1. Our economy is growing:
Its rate has slowed as the global economy has, but our economy is expanding faster than most comparator countries. Crucially GDP per capita, a better measure of the economic benefit to individuals, is growing more than it did earlier this decade during the peak of our immigration boom.
Export demand and prices remain strong, apart from in forestry. After a big boom in logs, China, the main market, is forcing a correction. Meanwhile, domestic demand, employment levels and wage rates remain firm. Together, internal and external demand are more than sufficient to maintain moderate growth, even if some other countries slide into recession.
2. We have opportunities to seize:
For all the turmoil in the world, the traumas now are very different from the Global Financial Crisis more than a decade ago. So, the solutions are different and thus the opportunities for New Zealand are far greater — should we wish to seize them.
Back in 2007-08 reckless financiers, imprudent investors and lax regulators came perilously close to crashing the global financial system. Central banks responded creatively and effectively. But politicians in many countries made a grievous mistake. By enforcing agonising austerity, they inflamed existing deprivation and resentment which in turn polarised politics.
As a result, it’s now impossible for people in the US, UK and a growing number of other countries to agree on even a simple set of facts about their economic and political failures. Consequently, they are warring over how to reinvent and revitalise the systems and cultures at the heart of their societies.
Worse, those dysfunctional countries are exporting their deep malaise. Trump’s nationalism, for example, is damaging international trade, foreign relations and the institutions that serve them.
New Zealand’s response to the GFC was effective. Our reserve bank stepped in to support banks and to overhaul regulatory systems; the government was prudent in its borrowing and fiscal discipline without slashing spending; and the majority of businesses navigated through the great uncertainties. As a result our recession was short and shallow compared with other countries, and our social damage less.
But our response was limited. There was no useful role we could play in restoring the global financial system; and the Key government focused on growing our economy as it was rather than facilitating ambitious change.
This global crisis is different. There is an intense competition of world views, and plenty of choices we can make as a country about how we respond. If we want to, we can build on our strengths. We are a distinctive yet diverse and still relatively cohesive society. We are innovative, valuable and trustworthy business partners at home and abroad. We are creative and effective diplomats in international economic and political forums.
3. We are more capable and confident than we have ever been:
Our overall ranking rose from 24th out of 134 countries in 2008-09 to 18th out of 140 countries in 2018. The reports rank each country on 12 “pillars” of its economy such as its institutions, financial systems, business dynamism and innovation. Each pillar has sub-measures, running from a few to 20, which are also ranked. Over the past decade the pillars and their components have changed slightly, reflecting the growing sophistication of economies and measurement of them. But the reports are still highly comparable over the past decade.
Since 2008-09, we have improved our score on six pillars: institutions (from 8th to 1st); macroeconomic stability (from 25th to 1st); skills (from 15th to 10th); product market (from 17th to 4th); labour market (from 10th to 4th); and business dynamism (from 37th to 12th).
Our rankings on three pillars changed only a little: infrastructure (from 42nd to 39th); ICT adoption (from 22nd to 23rd); and innovation capability (from 26th to 27th).
Our rankings on three pillars fell: health (from 5th to 18th but this may be because it now focuses solely on life expectancy — previously the pillar included primary education); on market size (from 60th to 67th); and financial systems (from 3rd to 26th thanks to a drop in three sub-measures — the soundness of banks, the financing of SMEs, and the adequacy of our banks regulatory capital which ranked only 110th in the world).
There’s plenty to celebrate such as the big improvements over the past decade in labour and product markets, and business dynamism. Drilling down into the sub-measures, there are some gems. For example, we ranked 6th in the world among “companies embracing disruptive ideas” in the business dynamism pillar.
It’s also very helpful to have international comparisons to remind us our institutions are very good and our banks’ capital is very inadequate.
Thus, overall in the past decade our confidence and capability have increased significantly.
4. We are working on our big challenges:
The World Economic Forum tells us what we’ve long failed to improve, notably infrastructure and innovation. To those we can add many more it doesn’t clearly identify, such as our low productivity, unaffordable housing, deteriorating natural environment and chronic education gaps.
Just before the 2017 election, the New Zealand Herald’s Mood of the Boardroom survey showed that many in business had given up hope that the nine-year-old National-led government had the ideas and energy to solve those fiendishly complicated issues.
With the election of the Labour-led Government they hoped for better. But two years on business says the Government’s “lack of delivery” is one of the key causes of the sharp decline in business confidence and the slowing of economic growth.
This superficial judgment, though, ignores four factors:
– The Government does have a comprehensive, high level “Economic Plan for a productive, sustainable and inclusive economy”, which is worth reading. It identifies eight economic shifts that will address those long standing challenges and enable us to earn a bigger, more sophisticated and more sustainable living in the global economy.
– The Government has begun many actions on those themes with more to follow.
– Governments move more slowly than companies because they have to deal with far more complexity and far more stakeholders. So it will take more than several years, or even several terms, for such work to come to fruition.
– Business has plenty it can do in the meantime. The latest Mood of the Boardroom survey listed 14 things that “keeps CEOs awake at night”. They ranged from sourcing and keeping skilled staff, which scored 45 percent among respondents, to the threat of a takeover, which scored 2 percent.
Of the 14 worries, 12 were entirely in the hands of the business. Only two were sheeted home to government – regulatory challenges scored 32 percent and impact of policy uncertainty on business scored 23 percent.
By comparison, the Key government got off to a far slower start. By the end of its first year in office in 2009 it had conceived an economic development strategy that consisted only of a dozen or so sheets of A3 paper, as political columnist Colin James reported at the time.
By the end of its second year in office, this had morphed into its Business Growth Agenda focused on six ingredients: infrastructure, exports, innovation, capital markets, natural resources, and skilled and safe workplaces.
By the end of National’s ninth year in power, the Key government had evolved into the English government and the BGA was populated by a vast range of small tactical activities. The government’s four “Strategic Priorities” in the BGA’s final report in 2017 were merely broad themes: Building a more productive and competitive economy; Delivering better public services within tight financial constraints; Responsibly managing the government’s finances; and Rebuilding Christchurch.
Meanwhile, our best businesses are getting on with their own bold strategies. An increasing number of them are seeking to play to the fundamental shifts underway in global business such as the rise of digital technologies and artificial intelligence, and the adoption of strong social and environmental commitments. On the journey to a zero carbon economy, for example, the members of the Climate Leaders Coalition are more diverse and account for a larger share of emissions than in similar organisations in other countries.
5. We have options:
Our Government should borrow more, thanks to its low debt and low interest rates, so we can get on with building more infrastructure and housing. Those will help keep up our domestic economic momentum and protect us as the global economy slows further over the next few years.
Meanwhile, we can maintain our export momentum by playing to consumer shifts towards sustainability and accelerating our innovation across the economy.
6. We are still talking to each other:
As a small country we are better than large countries at getting people together to try to solve problems and to take up opportunities. And even though material and social well-being ranges widely, as do our cultural perspectives, we have a strong and growing sense of self as a country.
Yet, some other countries show us how fragile those social connections can be. We must never exploit them, damage them with false information, or take them for granted. If we nurture them carefully and use them well we will confidently progress our nation.