Free Beer Tomorrow

Yeah right. No wonder there is reform exhaustion.

Listener: 15 January, 2005.

Keywords: Growth & Innovation; Political Economy & History; 

For 40-odd years, economic pundits have been telling us that our economic output is growing too slowly, and that we should adopt their policies to accelerate it. Sometimes we have, but before long more pundits come along to say that there has been no increase in the growth rate (for much of the late 1980s and early 1990s the economy stagnated) and we should introduce more reforms.

No wonder there is widespread reform exhaustion. Not only are we battered with prognostications and policies, but also promises of higher growth never actually occur. Even when the economy seems to be growing slightly faster than it did in the past – as appears to have happened in recent years – there are still grumbles that it is too slow and we should be doing even more reforms. Will they ever stop?

Behind all this is a confusion, which is not confined to non-economists. The underlying ideas of distinguishing stocks and flows (or distance and velocity) were sorted out over 50 years ago by New Zealand economist Bill Phillips (best known for his “Phillips curve”). But sometimes we forget the lessons of the past. It is easy to explain the confusion to mathematicians, but here I’ll try to do it with a minimum of maths.

Imagine that the economy is a travelling car. At any point in time it has gone a certain distance and it is going at a certain speed. What the pundits seem to be saying is that we should push harder the accelerator pedal of reform to make the car go faster. Their promise is that we have only to push it once to increase the speed. But, as you will have noticed, no matter what we do, the pundits keep demanding more reforms.

So, on the one hand, they imply that there is not a lot of work to keep the car at cruising speed. If only we were to put the pundit in the driver’s seat, we would go even faster. (“Okay,” I hear you asking, “just where are we going?” A good question that the pundits rarely consider.) On the other, they are always demanding more reforms, under the excuse that although the car may not have accelerated yet, it could go faster.

A better analogy is a bike. You have to pedal. If you do, the bike proceeds forward: if you don’t, it stops, you fall off, and you may hurt yourself. Pedalling takes effort, even to progress at the current speed. From this perspective, the reform process is not to get the bike to go faster. It’s about keeping the bike moving forward at the current speed.

Economic growth is always posing new policy challenges. For instance, in a 1991 column I asked “who owned the foreshore?” at a time when the issue was of no great economic significance. But the bike moved on, the commercial potential of aquaculture became important, so foreshore and seabed legislation became necessary. Probably, there will be the need for more legislation in the future. Don’t ask me about what. All I know is the bike will go forward, meet new problems, and we have to pedal to get past them.

“Is there no end to it all?” sigh the reform-exhausted. As long as new technologies, new resources, new markets and new opportunities crop up, the answer is “Keep pedalling.” However, over the past 40 years, there has been more material output and – what seems more important to me – more opportunity. The pundits may grumble, but the pedallers progress.

The reform exhaustion arises because the pundits are always promising what they never deliver – it’s a “free beer tomorrow” message. The pedallers are rewarded by economic gains, although sometimes related issues are not addressed (such as traffic congestion). Even so, despite numerous successful policy developments, more problems arise and more has to be done.


It’s important that we celebrate these advances, but also ensure that the benefits from economic growth are shared among us. This is something every political party has a view on, even if they confuse themselves and the electorate with undeliverable promises to increase the economic growth rate.