How Should we Think About Ukraine?
VIEWS FROM OUTSIDE THE APIARY
Apiculture industry consultant and former top bureaucrat IAN FLETCHER gives his monthly “Views from Outside the Apiary” as a non-beekeeper but deep thinker on the plight of New Zealanders.
How should we think about the war in Ukraine?
It’s certainly the end of the post-World War Two settlement – a settlement amended but not fundamentally altered when the cold war ended in 1989-91. Like the long European peace after the end of the Napoleonic Wars from 1814-15, the post war settlement has facilitated good things: the EU has brought permanent peace to most of Europe, China and China’s people have been lifted – by their own efforts –from dire deprivation to a decent middle income. India may well be on the same path. Horrible diseases have been pushed back almost everywhere. Millions of people have seen grim, grinding poverty alleviated. There’s a lot more hope in the world now than in 1945.
Now that’s all at risk. The war is already accompanied by poverty, disease (polio is spreading in Ukraine) and a shattering loss of hope. What does it mean for New Zealand?
First, for us – on the other side of the world – it’s our first "economic" world war: the first two world wars involved our soldiers as well as the economy. Today, for us, the economic choices and consequences come first.
First, inflation. We can see commodity prices going up, wages too, more protectionism and actual shortages of important food and industrial products for the first time in decades. Good news for dairy producers (rising prices), bad news for an economy still dependent on imported fuel. Maybe switching off the Marsden point refinery will prove a costly mistake. Higher inflation means higher interest rates, higher input costs and maybe higher wage growth. But it’s bad news for mortgage payers, and it may mean more of us head overseas for higher-paying jobs.
This will lead to a more fragmented global economy. For New Zealand, having worked so hard for a rules-based global system, it’s a real setback. Market access opportunities will be less certain and less predictable, and we will inevitably be under pressure to take sides.
And there are sides: we’ve seen a strong and effective Western response against Russia. We’re more or less part of that. But it’s worth remembering that China, India and other major economies are either on Russia’s side or firmly on the fence. The UN vote against Russia saw an overwhelming number of countries vote with Ukraine, but countries amounting to over half the world’s population either abstained or voted with Russia.
We also need to remember that we depend on exports (including tourism) that rely on long, vulnerable shipping or air routes, and all depend on oil-based fuels (whatever our zero-carbon aspirations, that’s the current truth). Physical or economic disruption to the flow of these products would hit us hard, and there’s nothing we can do. Time to make a plan for an oil shock.
It's clear that this will be a long crisis. There will be no overnight resolution. Even if the shooting stops, many companies will be reluctant to return rapidly to the Russian market. The shift in the German mood is more than symbolic. New Zealand needs to be thinking how to survive and then thrive in a world where supply chains are closely scrutinised, and distance is suddenly a real issue.
Can we just sit it out? Maybe. But if the economic conflict spreads and future sanctions include China, we will have a problem. China’s frayed relationship with Australia risks pulling us in to an already tense relationship between our two biggest export markets. Our growth model has been selling to China: milk, meat, forestry, tourism. Australia is our biggest source of tourists, and jobs for Kiwis in search of a better life. What will we do if China does invade Taiwan? Time for another plan, and some serious investment in regional security.
The current kerfuffle over China’s proposed agreement with the Solomon Islands is a first test of how we handle this local challenge. Chinese naval visits to the Solomons would put pressure on Australia and help China surround Taiwan. If we help manage the crisis (for that’s what it is) we will at least be a player in the region. If we don’t, our Pacific neighbours will know we’re nice but fundamentally unreliable.
Domestically, the economic challenges are more acute: improving skills, better use of technology, tackling productivity are now even more important. So far, our debate has lacked urgency.
This is all part of the same crisis of world order: Russia’s invasion of Ukraine, and some of China’s actions too are fundamentally saying the nationalism trumps globalism, and self-interest based on armed power alone is the legitimate arbiter of success. As a small country that can’t ever be in our interest. We can choose to meet that challenge both at home and abroad, or not. We can’t escape it.
Ian Fletcher is a former chief executive of the UK Patents Office, free trade negotiator with the European Commission, biosecurity expert for the Queensland government and head of New Zealand’s security agency. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.