Metro December 2002, p.84-93, by Gilbert Wong.
Keywords: Growth & Innovation;
An even greater challenge to the orthodoxy that the reforms were good for growth come’s from economist Brian Easton. The problem he identifies is the way the nature of the decline is perceived. While New Zealand is in 20th place 30 years after it was in sixth place, the OECD data does not show a slow and steady decline. Instead, says Easton, it shows stable growth marred by two massive drops that spike down like two steps on the graph of economic growth.
It helps to think of the OECD rankings as a race rather than a ladder. New Zealand may not be a slow runner Instead, Easton argues that the country had two major pauses for breath, which let other countries gain more ground. If New Zealand had not been taken out of the race for these two periods, the country would have grown at about the average rate of the OECD since the 1950s. We would have kept up the pace and our position in the top half of the club.
The nature of those spikes? The first big decline occurred from 1967. The prices for wool that at the time made up 40 per cent of exports fell by about 40 per cent, delivering a king hit to the economy for 10 years.
The second sudden decline occurred between 1986 and 1993. For seven years New Zealand lagged two per cent behind the OECD average growth rate. Easton blames the decline on the overvalued exchange rate that priced exports off world markets and, by implication, the way Douglas and Richardson ran the economy.
Economist Brian Easton is an optimist when it comes to growth potential. Although a member of the government-appointed Growth and Innovation Advisory Board, his comments here are his own. He points out that the three sectors targeted by government add up to less than five per cent of the economy. Even with spectacular gains, this would not necessarily translate to the giant boost the government seeks.
Easton proposes that the country concentrate on ways to make exports more profitable. Exports make up about 36 per cent of GDP, on the low side for an open economy. The easiest encouragement, he says, would be for government to lower our exchange rate. Exports would boom and investment would follow.
The trade-off would be inflation as imports rose in price. It would require public and political consensus. The good news for exporters, says Easton, is that New Zealand is such a small player that even if we doubled export returns in most areas, we would still not be seen as a competitive threat globally and could continue to trade happily without the risk of protectionist moves against us. Small can be beautiful.