Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Shearer needs a slicker response on oil

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As Norwegian model shows, the possibilities posed by resource exploitation deserve more attention than kneejerk rejection

Looking beyond ideological responses to oil exploration will give truth to David Shearer's promise to listen before setting economic policy.
Photo / Mark Mitchell
Looking beyond ideological responses to oil exploration will give truth to David Shearer's promise to listen before setting economic policy. Photo / Mark Mitchell

It will be a test of Labour leader David Shearer's mettle if he overrules the troglodytes in his own caucus and puts Norway at the top of the list of small nations he promotes as exemplars for New Zealand's economic development.

Norway's 4.99 million citizens enjoy a standard of living New Zealanders can only dream of. The country has the highest human development ranking on the OECD index. It has a comprehensive social security system, has universal health care and subsidised higher education.

It also has oil.

This is a major asset which Norway hasn't hesitated to exploit to grow a thriving economy which, on a GDP (PPP) per capita basis, scores double the performance of New Zealand. This can be seen on the International Monetary Fund's 2011 index where fourth-ranked Norway registers US$53,376 on the chart measuring gross domestic product at purchasing power parity per capita basis.

New Zealand is way down the list at 32nd place (US$27,966).

The two nations that Shearer does promote - Denmark and Finland - do score substantially higher than New Zealand. This pair of nations provided a higher economic dividend for their citizens because they have developed high-value jobs in other sectors than their agriculture bases. But Norway's performance is superior. This small Scandinavian country has huge resources: petroleum, natural gas, minerals, lumber, seafood, fresh water and hydropower.

And frankly, with Denmark (ranked 19th at US$37,741) and Finland (ranked 21st at US$36,723), there is no contest as to which of this clutch of Scandinavian and Northern European nations is the better economic performer.

That it why it is a pity Shearer didn't have the opportunity to exert his choke chain and stop the absurd responses by Labour MPs Parekura Horomia and Moana Mackey to the news that US oil exploration company TAG Oil wants to launch an aggressive East Coast basin programme.

Instead of doing their homework first - including examining the economic upside if a successful oil drilling programme can be launched accompanied by sensible environmental protections - the two East Coast-based MPs opted for kneejerk mode.

That Mackey - who is Labour's energy spokesperson - could so quickly blow away the potential upside from successful drilling speaks volumes. But this MP proclaims New Zealand's economic future does not lie in it being the "Texas of the South". She is reported as claiming TAG's plan is evidence of National's "drill it, mine it, sell it" mentality. Labour is focused on renewable energy.

Horomia was reported as saying it was a "known fact" that the East Coast was rich in fossil fuels like oil and gas but he was staunchly opposed to offshore exploration. It was a real issue for "iwi" and the company needed to show its hand.

These closed mind ideological responses are not what Shearer promised when he said late last year that Labour would "listen" before forming economic policies.

If he can't get this point across when his caucus meets next week for the first time in 2012 Shearer will not make much headway with the business community.

There is room for real creative thinking around how New Zealand capitalises on its resource potential.

BusinessNZ chief executive Phil O'Reilly was on point when he wrote in yesterday's Herald that New Zealand was blessed with iron sands, coal, petroleum, phosphate, precious metals and rare earths.

O'Reilly also pointed to how Norway set up a public fund from surplus oil revenues to pay for the health and security needs of future generations.

This is an example I alluded to in a previous Business Herald column I wrote promoting the possibility New Zealanders could "become the oil sheikhs of the Pacific" if we harness these resources skilfully.

But there is room to go much further than O'Reilly has suggested.

Labour could usefully explore whether the Government should relaunch another SOE - call it "Petrocorp" for old time's sake - and take a lead role in the exploration itself. Add that to the investment fund that the open-minded Shearer thinks could usefully hold all the state's commercial assets and there would be the prospect of launching a commercial revolution in the state sector.

Shearer would have no difficulty squaring such an approach with moves in other social democratic regimes. But his caucus needs to step up.

As the NZ Institute reports New Zealand has remained about 10 per cent below OECD average income levels for the last two decades. New Zealand also does not compare well against income levels achieved in Australia, which has managed to maintain a GDP per capita about 25 per cent above the OECD average.

We need all the gift horses we can find.

- NZ Herald

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