Monday, November 7, 2011
New Zealand - The Elephant in the Room
It is general election time. Every political party is saying how they are going to turn the country around, how they will improve the lot of the average New Zealander. They all talk of broken election promises, past performance, what they will do next but all to no avail as we, the voters, can see from the dismal resulting "improvements" to our lot. What improvements? All we have actually experienced is more expense and less income. National promised to "close the gap with Australia", quite frankly it is not possible with current policy. Politicians talk about productivity, gdp per capita etc. We continue to fall behind Australia. Everyone tries to come up with band aid solutions doomed to failure. The answer is rather simple. It will take time but guaranteed it will work. Since the 1960's Australia has gradually pulled ahead of New Zealand in terms of economic growth, average wages and much more. Some short sighted politicians put it down to Australia being prepared to exploit it's natural resources, it's better productivity record and therefore investment in people and assets. It isn't that! What it is is purely population growth. Australia deliberately took the decision to grow the countries population. In 1960 it was about 10.3 million,in 2010 it was estimated to be 20.9 million, a gain of over 100%. In comparison New Zealand in 1960 had a population of 2.4 million and in 2010 was 3.9 million, 65% growth. Looks good but it is really a numbers game. Higher population in itself demands the production of goods and services, it generates its own growth. Just coincidentally we have fallen 35% behind Australia in wage rates, almost drives you to think it is the same lag as population growth, maybe it is. One thing is for sure, with such a tiny population there is not enough internal demand to drive the economy other than providing for the basics. Manufacturers and larger industry that generates job have no incentive to come here or to be developed from scratch here in New Zealand and it is these industries that generate wealth for the majority. It is great to say lets be a niche and knowledge economy and definitely a worthy aim but these industries benefit the few, there is no trickle down effect, never has been. If New Zealand had a population of 20 million, the country would have a large internal demand driving those industries that employ large numbers of people, there would be more money in the economy to improve our infrastructure. With a larger population the regional towns and cities would grow and prosper. Here in New Zealand our food costs according to one internet site, are 25% higher than those in the UK. Why? New Zealand has supposedly some of the most efficient agricultural practices in the world. Look at the UK, higher taxes, VAT at 18% as opposed to GST at 15%, petrol UK is on average 30% higher than in New Zealand, so how come their food prices are lower that ours? Greater demand, with 60 million people plus the producer makes the money in volume and often is closer to market. Even imports are cheaper because the demand allows a better purchasing cost to be negotiated. The people of New Zealand in general are anti population growth and until we change that stance and embrace population growth and immigration we are condemned to a steady decline in living standards compared to those countries that are go ahead and growing in every sense of the word. Some will say look at places like Finland, they are doing well and that is true but the big difference is they are in fact part of a connected land mass with a large population where most of the trade barriers have been removed. Those that are part of the EEC are free to move around and sell their goods and services anywhere inside a huge trade block. Let us in New Zealand aim for 20 million by 2025, watch the growth then in this country of ours, it would be phenominal!