Home thoughts from abroad

Melbourne University professor and member of the 2025 Taskforce Judith Sloan has an excellent article in The Australian today.

Entitled ‘New Zealand seems to have lost track of its reform agenda’, she writes:

New Zealanders are good at lots of things. Rugby, sailing, rowing, netball and film-making all spring to mind. But running a national economy does not appear to be one of their strengths.

On the income gap with Australia, she says:

Some commentators attribute New Zealand’s poor economic performance to its small size and distance from markets. The trouble with this explanation is [that] New Zealand has always been small and distant and so these characteristics cannot explain the growing gap.

She puts a finger on a key problem:

In Australia, there is broad-based acknowledgement of the benefits of the reforms undertaken by the Hawke-Keating and Howard governments. These involved removing import protection, financial sector deregulation, privatisation and other pro-competition measures.

By contrast,

New Zealand suffers from the consequences of an incomplete reform agenda. Public ownership remains prevalent, statutory marketing arrangements are still in place and the labour market has been re-regulated. There is even a single desk (monopoly) for the export of kiwi fruit.

Many New Zealanders think of Australia as a big government country, with governments at federal, state and local levels.

But as Judith points out:

The overall size of the public sector is considerably greater in New Zealand than in Australia. General government outlays as a percentage of GDP are around 45 per cent in New Zealand, some 10 percentage points higher than in Australia. Even if cyclical factors are taken into account, the relative size of the public sector in New Zealand is considerably larger than in Australia and has been growing particularly strongly since 2005, well before the GFC.

And the point here is that:

While there are exceptions, the higher the level of government activity in a country, the lower the rate of economic growth. And there is no example of a country with a public sector of equivalent size to NZ that has grown at the sustained rates needed to eliminate the per capita income gap between the two countries.

The article goes on to talk about New Zealand’s inferior policies such as interest-free student loans, ownership of KiwiRail, the Resource Management Act and the lack of public private partnerships: these “are almost unheard of in New Zealand.” Judith pinpoints the risks for New Zealand:

[T]he spanner in the works relates to the fact that New Zealand and Australia essentially have a common labour market. Trans-Tasman migration is completely unfettered. As a consequence of the income gap between the two countries, the flow of migrants is almost completely one-way, to the point that there are now about half a million New Zealanders living in Australia.

The consequences for New Zealand of this flow of people are both economic and social. Economic in the sense that there is little return to New Zealand for the investment in its citizens’ early years, and social in the sense that children (and grandchildren) live at a distance from their parents (grandparents) and possibly even barrack for the Wallabies!

She notes that the Key government has made modest moves in the right direction:

But if the aim is to close the gap with Australia by 2025 — and the taskforce of which I am a member will be recommending how to achieve this objective — modest policy is not nearly good enough.

Wise counsel from a good friend of this country.

  

O wad some Pow’r the giftie gie us

To see oursels as others see us!

 

The full article is here

Hello Asia

I was in Sydney last week at a Pacific Rim Policy Exchange conference of think tanks in the Asia Pacific region, led by the Property Rights Alliance.  A particular highlight was a dinner speech by Rowan Callick, the exceptionally well-qualified Asia Pacific editor of The Australian who has a deep knowledge of Asia and has lived for some years in China.  He started by reminding delegates of the Western-driven mentality behind the UN’s Millenium Goals:

The goals are worthy targets in themselves, emanating of course from guilt-laden but increasingly broke Europe, and largely devoid of an economic context. They have come to be identified with the affirmation of a certain take on the “development” process – that of kind rich folk developing hapless poor supplicants through noblesse oblige.

Callick noted that the same mentality pervades our ‘world’ view of the GFC:

For you are meeting in the wake of the recent North American-European financial crisis – NOT a GLOBAL financial crisis – and just as this region is taking over, in my view unshakeably, the leadership of economic growth, if not of the global economy itself.

He observed that the example so many Asian countries have set in climbing out of poverty through rapid economic growth has largely gone unnoticed by the Western-dominated world of official aid, but not by the rest of the world.

I was living in Beijing when 43 African heads of state and government almost four years ago attended a summit there, which launched China’s extraordinary burst onto that continent. China wanted resources primarily, and ultimately once Africans begin to spend, its markets too. And as in Latin America and central Asia and the Pacific islands, such economic vitality proved both attractive and contagious. China’s Premier Wen Jiabao said he wasn’t interested in exporting a China Model of development. And I believe him. His priorities are domestic, first second and third. His party’s legitimacy depends on economic health at home.

But Africans who have for generations seen Western taxpayers and NGOs donate $ billions to their kleptocratic rulers are naturally lured to the revolutionary idea coming from the East, that economic growth is good, not merely bad for the planet as they had been told by those sleek Westerners. They are attracted to the notion that shipping, selling and buying stuff provides a better prospect for their families than following anaemic World Bank prescriptions.

A fun formula has it that in 1949 only socialism could save China. In 1979, only capitalism could save China. In 1989, only China could save socialism. And in 2009, only China could save capitalism.

Imagine a Western leader of today proclaiming as Deng Xiaoping did: To get rich is glorious. She or he would be condemned for crass materialism, and for privileging elites.

That determination to get rich is the type of talking dirty that thrills people who are dirt poor – that is, those people who have not already been pre-conditioned towards petty envy and the redistributionist zeal that led so many societies down a false trail, one that ends in the desert – as we see in contemporary Europe.

Callick noted that China has succeeded economically despite hobbling itself with efforts to control its people’s lives – a tribute to Deng Xiaoping’s decision to open manufacturing to foreign investors but also to the Chinese people themselves and their core individualistic culture.

In covering the Beijing Olympics while I was living there, I followed the Chinese teams. When China wasn’t playing, the default country which Chinese sports fans tended to cheer, was the US of A. They feel very much at home in the individualistic American culture.

And they mostly hate paying taxes, and avoid doing so, just as Americans, and I must say Australians, do. When I told a Chinese friend after I had begun working in Beijing, that I thought I should start paying some personal tax, he said I was crazy. Neither he nor any of his pals paid tax, he said. Why should they, when they didn’t choose the government, and mostly disagreed with what it spent money on.

 China also has a huge grey income, and its property and financial sectors are rife with insider trading, market manipulation and much misuse of power for personal gain.

Deng Xiaoping spoke of crossing the river by feeling the stones – cautious progress. He was not referring to taking China from a communist river bank to a liberal democratic one, but taking the party and the country towards prosperity. Where did this great pilgrimage start? With formally conceding the space to do business.

Much of China’s rapid change can be attributed to the determination of its “masses” to carve out better lives for themselves come what may, with the party’s legitimacy relying on its capacity to shift its tactics, even its values, in response to demands from below. 

And with Deng’s contract of 30 years ago beginning to fade, the party is now searching for a new source of legitimacy for itself as, among other roles, the source of security, stability and safety.

And now the party is beginning to use domestic Chinese NGOs to deliver the social services for which the country is increasingly clamouring as it ages, but which the government lacks the structures to deliver. The state’s wealth, including the massive foreign exchange largely still held in $US, was in part built on denying its own citizens a fair share – in the economic as in other realms. But this is proving not to be sustainable. A higher proportion of the economy is steadily being seized by consumers and workers, as part effect and part cause of the structural change from cheap surplus labour and towards domestic services and greater productivity.

In Asia more broadly, the right to do things for yourself, to be an autonomous actor, is coveted more highly than the right to receive support from the state – in part because success in the former will move you up to a higher realm of wellbeing and control over your life.

… I usually tell people who ask my advice on books to read about China today, to start with Charles Dickens. He was also writing of a society that was rapidly urbanising and industrialising, in which ancient extended families were shrinking into nuclear families, a world of casual injustices and astounding coincidences, and of resourceful heroes and, especially, heroines. 

As Callick concludes:

Asia is hardly perfect, it’s a long way from liberal, but for the most part it loves globalization, its people prefer governments to keep out of sight, and… well, welcome to our region.

At the same conference I was invited to speak in a session on free trade and emphasised the case for organisations like the Australian Productivity Commission to shed light on the costs of protectionist policies to consumers and other industries.  I’m a member of the Tasman Transparency Group, a collection of Australian and New Zealand economists and business people who’ve been urging governments to set up transparent agencies of this kind.  A bill to set up a New Zealand Productivity Commission is currently before parliament. 

Also at the conference was Kiwiblogger David Farrar who spoke on the role of social media in debating public policy in an era where there seems to be less and less focus on policy analysis in the regular media.  What was particularly interesting was the representation of the free market institutes from the Asia region, most notably China, Korea and India.  I particularly liked the Mongolian Institute for Fair Taxes and Wise Spending.

It was interesting that none of their preoccupations related to the economic debates raging in the West around things like Keynesian stimulus policies, fiscal deficits and the burden of welfare states.

Elites just don’t get Howard

For a regular fix of first-rate journalism and some serious analysis of Australian politics that goes beyond the length of Julia Gillard’s earlobes, it’s hard to go past The Australian’s Janet Albrechtsen.  Like this piece where Albrechtsen examines the Australian media’s misreading of the role of former Prime Minister John Howard in the current election campaign.

This recent sniffing by Fairfax media elites about the return of “Howardism” betrays one constancy: they just don’t get John Winston Howard. And it’s likely they never will. The reason is simple enough. If you don’t understand mainstream Australia, then Howard is equally mystifying. They cannot bring themselves to admit that Australia is quietly, comfortably conservative by nature. Not in that overtly American way of muscular individualism, flag-waving patriotism or screaming Tea Party opposition to big government. In Australia, public displays of philosophical affection give way to private pragmatism and common sense. Howard battlers are not pining for the past. They have always sought the leader and the government that best represents their values and aspirations.

Even the ‘better minds’ in the media just don’t get it, writes Albrechtsen:

Howard is invariably depicted as an embarrassingly dotty, dribbling old one-trick pony forever shamed from political life by the 2007 election loss. For them, Howard represents everything they, the educated classes, despise: flexible workplaces, strong border control, moderate climate change policies, indigenous intervention. And so on.

They failed to comprehend the differences between Howard’s 2007 election loss and Paul Keating’s drubbing in 1996. Mainstream Australians stood ready with baseball bats to boot Keating, his Italian suits, antique clocks and Mahler CDs out of office in 1996. Meanwhile, the educated classes cried into their chardonnay at the rise of a balding, nerdy chap in thick glasses who espoused family values and torpedoed political correctness.

In 2007, only the educated classes had their baseball bats at the ready for Howard. Most Australians did not harbour visceral hatred towards him. While Australia’s second longest serving prime minister certainly overstepped the mark on Work Choices, his bigger problem was overstaying his time in office. After 11 years as PM, Australians gave the new guy pretending to be Howard-lite a go. When they worked out Kevin Rudd was conning them, the battlers turned away long enough and swift enough for Labor to switch to a new face.

So why, she asks, “if Howard is such a fossil from the past, has Julia Gillard mimicked the former Liberal PM on the critical issues in this election campaign? “

When Gillard shelved the emissions trading system, she signalled she is browner than Howard. Likewise, Gillard copied Howard’s strong borders policy by proposing offshore processing of illegal immigrants and echoed Howard’s policies on Afghanistan and the US alliance. On ABC1′s Q&A on Monday night, Gillard – the architect of waste and mismanagement within the $42 billion schools building program — continued the me-too caper she started early on in the campaign, lining herself as the natural heir to Howard’s record of sound economic management.

In other words, Gillard knows this election will be decided in the homes of Howard battlers. Issues that concern Australians in the sun-belt seats of Queensland and western Sydney are very different to the left-of-centre agendas pursued by those in inner-city seats where our media elites work, live and practise pilates.

So how will Howard’s legacy play out in the polling booths on Saturday?

For much of the media, the prospect of Abbott becoming prime minister on August 21 is as repugnant as Howard winning in 1996. Mesmerised by Labor’s latest messiah, they speak about the “sparkle” in Gillard’s eyes. For them, a secular Gillard who pretends to be a conservative is far more preferable to a Catholic Abbott who is the real thing.

But,

The rest of Australia may beg to differ. In fact, it didn’t take long before Gillard started to look more Titanic than messianic. Witness her embarrassing call for help from Kevin from Queensland. Gillard and the number crunchers now know that Gillard for PM is not winning over voters in those critical Queensland seats no matter how much she talks about understanding the stresses of family life, balancing the family budget, buying that new pram and paying for those music lessons. She now depends on the man who she politically assassinated, a church-going family man, to pull Labor over the line. The question is whether Queenslanders are awake to Labor’s latest conservative con.