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  • Writer's pictureIan Fletcher

We Have No Money, So We Shall Have to Think Instead


As the United States of America continue down the path of isolationist economic policy, and international experts stress the need for industrial economic policy, Ian Fletcher assesses the playing field and how New Zealand is placed. Are there winning moves to be made?

By Ian Fletcher

For those of us in New Zealand, there were two really significant events over the past month. Both point to the end of the post-WW2 economic order, and to a new and more uncertain time ahead.

Preeminent physicist Lord Ernest Rutherford adorns New Zealand’s $100 note, and his quote “We have no money, So we shall have to think instead” fits New Zealand’s current economic situation well says Ian Fletcher.

The first was the US decision to impose prohibitive tariffs on Chinese electric vehicles, and lower (but still economically deterring) tariffs on a range of other goods, generally related to green energy production.

The second was much less visible. It was a conference of mainstream economists in Berlin (28-29 May), with the title “Winning back the people – Testing times for a new economic paradigm”.

Lessons from each

What we learn from the first is that the US has now decided that unilateral tariffs and other import controls for economic, political or strategic purposes are, once again a legitimate unilateral tool. This was always US policy except for the period from 1945 to about 2016, when the US was seen as the main player in the rules-based economic order. The US itself had created that order, from the wreckage of the wars and depression of the period from 1929 to 1945. The US has moved back to its previous, pre-war attitude.

What we learn from the second is that economists are now moving from considering whether governments should follow active industrial policies (intervening in markets directly) to how to do industrial policy effectively. The case for industrial policy isn’t theoretical, it’s practical: societies need to engineer the green transition, secure supply chains against disruption, create sustained and sustainable employment, and deal with geopolitical competition. The emerging new consensus is that none of this will happen by itself, and governments need to make it work.

The economists’ conference is also dealing with the politics of economics. Decades of trade liberalisation and market deregulation have created winners and losers. The losers find themselves shut out of jobs, hope and a future for themselves and their children. They still have a vote, and they intend to use it. Politicians know they must respond to this anger. Many Māori and Pasifika communities in New Zealand are in this position, as are other communities who languish on minimum wages, or with low skills, or in places with poor transport and other infrastructure. It’s why so many of us go to Australia, our great safety valve.

Where does this leave New Zealand?

Beached and alone.

Beached, because we have had a political culture since 1984 where we ‘believed’ in open markets and minimum government intervention. Tax rates have been kept astonishingly low, and we had traded on the luck we fell into as China modernised, urbanised and globalised over the past 40 years. That luck is quickly running out. Our economy remains over-dependent on property investment (or speculation), with low savings, a poor set of national systems (health, education, transport and housing), and an impoverished science, innovation and investment ecosystem.

This will get worse. Our major markets will be less receptive to our goods as their populations age, and turn even more to protecting their own producers. Falling populations (which is the future) will be protective of whatever economic life they can preserve. They won’t want competition from us.

Our touching dependence on multilateral ‘market access’ – others playing by multilateral rules – will not help us either. The WTO is on its last legs as the US has kneecapped it by blocking appointments to the appellate part of the dispute settlement system. Donald Trump did it first, but Joe Biden has continued that policy. So, there are now no effective sanctions against deliberate bad behaviour, except force.

US President Joe Biden’s administration has been introducing unilateral tariffs, moves which harken back to pre-WWII US policy and have a flow on effect to the global economic order.

And so far we have no industrial policy. We could change that (I believe we must), but to do so we need to change the political narrative in New Zealand first. We seem to be stuck in a doom loop of tax cuts (one party) versus more money for existing teachers, nurses etc (the other lot). The result is either decay, or a static system. We need to move to a culture of debate around saving and investing more with a view to a better, different future. I fear we will need a big crisis for that change to happen. Sadly, big crises are probably going to come along quite often.

In our favour…

We have some advantages: we still have a growing population, and even without immigration, our demographics aren’t as dire as most. We have a more resilient climate than we realise – its warming, sure, but we get rain from both the south and the north, and these climatic systems are more or less independent of each other. We can work on continuing to be an attractive destination for talent (though we’re losing our edge there, too).

Prohibitive tariffs on Chinese-made electric vehicles are among a range of tariffs implemented by the US on imports recently.

We’ll never be big enough for an industrial policy to be effective in manufacturing or high-tech. But we have tacit knowledge and skills in food science, animals, farming systems, forestry, engineering and related fields. We need to think how to turn those skills into an innovation system, so science and research can be captured as intellectual property, and then monetised. In the world to come, ideas will be a route to a better future. Ideas are mobile. We have no right to them; we must persuade people to develop their ideas here, and keep the fruits here. As Lord Rutherford (New Zealand’s only Nobel Prize winner) said “we have no money, so we shall have to think instead”.

Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.



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