Wednesday, February 23, 2011

A Stage for Heroes to Shine

Once again an earthquake has struck Christchurch, only this time the denizens of that fair city haven't been as lucky as in September 2010 when there was no loss of life. At this stage the death toll is still to be determined but is likely to run into the hundreds. Add to that the injuries suffered by thousands and property damage suffered by ten of thousands and the impact of this disaster is immense.

The losses will be remembered for a long time but what I hope will also be remembered is the heroism - the actions of those hundreds of rescuers, some professional, some volunteers in organisations like Civil Defence and Red Cross, and others mere amateurs, who are prepared to risk their own lives to go into buildings to rescue others.

It seems heroism is something of a lost art in our 21st Century society. We actively discourage individual acts of heroism through the plethora of government regulations and agencies that are designed to ensure we are kept safe in every aspect of our lives. Sometimes we mistake self-indulgence for heroism - as in the case of the extreme sports exponents who get so much publicity for their feats.

It takes a disaster to reveal those who are truly heroic. We are seeing heroism in Christchurch today. That is the redeeming feature of disasters such as this and long may such admirable traits of humanity continue to shine.

Thursday, February 3, 2011

Why New Zealand is well on its way to Third World status

I read in Not PC's blog that the assets controlled by the NZ Government (including local government) are six times the value of the listed companies on the New Zealand stock exchange. I found this such an incredible statistic I decided to look into it myself. This discussion was in the context of Prime Minister Key proposing to look at the partial sale of shares in some state owned enterprises (SOEs) if his government is re-elected later this year. The proposal is only to sell minority stakes and is hardly a wholesale reversal of the previous Labour Government's steady nationalisation of companies such as Air New Zealand and the Tranzrail but it was enough to set the fox among the chattering chickens of the media and political commentators.

Amazingly, the statistic is true. I believe Not PC got the statistic from ACT MP Muriel Newman's blog, who in turn quoted it from former National Party leader Don Brash's last "state of the nation" speech to the Orewa Rotary club (a tradition started by 1970s/80s prime minister Muldoon). One thing you can say for Don Brash is that he does his research. My own investigations reveal that the total value of shares listed on the NZSE is currently about $56B. The total assets of the Crown in the latest Treasury financial accounts is $223B. Local government assets are approx. $98B. So the total value of all government assets is around $320B or six times the value of the shares on the stock exchange. The government has $95B invested in SOEs and investments including the government's superannuation fund, although the net asset value would be somewhat less than that. New Zealand has a total "capital stock" of about $570B, so the Government's share of that is around 56%.

It is difficult to do direct comparisons with other countries but New Zealand's figure seems to be unusually high. The US Federal Government's assets are only about US$3 trillion of a total US asset base of approx. US$200 trillion (1.5%). Okay, that doesn't include the assets of state governments but even if they are ten times the federal value they are still a much smaller proportion of national assets than New Zealand's. The last figures for Australia I could find had the Federal Government assets at about A$350B compared with a total national asset base of more than A$5 trillion (7%). Again, it doesn't include state governments but you get the picture.

When commentators look at government involvement in the economy they only tend to look at government spending as a proportion of GDP and on that measure (39%) New Zealand is on a par with other countries. But based on these asset ownership figures, our government completely dominates the economy. In fact, I'd guess we have one of the highest levels of government asset ownership in the world.

I hear the lefties saying, so what? Well, I believe that this is a significant factor in New Zealand's poor economic performance over past decades. We have slipped from number 3 or 4 on the OECD table of GDP per capita in the 1950s to number 23 today. That is an appalling decline that we should be ashamed of. In the 1950s we were ahead of Australia in GDP per capita and now they are 45% ahead of us (and unlike us they are still well above the OECD average).

So why has New Zealand done so poorly in comparison to almost every other Western nation? The asset ownership figure provides an obvious answer: our inability to grow wealth in our private sector (which, after all, is the only place wealth is ever grown). Every country that has prospered over the last few decades has done so on the back of building large numbers of significant new private sector enterprises. In Scandinavia it has been high tech industries such as mobile phones and software, in the United States it has predominantly been in IT and entertainment products, and in Australia financial services, manufacturing and mineral exploitation. What has happened to New Zealand by comparison? Well, we've destroyed all our large companies through mismanagement and heavy-handed Government intervention. Think about it. What happened to Fletcher Challenge, Carter Holt Harvey, BNZ, Watties, Brierley Investments, and pretty much all the other big companies we used to have. They have been either taken over by foreign owners or are shadows of their former selves or they don't exist at all. And don't quote Fonterra as an exception - that's a state sanctioned monopoly that hasn't progressed beyond the low-value commodity producer it has been since the 1930s.

Oh, what about all the new technology success stories, Navman, Xero, TradeMe and so on? Well, even the largest of these are small fry in comparison with a Fletcher Challenge.

But, I hear you say, no one likes big business anyway and most New Zealanders are happy with their lot. Standard of living is not all about financial measures and aren't we one of the happiest societies in the world? So let's examine what will happen if we continue to slide further down the OECD ladder.

In another decade or two, at current rates of decline, most New Zealanders won't be able to afford to travel overseas at all. The tradition of overseas experience, especially for our young people, will be beyond our reach. We won't be able to afford to pay the welfare benefits we currently pay or the generous superannuation scheme we have for our retired people. We won't be able to keep our hospitals and schools running at current levels and certainly won't be able to buy the best drugs and medical equipment. We won't be able to have all those neat technology devices we crave, like iPhones and flat screen TVs. Forget the late model motor vehicles and the fancy imported foodstuffs and seeing foreign artists perform in our stadiums, or any of the other miriad of First World luxuries we take for granted.

You don't believe me? Just take a look at Greece or Portugal or Ireland at the moment. These countries lived beyond their means for too long and are now paying the price. Some of my friends and relatives in these countries, even the well-off ones, can no longer afford to travel. Interestingly, of these three countries, in spite of their economic troubles, only Portugal is below New Zealand on the GDP tables.

So what is the solution? It's simple really; we need to double the size of our private sector without increasing (and ideally reducing) the size of the public sector. That means a massive shift of investment and expenditure from the public to private. It means providing huge incentives, through tax breaks, for investment in the private sector and cutting our public sector cloth to suit. It won't be sufficient to match other country's tax incentives, we will have to be well below them to attract the investment we need. That is the simplest and the only solution. Don Brash and his 2020 Taskforce have been saying it and most economic commentators worth their salt have been saying it. I'm sure many New Zealanders don't want to hear the message but they need to understand the consequences of not doing it. Hopefully they will wise up before we drop completely off the bottom of the OECD list. Then we will be Third World, perhaps the only country in history to suffer the ignominy of going from the mansion to the poorhouse.