I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.
Raed Safadi says:
- Global trade inextricably linked to global investment
- Large foreign investment may require restrictions on land and infrastructure investment
- Concentrations of wealth are going too far
- Government must give exporters confidence in exchange rate
I’ve had several shorter meetings at the OECD with trade economists, all expressing similar views. I’ll wrap these up into the insights from Raed Safadi, Deputy Director, Trade and Agriculture Directorate at the OECD. .
Raed focused on the benefits of trade and the links to investment flows. He noted that increasingly sophisticated supply and manufacturing systems integrate both trade and investment. Different inputs are produced in different parts of the world, with investment as well as trade increasingly global. Globalised production and trade is in his view inextricably linked with globalised investment.
An interesting but logical point in many ways. He then said that despite those links, investment in rural land, housing and utility infrastructure assets must be properly restricted (ie to locals).
This view has been expressed by a number of people I have met. It seems this is a growing concern for many.
For example Denmark, a model that many in Wellington aspire to, restricts overseas ownership in their land. A large part of the upward pressure on property prices comes from concentrations of wealth, some of which is imported.
In London, the concern arose for some from the effects of capital inflows from wealthy investors who are protecting some of their capital from risks in their home country. For others, the concern arises from land purchases in developing countries by investors who have the benefit of large trade surpluses.
In all cases, the effect on pricing out locals from owning their own farmland or houses, or the extraction of excessive profits from monopoly services, were concerns. The trade economists I’ve spoken to don’t like concentrations of wealth pushing out locals. This of course coincides with my views, and I was pleased to hear this.
The most extreme examples of how much wealth has been accumulated by the super-rich around the world are regular news in the papers over here. Whether it’s Russian billionaires in soccer clubs, the super-rich pushing art prices to unbelievable levels or dominating media ownership, there is a tone to the reporting which suggests that people and politicians think it has gone too far.
It will be interesting what, if anything, is done to resolve it.
Raed and I also discussed exchange rates. He was surprised, as were others, at the volumes the Kiwi is traded at which are considerably in excess of the size of our economy.
A memorable point he made was his passionate emphasis that an important role of government is to create a stable future outlook in respect of factors important to entrepreneurs to give them confidence to invest. For exporters, that includes confidence about more than inflation and interest. It includes the exchange rate by which exporters live or die.
Put like that, it seems pretty obvious.