Thursday, June 28, 2007

Opportunity or Protection

It comes down to this: do New Zealanders want Government to provide opportunities or do they want it to provide protection? This is the question that underpins all others as the Government asks "where are we going in 10,25 or 50 years?"
For over the past 12 months Government has been asking itself about transport policy, energy policy, climate change policy, and road safety. Each has had exhaustive consultative documents, chock-full of high-level information making just reading them a major under-taking. Put together, however, the issues of energy and transportation largely define what sort of nation we can potentially become in the 21st century.
Taking a step back to look at such major issues, rather than scurrying around the three-year political cycle like mice on an exercise wheel, is always a useful endeavour and the Government should be commended for encouraging all sectors to undertake this kind of review. It does not happen often enough. But it is one thing to encourage thinking and yet another to encourage public debate. For despite the effort put into obtaining a mass of views few of these exercises have demonstrated a process which results in a debate. The suspicion becomes that like so many consultative efforts those consulting already have a view of what they are going to do anyway.
CONSENSUS. And while nobody can argue with the need for leadership, the more these issues are discussed the clearer it becomes that there is a great need for a broad political consensus on development. Such a consensus cannot be achieved by a few officials doing sums in Wellington. It requires a better understanding of the deeper economic and political drivers at work in this country.
For officials should know (by now) that politics trump analysis every time. By its nature analysis is based on assumptions but if these are out of step with the electorate the analysis will not survive one electoral cycle let alone a dozen. To project into the future not only do we need to look at the physical realities of changing technologies and international economics we also need to look at the political tides which underpin the assumptions on which our analysis is based.
Thus, it is not sufficient to blame our failure to build new energy or transport infrastructure over the past decade and a half on the vagaries of the Resource Management Act 1991. The Resource Management Act did not come from nowhere. It may place emphasis on subjective objections but it is not in itself the source of those objections. Those objections come from a deeper well in the psyches of this generation of New Zealanders.
How do we know this? Well, mostly by contrast. Although similar Australian culture is far more comfortable with the notion of progress (its even written into their national anthem) and – from its economic indicators - achieves it as well. And while our retiring middle class may aspire to some kind of Peter Mayle lifestyle "en Provence", in fact, France is as much a nation of superhighways, aerospace industry and nuclear power as it is one of 4-day working weeks, lavender fields and curious cheeses. The French, like the Japanese, treasure their traditions and countryside but keep pressing the accelerator of progress flat to the floor.
In these cases, plus others like Ireland or Finland, there is a clear distinction in the popular mind between national pride in nature, and national pride in development. This is the difference between foreign notions of sustainable development – where the emphasis is still very much on development – and the RMA’s emphasis on sustainable management, where the focus nationwide is on conservation.
CONFLICT. As such the RMA merely reflects New Zealand’s inner conflict. We want to take pride in our natural environment. Under the Act five nesting dotterils can hold up a multi-million highway while five hundred nesting dotterils being disturbed by dogs and small children next to a holiday camping ground are ignored. The Act is about protection not development. But like it or not development, like growth, is key to maintaining our lifestyle.
It all comes down to our balance of payments, i.e the value we buy from the world and the value the world buys from us. The more we consume without producing commensurate exports the more we ultimately end up borrowing from the rest of the world to pay for it all. While Government or public international debt is now at a very low level compared to GDP, our private international debt is at shockingly high levels. As of December 2006 New Zealanders net international liabilities were $143 billion against a GDP of $125 billion. Worse the high levels of international private debt have mostly been to borrow for the privilege of owning property ($142 billion) that we used to own previously (without as much foreign borrowing), or to buy consumer goods from overseas ($4 billion outstanding on credit cards as at December 2006) which are depreciating through technological acceleration at an ever increasing rate.
BUDGET. If this continues it cannot end well. Ultimately it can only lead to greater foreign ownership of our country and increasing impoverishment of our people. The Government’s budget 2007 is, aimed at addressing these issues. First it is attempting to improve New Zealanders savings rate (reducing the need for offshore borrowing) through the Kiwisaver scheme, and it is investing in improving New Zealand’s productivity by investing in much needed infrastructure. If there is any quibble with such measures it is only that they are long overdue.
But what the Budget can’t do is get through to New Zealanders that the fundamental problem at the heart of our culture is that we think we can get rich without building anything. This is based on reminiscences of the 1960s when New Zealand was among the world’s most wealthy nations on a per capita income basis and its environment was apparently unsullied. We were rich and "clean and green" without even trying.
But take away the rose-tinted spectacles and it soon becomes apparent New Zealand was only relatively wealthy because the rest of the world was only just recovering from the most destructive period of warfare in human history. And our environment, while unsullied by Giardia or Didymo, was still being cleared of bush and swamp and being regularly doused in huge quantities of organochlorides. Even after Rachel Carson’s "Silent Spring" there remains a national conspiracy not to mention anything that might sully our national image.
MYTH. Much of the national self-image founded at this time is pure myth. In fact the 1950s and 60s were a period of rapid expansion for New Zealand, both in terms of infrastructure and industry. And it was this period of expansion and development which funded the childhoods of the baby-boomer generation as they grew up. However like all self-obsessed teenage generations the boomers were oblivious to this and found fault with their "development-crazed" forebears eventually galvanising the nation with the "Save Manapouri Campaign". This was the most popular expression of conservation over development during the 1960s – incidentally delivering Labour the 1972 election after 12 years of Holyoake’s National government.
Thirty-five years later, older and wiser, and the baby-boomer generation has begun to recognise the importance of generating wealth. But to maintain its integrity with its political origins this has become "economic transformation". This vague term effectively means generating more value while reducing our impact on the environment. It’s about all the clichés of "working smarter not harder", being "sustainable" and all those good things which nobody can argue with, but which are embraced more enthusiastically by officials in Government than they are by industry.
This notion of economic transformation is what is underpinning the National Energy Strategy and the transport strategy revision. And while it is good to look ahead it is difficult to have too much faith because to date, our officials haven’t done the economic "vision thing" particularly well. Indeed New Zealand’s development seems to have been driven forward while looking in the rear view mirror as other nations zoomed past.
STRATEGY. During the 1980s Japan demonstrated that a nation with a relatively coordinated, research-driven, export-oriented, economic policy and a huge pool of domestic savings could readily compete with open, consumer-oriented economies such as those in the United States and Europe. New Zealand spent the 1980’s and early 1990’s engrossed in extracting itself from the debt and energy intensive, political-economy of "Muldoonery" (as The Economist termed it) through the somewhat naïve Rogernomics-era of state amateur auto-neurosurgery and corporate kleptocracy when merchant bankers bought their own fiefdoms from the state.
As Japan’s economy faltered in the 1990s (essentially drowning in money), smaller nations such as South Korea, Singapore, Taiwan, Ireland, Finland and to a lesser extent Malaysia, Thailand, Denmark and Israel, followed the Japanese formula and found (after tweaks to attract foreign multinational direct investment) it worked very well for them too. While these nations developed industries New Zealand’s high growth in the late 1990s came from importing 800,000 new citizens, mostly from Hong Kong and Asia. Of course we weren’t ready for was their demand for roads to drive on or energy for their homes and businesses, so Auckland has experienced on-going transport and power failures. Would we have done better if a 20-year energy strategy or a 40-year transport policy had been written in 1990? It’s impossible to say.
FARMING. Where we have been deliberately successful is in expanding our agricultural marketing into Asia. Demand for food, and in particular quality food, has kept our agricultural prices relatively high. Nevertheless this is a far cry from the low-carbon high-knowledge economy sought in "economic transformation". Agriculture is inherently energy and transport intensive whether the goods being exported are low or high margin. And while the British may rail about "food miles", their once crucial market is being eclipsed by the stampede to provide goods and services to Asia, and in particular, China.
For today the Chinese "Dragon" economy (which has been bootstrapping itself since the mid-1970s at the astonishing rate of over 8% per annum) has become dominant everywhere and there is now every indication that China’s economic power will eclipse that of the United States by the middle of this century. India’s growth too, though not as spectacular indicates that this mega-economy too is going to catch up with the first world sometime this century.
For the average New Zealander the emergence of these mega-economies has simply meant huge reductions in the price of clothing and consumer durables. Only now are we beginning to see the slow collapse of domestic manufacturing as the Asian ‘black hole" sucks in enterprises which until recently could afford to employ New Zealanders. Eventually this too will include information based industries as Chinese and Indian engineers and artists bring their formidable talents to bear in cyberspace.
This brings us back to the question of New Zealand’s best long-term strategy and what that means for investments in energy and transport today. For either it will be transport and energy intensive or it won’t be. And the questions we have to ask ourselves are what futures are we excluding today because we have developed a kind of national consensus against them?
NUKES. Whaling and nuclear energy are easy examples of this cultural decision-making. New Zealanders have very little general interest in resuming whaling or exploring nuclear energy options. We have reached a reasonably strong nation-wide consensus that we just aren’t "that sort of nation". Of course, these are relatively trivial examples economically speaking. Whale meat is hardly a burgeoning market (even in Japan it reminds people of wartime rationing) and nuclear power is uncompetitive against our other energy options anyway. But there are less obvious examples of futures foregone because "we aren’t that sort of nation".
Minerals are a perfect example of this. Where Australia is mining its mineral wealth as fast as Chinese buyers can write cheques New Zealand’s minerals remain largely buried under our "iconic" landscapes. GNS Science has conservatively estimated that New Zealand has at least NZ$86 billion worth of metallic mineral resources in known and undiscovered deposits. Moreover, some of our non-metallic minerals are valuable, niche materials such as zeolite, perlite and diatomite. They can earn valuable export revenue and some can be used as the base for developing innovative materials such as sophisticated ceramics. It would be possible to build roads and ports to extract them. With the right legislative and investment climate, the minerals sector had the potential to grow from 12,000 to 20,000 regional jobs and from $1 billion to $2 billion in annual turnover GNS estimated in 2000.
THAT SORT OF NATION. The problem: most of these minerals are in our National Parks and we don’t want to dig them up. Why not? It doesn’t stop the Australians. It is because as a nation we have developed a view about mining, particularly in National Parks, which means that we just don’t do it. We aren’t "that sort of nation".
What about genetic engineering? The Royal Commission on Genetic Engineering did a sterling job in examining the potential risks, rewards and cultural issues involved in employing the technology. Its findings exploded myths and provided valuable insights into the future of agriculture, forestry and medicine. And yet despite the millions it spent in patient analysis its views were totally eclipsed by a tiny minority spouting the same Luddite phrases the Commission had dismissed. The hysteria over "corngate" only added to the impression that GE is a political non-starter. Once again political passion trounced informed debate.
Currently there is limited political or economic interest in minerals or GE. But consider coal. New Zealand has about 700 years worth of coal, mostly in Southland. Coal is one of the cheapest potential sources of energy there is in New Zealand for both electricity, and from about 2030, transport and has to be considered a serious energy option. It is also very dirty. One of the big questions in the National Energy Strategy is, "is New Zealand a nation that ‘does coal’"? Or do we, like the billions of dollars worth of minerals, buried under our national parks, just leave it in the ground? Are we "that kind of nation"?
The National Energy Strategy process certainly asked the question. But in the context of the political environment it is hard to interpret it as anything other than rhetorical. For it seems clear that the current "consensus" is that New Zealand is not a nation that "does coal".
WHO SAYS? But let’s look more closely at where this "consensus" comes from. In almost every case it starts with a small and determined group with strong views. This group of activists carries out newsworthy actions in order to draw attention to its concerns and generally simplifies complex issues down to easily remembered slogans. The activists begin a symbiotic relationship with the media who are naturally drawn to the drama of the conflict. Thus journalists end up reporting the protests of activists and then balancing these against the pronouncements of "the establishment". The public is then invited to adopt a middle position between the activists and the establishment. Through repetition this process hauls the rest of the community along to the activists point of view. Over time it tends to mean that the so-called consensus view in New Zealand is only slightly more conservative than that of activist groups.
Is this the kind of process that will deliver an energy and transport strategy which will allow New Zealand to maintain a sustainable economic position as the mega-economies of China and India come to dominance? Is it the kind of process that will deliver a country with improving terms of trade?
WHO LEADS? Because if we aren’t going to "do coal" what are we going to do? Natural gas? Arguably less sustainable than coal. Hydro? Not consentable. Geothermal? Not consentable either. Bioenergy? Currently uneconomic except as a by-product. Wind doesn’t count because it isn’t reliable. Tidal? Still experimental. Nevertheless demand is growing, and from 2020 may grow very quickly indeed. We seriously need a consensus on what kind of environment we want and how much energy we need because we cannot rely on Greenpeace to manage our energy needs over the next few decades for us.
Then there is transport. Even as we move to spend huge catch-up sums on transport costs escalate and Green Party pressure increases for more public transport systems and less roads.
The public has bought the need for better public transport but remains sceptical about the "less roads" part of the equation. It is easy to see why people like the idea of public transport. Most New Zealanders travel. When they do, they see public transport systems that meet their needs and remove the stress of driving in a foreign city. Because fares rarely meet the full cost of P.T systems tourists find them inexpensive and convenient and think how nice it would be to have one back home.
The difference is between being a tourist and living abroad. In most places long term residents want a car. Back in New Zealand 90% of the population don’t use public transport, nor do they intend to. Even in Wellington with the highest PT share in the country the commuter share is only 23% - leaving 77% to other modes. And commuting is declining in its share of total trips. Do we want to spend 50% of our transport funds on 10% of the trips? This is where the public (sometimes shamefacedly) votes with their wallets for the car, but votes in opinion polls for public transport and then sit in their cars cursing the congestion!
CONFIDENCE. The problem with all of these issues of consensus is a general fear of foreign opinion. We fear the British may think less of us for not being committed to climate change and boycott our cheese. We fear the Germans may not maintain their myth of New Zealand as a South Pacific paradise and stop visiting. The only people we don’t mind annoying are the Americans and Australians – even as we emigrate to their nations in ever increasing numbers to seek fame and fortune! Despite this back home we nervously ask tourists their opinion of our country and flinch at every criticism. By contrast the Australians and the French can’t imagine why tourists wouldn’t come.
Thus we have a cultural conundrum. New Zealanders seek reassurance from the good opinion of other nationals. The media rely on activists for material. Business and Government need the approval of the populace to get consents. The populace is concerned about its own welfare but is happy to waste the money of business and Government. Politicians need the populace and the media to be elected. All of this puts activists in the box seat to set the national consensus and waste the money of business and government – hence "scope change" in transport and project frustration in energy.
OPPORTUNITY. The fundamental failure of communication is that New Zealanders appear to be alienated from notions of development and opportunity. They generally see development as something that enriches a few by taking away those natural or cultural benefits that they previously got for nothing. This leads to "dog-in-the-mangerism". The tendency to use planning law to extract maximum benefit from those who would develop.
Law changes that simply make development easier will not alter this fundamental alienation. What is needed is not only better law but a greater sense of national opportunity. A sense that opportunity is not restricted to newcomers or robber barons but one that is in our air, as it is in the United States.
And ultimately this comes down to our philosophy of government. Since its establishment government in New Zealand has swung between philosophies that stress government-for-protection and government-for-opportunity. Under a protection oriented government regulation increases and the wings of the powerful are clipped. Under an opportunity oriented government regulation is relaxed and to date, a favoured few make fortunes. Neither is associated with any one political party. The 1984 Labour government saw itself as a government-of-opportunity while the 1978 Muldoon government was a government-of-protection.
Politically protection is welcomed at first, but as its coils strangle opportunity it quickly wears out its welcome – just as it did in 1984. Long-term New Zealanders need a greater sense of opportunity and less need for protection. This is essential because no amount of protective legislation will maintain our balance of payments in a world dominated by the mega-economies of China and India. And if we don’t become a nation of entrepreneurs and opportunists we will end up a nation of wreckers, living beyond our means, and forlornly trying to lure investors on to the hidden shoals of our planning laws.
CYCLICAL. There are already signs today that the tide of political mood is turning. Just as the public appetite for opportunity replaced protection in 1984, and protection replaced opportunity in 1996, so now the era of protection-led government is coming to the end of its 12-year electoral cycle. This does not have to mean a change of ruling coalition as Jim Bolger demonstrated in 1996. It does however mean that the electorate is beginning to feel more frustrated than protected by protection-oriented legislation and is seeking to remove the self-restraints to opportunity.
It is probable that this transition will create a new form of consensus although it is difficult to know what form it will take. The anti-nuclear consensus has survived numerous changes in government and the activist-media symbiosis is unlikely to dry up quickly. Environmental protection is no five-minute wonder.
However whoever wins the 2008 election will need to be very mindful that the public seeks change and it will need to be more than cosmetic. It is unlikely that a series of strategies and plans that don’t recognise this transition will survive much past 2008, let alone until 2050.

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