So what is wrong with National’s economic approach?

Here are a few quick starting thoughts for a Saturday afternoon: our economic future has to be about more than the “farm and the mine”  if we want a high value, high wage economy (farming is of course core, but undifferentiated commodities are notoriously vulnerable to exchange rate swings, and the margins are often low).

Sustainable competitive advantage is about developing that something special on top that keeps the margins up and the value coming – that in turn requires innovation, intellectual property rights, and the smart use of technology, capital and skills to leverage our underlying resource base.

I am afraid all we have seen from National so far is a dumbing down of that debate by focussing on “deregulating” – essentially a passive hope that if govt gets out of the way, a thousand flowers will bloom.  In a small, arguably subscale economy it just ain’t that simple, or easy, folks – otherwise we would all have become billionaires years ago.  A more active partnership between government and business is required to fast track high value opportunites and align resources.

Secondly, and controversially, ownership matters.  No point in getting farm or factory productivity up if the financial system captures all the gain and bleeds the value offshore.  About 3/4 of NZ’s external deficit is not the balance of trade but the value of financial flows.  The four Aussie banks typically send home more profit each year than is made by the entire NZX 50 companies.  To fill the gap, the National Government is poised to flog off even more assets and further liberalise the already very liberal overseas investment regime.  Selling Godzone by the acre.

We can’t solve that problem without getting savings up.  Way up.  Shame National gutted Kiwisaver.  Nor can we do it with an outdated monetary policy that targets inflation alone using one tool (the OCR) that makes the housing bubble worse, or at best is not sufficiently focused to fix the bubble without immense collateral damage to exports.  We need a bigger sovereign stake in our own economy, before it irretrievably becomes someone else’s.

Is it too late to fix?  No I don’t believe so, but every year matters in our race against time.  We can’t afford another three years of a National administration that barely understands the problem, has shown itself devoid of ideas, and patently can’t make a decision the latest focus group doesn’t like.  We can’t turn this boat around steering by focus group.  NZ needs clear goals and a plan to get there.  Mr Key may be able to read a map, but he clearly has no compass.

I could go on, and I intend to, as we build up to one of the most crucial Budgets in New Zealand history.