New Zealand's economy needs to deliver high and stable employment levels, and it needs to deliver steadily rising real wages. (It needs to do that sustainably, too, but more on that later.)
To get more jobs and higher incomes, there are three key things we need to tackle.
One is the savings challenge. New Zealand has been spending more than it has earned for thirty years. The Government hasn't been the problem there, and indeed has been part of the solution in recent years (but that has now eroded, with massive tax cuts to those who need them least). Businesses and households have borrowed up large.
The consequence is a growing flow of our incomes going to service that debt. It's a spiral that we need to snap out of. Two key pillars of turning the task around were put in place by Labour in the 2000s: the KiwiSaver programme and the NZ Superannuation Fund. They were designed to increase national saving by encouraging shifts in consumers' choices (i.e. making personal saving easier and more desirable), and by beginning to take some of the tax paid by babyboomers and save it up to help pay those people's pensions.
More needs to be done. It's a really simple equation: if we save more now, we'll have more to spend later. Unfortunately in both the public and private sectors, shifting to more savings is hard. New revenue will be needed to reduce the Budget deficit - it's clear you can't turn a 5% of GDP structural deficit around only through economic growth, and Kiwis don't want their public services butchered. Households have been saving more - people are debt adverse and consumer spending is down as people pay off debt. But that needs to carry on when the economy is back to recovery, and there's no reason to think that would happen without changes to policy.
By owning more of our own economy or more of other people's economies, we will secure income flows for the future or pay less to owners of assets here in New Zealand. We'll be growing our own capital base, which will give the country more choices in a whole lot of areas.
We just have to make the adjustment to a higher savings level gently. Suddenly cutting the budget deficit or prodding households into less consumption could send us back into recession. Keynes taught us decades ago that when times are rough the Government has to do the opposite of what "common sense" dictates: it has to spend now in order to bridge the gap. We are doing that and there is space to do more, but in the long run we need to save more.
The second is the jobs and growth challenge. I've been pretty surprised at National's empty toolkit on this one. They actually honestly seem to believe that a tax cut here and a mine or two there will lead to economic success.
It won't.
We need to take action both at the macro and at the micro level. If there is a need for more investment to kick start jobs and training in the short term, we should spend that cash. The return in human satisfaction, let alone the longer term economic benefits, would be well worth it.
At the micro level, there needs to be a very clear look at sectoral, regional and nation-wide economic development strategy, and changes to the institutions at central and local government levels to drive these. We know that Kiwi firms find it hard to get over a particular size and hard to start exporting. It's time to get serious about solving the problems that those firms face.
We are a small enough country to be able to try things out, drop the ones that don't work and expand the ones that do. We should take advantage of that, to focus on adding more value to all of the things we sell overseas.
I don't have a personal take on the "we must stay on the grass and wood wagon" versus "we must invent new industries" debate -- or at least, I don't fall into either camp exclusively. We need to do both. But that's the point: we need to do both, not simply produce nice sounding strategies that go nowhere.
It's only when we have a wider range of bigger companies doing more things (and exporting more) that we'll see the growth of jobs that we need, and will see the productivity that will drive higher wages.
The third thing we need is industrial law change that will help drive a greater share of GDP into wages and salaries. Wages won't just grow with growing productivity.
Greater savings will leave more income in New Zealand hands, and better strategies around economic growth will also see higher incomes and more jobs. But to translate both into pay requires change in the way the labour market works.
It's obvious now in retrospect -- and in comparison with Australia -- that the labour market changes of the 2000s didn't go far enough in re-establishing collective bargaining. Without that organised pressure for wages to rise, we saw a rise in the dispersal of incomes (greater inequality), and a lack of sustained pressure to push real wages up.
Besides boosting worker incomes, higher wages force firms to be smarter about how they use labour. That helps with the productivity challenge. And at some point, rising real wages force the least efficient firms to go under, freeing their people and their capital to go into more productive uses.
Our labour market isn't organised that way. The ECA in 1991 individualised the labour market, and the ERA in 2000 didn't really challenge that.
A big challenge for the next Labour government is going to be how to strengthen the bargaining power of workers, to drive income growth in the long run. I don't believe we can just rely on improvements to things like the minimum wage, or the idea that tax cuts can solve the real wage problem. But I also recognise that there is a pretty broad right-wing view in the public mind about some questions of industrial law, attitudes that we are going to have to tackle and change.
So those are three things I think we need to be talking about if we want to help transform the New Zealand economy, and put it onto a path where it is more under our control, growing faster, generating more jobs, and sharing the gains more fairly than it does today.
The missing link in this discussion is that these changes also have to shift us into a more sustainable economic development path. We are drawing too much from the environment here in New Zealand, and we have to tackle that. We also need to make our contribution to the global fight against climate change, because we won't solve that problem by ourselves. I'll keep a greater focus on that for a future post.
Recent Comments