norm for NZers rather than just the few, starting of course with shares in the company by whom you’re employed being an optional part of staff’s remuneration package.

        The chase of profits will always end up destroying the environment and using up all the resources available.

        That’s where regulation comes in. Enforced by people who give a damn, backed by harsh penalties (including total loss of the business for serious repeat offenders). Balanced by rewards for those who do the right thing, of course.

        • Draco T Bastard 12.1.2.1

          Ugh, as someone who’s occasionally tried getting something past the government-appointed arbiters of investment in television and film production, no thanks.

          That just means that the system needs to be improved. Banks and venture capitalists do it so I don’t see why a government office can’t.

          Unless the people doing the deciding are paid on commission, so there’s some real world personal consequences to their decision making.

          Commission was part of the problem that led to the GFC and it certainly doesn’t get rid of the prospect of favours. I’d like to see an open system where anyone can have their say/give their support about the plans.

          That’s where regulation comes in.

          Well, then, the prime regulation would have to be within the renewable resource base (properly defined of course). And I can’t see capitalism doing that as there will always be those who’ll try to get past such a restriction, usually by rewriting it, removing it completely or just ignoring it.

          Nothing, when they’re making their own decisions and doing so as shareholders.

          Whatever makes you think that they wouldn’t be?

          • Rex Widerstrom 12.1.2.1.1

            I think we’re working off different definitions of “capitalist”, Draco. Yours seems a touch more pejrative than mine 😀

            I include builders, small business people and anyone risking their own capital (even if that “capital” is virtually all opportunity cost, such as someone who quits a well paid job to pursue their dream business)… right up to the Bill Gates types – people who are actively involved in making decisions and charting the course of their companies.

            At all levels there are the good, the bad and the ugly.

            I’d like to see an open system where anyone can have their say/give their support about the plans.

            Wow, that’s a damn good idea. A website where anyone can read the plans and comment. There’d be some concerns round intellectual property I imagine, but they wouldn’t be insurmountable (While our existing laws could easily cope, I’m thinkig more about minimising theft at the outset).

            Well, then, the prime regulation would have to be within the renewable resource base (properly defined of course).

            Agreed.

            Whatever makes you think that they wouldn’t be?

            Because if bureaucrats were allocating public monies, the public wouldn’t be. But if we implemented your “open source” idea, that of course lessens that concern. The final decision couldn’t purely be by popular vote though, so someone would have to do it, and the thought of bureaucrats being in charge doesn’t fill me with confidence. Nor, I have to say, does the thought of it being in the hands of John Key types who’ve never risked their own money.

            A panel of business people drawn from the community, perhaps?

            We could televise it and call it “Dragons’ Den” 😉

          • SHG 12.1.2.1.2

            Draco didn’t you once tell me that owning shares in a company should be a crime?

            • Draco T Bastard 12.1.2.1.2.1

              Probably, why?
              I’ll assume you’re refering to this:

              Nothing, when they’re making their own decisions and doing so as shareholders.

              Whatever makes you think that they wouldn’t be?

              I have no problems with the people working at a business actively partaking of the decision making process within the business. In fact, I think it should be mandatory.

              I have problems with people who don’t work there benefiting from that work, participating within the decision making process while excluding the people who work there from it and being able to pass such ownership on to someone else.

              • But why do you have a problem with me investing in your startup business because? I would probably do so for a mix of reasons, potential profit being only one of them. Equally important, to me at least, would be seeing a good idea develop and employ people and perhaps export some of its output, thus making NZ a better place. I might like that you were using only renewable resources, too.

                Then again I might just want to make a profit, nothing more. But if you need capital to buy your machinery and pay the first year’s rent on your premises and cover the wages of your employees till you make a profit, it has to come from somewhere (unless of course we nationalise everything).

                My investment doesn’t stop you offering shares to your employees. My participatio would be limited to an AGM and be fairly minimal unless I could convince enough other investors to vote with me.

                Now I know that doesn’t always work that way, especially in public companies, where institutional investors exert control and force decisions not in the best interests of the workers or the long term survival of the company.

                But I’m talking capitalism in its basic, “purest” form, the way it was when it started out. The failings caused by loose regulation and a perversion of capitalism to include “investment in producing nothing” (e.g. currency and property and other forms of speculation) are real, but I don’t agree they reflect a fundamental wrong with the system, more with the way we’ve allowed it to run.

    • Colonial Viper 12.2

      From what source do the Fabians see this investment as coming? Private investors? Institutional investors? Government? Some combination thereof?

      An excellent question Rex. Last I saw, the Reserve Bank estimated over $200B of NZD in circulation in the economy or invested into various assets/savings/cash equivalents.

      Much of the capital we need is right there. Just put into the ‘wrong’ places.

      • That neatly quantifies my “gut instinct” argument, CV. A breakdown of the different investments would be interesting… most of it would be property I imagine. I saw a chart a while back which showed a steeply falling line (shares) vs a steeply rising one (property) for Australia. It was in an article about the effects of the GFC, but that merely exacerbated the trend.

        Driving that “dead” money into productive investment isn’t easy – we don’t want to scare it offshore – but nor is it impossible. The thing that irks me is that we don’t even try.

  13. prism 13

    I wonder if there could be a web site for NZ business ventures informing the public about their plans, with some body rating them, giving potted histories of the management.

    Also a model of possible balanced investments that people could play around on line with., choosing to try a mixture – some in higher risk start-ups, a buildings trust, some cash cow, some longer-term deposits etc and looking at returns from different weightings.

    More nous by investors would stop people being cleaned out by dodgy investments and ponzi schemes as they aim for the highest interest rate from a company advertising nationally on tv, those adverts were smoke and mirrors.

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