Why ‘focusing on growth’?

Written By: - Date published: 1:00 pm, November 6th, 2010 - 19 comments
Categories: Economy - Tags: , , ,

The title of Don Brash’s latest exercise in making John Key appear moderate second 2025 Ttaskforce report is “Focusing on Growth”. Which got me thinking, why should we be myopically focused on growth? Neoliberalism treats growth as an end in itself. That reduces us to mere cogs in the machine of ‘New Zealand Inc’ (what an odious term that is). A healthy society is more than its GDP growth rate.

No, GDP is not an end in itself. It is one mechanism towards a worthy end – the creation of a sustainable, peaceful, happy, heathly, educated, and prosperious society. We don’t need to increase GDP to achieve this, we need to use the wealth we have more wisely.

We can start by looking at these factors:

A distribution of income where the top 16,000 have a higher combined income than 1.1 million other taxpayers put together.

A distribution of wealth where 300,000 people have $190 billion in net assets between them and 1.5 million have $5 billion in net assets combined.

A division of GDP where workers get just 43% of GDP in wages and salaries compared to 55% in 1975 (a 22% reduction in our slice of the pie), and 47% in Australia, and 50-55% in the Scandinavian countries.

19 comments on “Why ‘focusing on growth’?”

  1. Colonial Viper 1

    Great post. Where did you get that income/asset split data? Which year is it from – the latest I’ve seen was from 2004 or something.

    Any chance you could, if you had the time, rephrase it in % terms? (The top 10% of income earners…etc)

    The Chicago neocons only use GDP as a measure because it hides how much money is flowing out of the country to foreign owners of our economic assets.

    • Marty G 1.1

      bugger, the draft had the links to the data, I’ll put them in again

      • Marty G 1.1.1

        year the asset data is hellishly out of date, they only measure it every three years, 2010 is one of those years so the next data will be out mid-next year I think

      • Colonial Viper 1.1.2

        cheers man. No doubt the RWNJs will spout their usual “if you work your ass of for us selling our AMWAY shite, you too will earn one of the six seats at the top of the capitalist ponzi pyramid”

        • M 1.1.2.1

          Haha CV, as Marianne Faithfull sang:

          There is room at the top they are telling you still
          But first you must learn how to smile as you kill
          If you want to be like the folks on the hill.

    • Nick C 1.2

      “The Chicago neocons only use GDP as a measure because it hides how much money is flowing out of the country to foreign owners of our economic assets.”

      I presume this money you are talking about is NZ dollars. What do you think the foreign owners are doing with these NZ dollats? Hiding them under a matress?

      • felix 1.2.1

        What difference does it make whether they’re NZ dollars, rupees, or brass razoos? We don’t have them circulating in our economy anymore.

  2. pointer 2

    I’ve got a lot of sympathy for this argument, but doesn’t growth provide an incentive for businesses to take out loans to invest in new capital?

    • Colonial Viper 2.1

      incentive for businesses to take out loans to invest in new capital?

      I think I know what you mean if you meant to say “invest in new plant” instead of “invest in new capital”?

      In general I think NZ businesses have a very poor track record of investing in new productive technologies and R&D, regardless of whether economic growth has been good or has been stagnant.

      NZ investors tend to prefer to put their financial capital into static non-value add property and to wait for capital gains.

      • pointer 2.1.1

        Yes, I meant new machinery, but also R&D, software, etc. And my question is not just about NZ firms. After all, if we’re thinking of a new paradigm — a great debate to have! — then we need to think of how firms can expand and innovate. Now, firms will need to take out loans to fund innovation and improvement (or find someone willing to underwrite the costs), but firms won’t take out loans unless they can see that they’ll get a return on their investment, and they’re not going to get that unless they can sell their stuff for more tomorrow than they did today.

        I guess my underlying question is: is it possible for firms to innovate without GDP growth?

        • KJT 2.1.1.1

          Yes. If you take away the excess price charged for the time value of money, the excess ticket clipping by the finance sector and the excess returns from using money as a commodity.
          Anyone who wants investment money at the moment has not only to compensate for compounding interest foregone, but also the opportunity cost of using that money for productive investment, instead of the much more lucrative gambling in money markets.

        • Colonial Viper 2.1.1.2

          I guess my underlying question is: is it possible for firms to innovate without GDP growth?

          The answer is yes, but I suspect you are actually asking a different question: is it possible for firms to innovate without access to low cost capital?

          The answer to that is: its very very difficult.

    • KJT 2.2

      Letting business owners have a greater share was supposed to result in more investment in productive business. Instead it dropped by 2/3.

  3. Greg 3

    No, GDP is not an end in itself. It is one mechanism towards a worthy end – the creation of a sustainable, peaceful, happy, heathly, educated, and prosperious society. We don’t need to increase GDP to achieve this, we need to use the wealth we have more wisely.

    Without disagreeing with the intent of what you say, if we want to maintain our incomes as-is, we need total income growth to match population growth.

    And there’s the ever-increasing cost of health care. Do we want to do a Cuba and put all doctors on a $19,000 salary? (It’d be interesting to see which ones are just in it for the money, wouldn’t it?) More realistically, in a while we’re going to be forced to choose between, say, two knee operations or one chemotherapy. More money lets us put off the hard choices.

    With the Baby Boomers set to retire in a few years, we’re looking at having to cut entitlements to Super as well. Fair enough, you might say, the selfish sods deserve it. But they’ve got the votes, and they’ll run the country into the ground to get what they want. (Disclosure: I’m a tail-end Boomer.)

    Unpleasant, yes. Has to be faced, though.

    The … um, art, of economics has moved a little on since Brash last opened a textbook. (1978?) Philip McCann wrote a paper last year (it’s somewhat impenetrable, unfortunately) about what’s really at the bottom of NZ’s lacklustre performance over the last three decades. Google “economic geography, globalization, and New Zealand’s productivity paradox,” or just “economic geography” if you want to find out about the topic in general. Or just use the buzzwords: scale, location, connections.

    The trouble is that the actions needed to get growth are going to upset both left and right. Have an industrial policy — i.e., pick winners. Eliminate funding competition in research and tertiary education. Work more closely with Australia–consider using the Aussie dollar, to eliminate the effect of the carry trade which pushes our dollar up. But also, accelerate Auckland’s growth. Remove zoning obstacles around the CBD. Encourage saving–but not in housing, in cash. Eliminate Auckland Airport’s and Air New Zealand’s de-facto monopolies. Figure out how to grow big companies and have them stay in the country.

    Most important of all, decide which of the three global “super-regions”–Europe, North America, or East Asia–we want to be in, and focus on that. (The obvious one is East Asia. Who do we have a free trade agreement with: the USA, Germany, or China?) Learn the languages and the culture.

    Scary stuff. At least one thing in there is bound to upset everyone.

    Decreasing income inequality would help a lot. It would help people feel more connected to each other–as well as the direct benefits of reducing child poverty. This is one of the things that Australia does a little better than us, which somehow doesn’t get mentioned by the right. (And equity is one of the areas that economics has made next to no progress on, unfortunately.)

    • M 3.1

      ‘And there’s the ever-increasing cost of health care. Do we want to do a Cuba and put all doctors on a $19,000 salary? (It’d be interesting to see which ones are just in it for the money, wouldn’t it?) More realistically, in a while we’re going to be forced to choose between, say, two knee operations or one chemotherapy. More money lets us put off the hard choices.

      With the Baby Boomers set to retire in a few years, we’re looking at having to cut entitlements to Super as well. Fair enough, you might say, the selfish sods deserve it. But they’ve got the votes, and they’ll run the country into the ground to get what they want. (Disclosure: I’m a tail-end Boomer.)’

      Excellent points Greg.

      I don’t think most doctors’ egos could stand such an insignificant salary and the loss of status that would imply. Many would feel their years of hard study had been wasted and whilst important members of society so is the bin man – try having your rubbish not collected for a couple of weeks and see how unpleasant life becomes. Health care will become more basic and things like knee operations will probably only be done for younger members of the populace and then only if a person is really incapacitated. I’ve read that 95% of a person’s lifetime healthcare ‘vote’ is spent in the last week of their life with many people being resuscitated many times or having things like hip operations. In the future if you have conditions like cancer, diabetes or MS that means your kidneys are kaput then it will be sayonara baby. I developed coeliac disease six years ago and while sometimes an annoyance the treatment is avoidance of gluten so apart from some extra expense for special food items like bread that are a bane to make if I don’t accidentally ingest gluten then I’m fine.

      Yes being a tail end boomer myself (46) I can see how the luckiest of generations will have some real heft at the ballot box to the detriment of others but sometimes think that this has been inculcated by parents of boomers saying to their kids that if they worked hard they would enjoy a good life and golden retirement. It is the nature of mankind to be diachronic I suppose but as I’m not too hung up on stuff, as long as I can get by in pretty good health I’ll be happy. Being keen on physical activity all my life, a non-smoker and light drinker I hope will help me stave off the worst of the inevitable diminution of my mortal coil but I think a worse fate would be to develop dementia, which really would be the pits.

      • Carol 3.1.1

        A lot of scare-mongering is going on about us boomers being about to retire, because we are a very big bunch who are going to be a major drain on NZ retirement funds. Has anyone done any projections of the numbers of boomers like me, who have lived quite a few years overseas, have returned to live in NZ, and who will be getting a large amount of their pensions from overseas?

        I’ve recently just started getting a bit of a state retirement pension from the UK, plus a UK job pension – both based on money I paid into the schemes while living & working in the UK. I applied for the UK state retirement pension through WINZ. They tell me that when I am elligible for the NZ retirement pension, my UK pension ( and the bit I will get from my Aussie super fund) will be deducted from it, and I’ll get what’s left. I suspect that I won’t be getting much from the NZ state retirement pension. NZ IRD also takes their share of tax from the pensions I receive from overseas.

  4. ho hum ….
    All pension scams are based on cheap oil and continued growth. It is a form of denial to think any other way.
    The whole of ‘modern mans’ existence is dependent on a growing supply of cheap energy, and we are not just talking about the energy we will use bringing 10,000 + people to NZ to watch grown men fight over a little bit of leather, we are talking about the 99% of the global food supply, and law and bloody order, any statements about our collective futures have to be looked at from the eyes of say a Baghdad city councilor circa 2003, without law and order, a regular supply of food, water, and electricity ‘we’ start killing each other. A gated rest home/community will just be a sign to the marauding masses that there might be something behind the gates, and as most security guards are employed from those masses, hiring security will prove a tad difficult, so simply no law and order, equals no baby boomers for one thing 😉
    But this government, the opposition, and the greeds gave us Kiwi Saver … the possibility of Transmission Gully, and the probability of massive social upheaval and misery.
    Hale John Key and Helen Clark, 11 years of ignoring facts http://oilcrash.com/articles/common.htm

    «…But the real issue last week was about bio-diesel and the world running out of fossil fuels. That was the point of the photo op, and I went there to make that point, it is the world walking the plank frankly, not Don Brash…»

    Don Brash, 7:20am on Monday 15/5/06
    Morning Report, National Radio, RNZ

    «Peak oil, what a load of crap.»

    Nick Smith, 16/5/05

    «According to some energy analysts, over half the world‚s oil has already been consumed and, at current rates, 80 percent will have been consumed by the year 2020 (Laharrere, 1995; Campbell, 1996). The remaining 20 percent is in reserves that are more difficult to access. Oil reserves in the US and Europe are expected to be depleted in 15-20 years. Middle Eastern supplies will be plentiful for some decades, but at higher prices.»

    Simon Upton, State of New Zealand’s Environment, 1997 (National Party)
    Minister for the Environment
    Minister of Biosecurity
    Minister of Crown Research Institutes
    Associate Minister of Foreign Affairs and Trade

    «If you see a problem in the world and you have the ability to do something about it — then it’s your duty to take action».

    — Don Brash … yeah right )

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