Wednesday, September 10, 2014

Decision 14 = public policy as bomb disposal

This year's New Zealand election has been rather like watching an earthmoving crew working on an unexploded bomb site. For a while there was a bit of a punch up over in the corner over Nicky Hager's "Dirty Politics", about who would drive the bulldozer that was a complete distraction to the issues New Zealanders really wanted to talk about, namely: the economy; the distribution of wealth; our prospects as a country and the priorities for the future. Finally we seem to be actually discussing what we should have been talking about from the beginning.

So why is New Zealand an unexploded bomb?

Reason one: Third most over-valued property prices in the the world.

New Zealand property is, as everyone knows, wildly over-valued. Property is propped up by foreign investors, Auckland City Council's metropolitan urban limit ( see Grimes) and the destruction of available land in Christchurch. The problem is people (particularly Aucklanders) are addicted to high property prices and 10% per annum increases. If the music stops there won't be enough chairs to go around and many property owners will end up with negative equity. There is a risk of capital flight and massive deflation.

Reason two: Our Net International Investment Position is terrible

While Treasury worries about the state of Government debt the NIIP is an indicator of all the debts and assets of all New Zealanders. Government debt is relatively modest but private debt is astronomical. New Zealand is up there with Ireland, Spain and Greece. Singapore owns more of the world than the world owns of it. We are the reverse. The only reason our unemployment has stuck at 6% has been Australia's mining industry. But as that slows people are returning home and there isn't much for them. There just isn't much to come and go on. We are reaching the end of our credit rope.

Reason three: Shallow industrial base

You don't have to look at New Zealand's export statistics for very long to see that aside from Fonterra we don't have any other major vertically integrated corporations. The next biggest is Air New Zealand, but while this re-nationalised airline is in far better shape than Qantas, it is still operating in a difficult and political environment. The rest of New Zealand's firms are tiny, very diverse, and have very little in common with one-another. Diversity is not a bad thing, but small size is not so good. It means our firms are shallow. They don't have the same resilience and sticking power as larger firms. Corporations are important because they are the repositories of applied intellectual property. Only corporate intellectual property delivers wealth. New Zealand has loads of tiny smart new firms. What it needs is more bigger firms that stay in this country and don't follow in the footsteps of Glaxo to other corporate locales.

Reason four: Ill-educated underclasses

Let's be straight about this. There is poverty in New Zealand. Being poor, is not necessarily a bad thing if there is a legitimate way out. Many successful people are motivated by poor childhood's and do very well for themselves as a result. Our Prime Minister is a good example.
But I'm talking about cyclical poverty where generations never escape, where education becomes irrelevant rather than a means of escape and crime becomes the first best option. This is happening in New Zealand and it costs us in two ways. First there is the opportunity cost. People who could contribute who never get the chance are a cost. Then there are the actual costs: benefits; health problems; mental problems; crime and the costs of crime and mental health impacts on others. This is a dead-weight cost to the rest of the community, as more and more jobs become automated, turned over to robots or machines, the scope for these people to find meaningful work (paid or otherwise) is diminishing.
To be blunt I blame middle class teachers for this problem. Their outlook on education is essentially a supplier-oriented one. They want to teach a certain thing and organise education to facilitate that. What they want to teach is essentially what they were good at, in their own education. Adding value to the lives of students, which they may have nothing in common with, simply doesn't feature unless it fits into their own middle class value systems. The result is far too many Universities teaching courses with no value for employers and too few technical institutes teaching low cost practical vocationally useful courses. We do need a shake up of education but politically I don't think Labour dares disturb its base and National will only antagonise it.

Put it together and shake it up

Put all this together and you don't get a pretty picture. You have a nation which is a perfect example of the "Tragedy of the Commons" ( where everybody in pursuing their private interest ends up compromising the collective interest). A large part of the problem is that public discourse is dominated by petty politics rather than serious issues. We are, in effect, distracting ourselves towards collapse.

What don't we need as a result of this election?

1) Policies that rip demand out of the property market suddenly. A sudden collapse in demand could easily lead the way to a total meltdown which will lead to serious amounts of negative equity in highly geared Auckland households. If the property market collapses lending will collapse and with it investment. The dollar too would plummet increasing fuel prices and the cost of living for everyone. While we certainly have a property bubble the last thing we need is for someone to pop it. We need it to be squeezed down over time, ideally by increasing supply so that prices stabilise so incomes can catch up.

2) Borrowing or taxing for things that don't make a return. We do not need to take money out of productive purposes to invest in things which aren't. Politically motivated investment is always dangerous. Politicians who want to build monuments to themselves should be shamed and exposed for what they are. Investing in things people won't use or don't want just because it fits some kind of ideological mantra is not something we can afford. This applies equally to the Nats, the Labour Party and the Greens. The prudent course is if in doubt that you can't create more value than people can for themelves don't take the money from he people.

3) Ego driven politics. There are always seriously inflated egos in politics but now we have from left to right (based on their historical actions of putting themselves before the rest of their own party): Kim Dotcom; Hone Harawira; David Cunliffe; Winston Peters and Judith Collins. It's not pretty. People who relish the opportunity to hold sway. People who love power for its own sake and will do anything to get it. We don't need that shit. We need a political process that can make predictably sensible decisions in a calm and rational manner. When you are on an unexploded bomb site, you don't want a lot of shouting. Instability and grandstanding will only make any crisis worse. The last thing we need is the horror confronting the United States in these midterm elections.

4) Partisanship. To be honest I don't see much difference between Labour and National.  Some will howl that the nats are dirty tories but frankly Labour has skeletons too, they simply haven't come out yet. I have supported both Labour and National and I have hated both at various times. I have no time for partisans, because I don't think any side is automatically right. I have no time for extremists either because they simply don't believe in democracy, and my steadfast belief is that ultimately there is wisdom in the average of all views.

To be honest I am not relishing this election. I am very frightened of a circus attempting to manage this country through delicate and difficult times. The left shows a terrifying lack of policy experience with many policies apparently developed without any reference to anyone other than their own base. The right, while a much tighter and more disciplined organisation, has shown an unnerving tendency to ignore popular concerns and plough ahead with policies they have not explained convincingly and which basic humility should have given them considerable pause about executing.

I just hope nobody cuts the wrong wires. 

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