KEY POINTS:
Roderick Deane is back with renewed fervour.
The businessman who stepped down this year from his chairmanships of Telecom and ANZ-National Bank has put together his own state of the nation address.
Deane is concerned people are living off foreigners' savings and running up large overseas debt, making the country vulnerable to external shocks, and that the exchange rate is hugely overvalued.
He believes there is a limit to how much anyone can sponge off the savings of others, noting that when the time comes for an adjustment the shock could be severe.
The positives on Deane's scorecard are:
* Sound monetary and fiscal policies, and a favourable terms of trade position.
The negatives for business are much bigger:
* More intrusive and extensive Government regulation; high taxes; the growing size of Government; an infrastructure mess; weak social policies; a shrinking capital market; constitutional issues.
He notes better growth has been driven by world expansion, good commodity prices and domestic productivity growth - based on stable macro policies (low inflation), reducing the size of Government and deregulation ( promotes flexibility).
Deane was falsely excoriated in Nicky Hager's The Hollow Men as one of the anonymous big business donors (the list includes Douglas Myers, Alan Gibbs, the Vela brothers, Sir Michael Fay and David Richwhite) who were pulling former National Leader Don Brash's strings in pursuit of a failed economic ideology.
But he has quite a bit to say about the entrepreneurial capital that has been chased out of this country.
He was quick to put the record straight that he was not a donor to National or any other political party and never had been.
That no-nonsense approach is apparent as he alerts business people (officials and politicians) to some worrying economic trends.
His credentials as a former deputy governor of the Reserve Bank, chairman of the State Services Commission and chief executive of Electricorp inform his thinking.
Deane's particularly exercised about the need for productivity growth, without which the country will never make it back into the top half of the OECD.
The extensive deregulation of the mid-80s and mid-90s spurred business to become more agile and competitive, contributing to substantial productivity gains and helping ensure an above average economic growth performance.
The trouble is that it would require annual economic growth of 3.2 per cent versus the 2.1 per cent achieved in the past 15 years to achieve the OECD target.
Deane says this looks impossible as the country is going backwards again in relative terms. He points to:
* The Economic Freedom index rating - now on the decline after a period of increases.
* Increase in work stoppages.
* Hours worked per full-time employee are going down.
* Core public servant numbers are growing rapidly.
* Crown spending - forecast to continue at high levels relative to national income.
* A huge and persistent overseas deficit.
* Falling infrastructure investment.
* Business surveys showing worries about high taxes, extensive regulation and the burden of compliance costs.
* Capacity utilisation is at record levels (constraining future growth).
* Capital stock growth lagging other countries.
* New legislation and regulations more extensive than at any time in history if judged by the number of pages of new laws.
* Some major new Government-sponsored investments are failing to cover even their costs of capital, let alone adding economic value - these include Kiwibank and Air New Zealand.
Deane believes regulations beget regulations.
They override commercial solutions; induce uncertainty; increase compliance costs; divert energy from competitive solutions; often concentrate on past problems rather than address future challenges; discourage foreign direct investors; result in company executives spending more time debating with Government officials rather than dealing with customers; substitute regulators instead of company managers as decision-makers; inhibit business flexibility.
The essential question is: Has productivity (real output per person and per unit of capital) been increasing faster under the more regulatory policies of the past seven years?
The solutions are simple enough. They involve more respect for property rights, greater certainty in the application of the law and the enforceability of contracts, fewer changes in and less intrusive regulatory interventions, and lower taxes allied with a smaller Government sector.
It would be nice to think the Government and other political parties would appreciate the importance of these considerations rather than feel the need for central control over so much of our lives.
Deane has plenty of anecdotes to flesh out his interpretation of the raw data, such as these from an address he gave last night.
Kyoto protocol
The Government started down this path saying New Zealand had huge carbon credits. Then later said: Oops, we mean huge debits of hundreds of millions.
This stuff-up was not just at the policy end. There were real impacts on business. One company took 30 months of negotiation to work through proposed exemptions simply to survive. Boards who had to make capex decisions faced great uncertainty as they talked to officials who had zero knowledge of these businesses. Now the Government does not know what to do next with Kyoto so a huge amount of effort has been wasted.
The lack of initial public offerings
Thirty per cent of a leading Auckland accountant's clients were keen on IPOs last year but were too daunted by the listing rules and regulations, opting instead to sell to private equity players, mainly Australian.
The decline in the ratio of the NZX market cap to GDP has been cited as an imperative by new National finance spokesman Bill English.
Venture capital
The Government set up the Venture Investment Fund with $100 million but, during the past few years, the real entrepreneurs who have been ostracised left New Zealand (mainly for London), taking capital with them which could easily total more than $10 billion. The investment fund looks like a minnow compared with what has been chased away.
Telecom
More than $3 billion in market capitalisation was written off when the Government unilaterally wiped the telco's effective broadband monopoly. Imagine the benefits that will need to accrue from the new regulations to offset this, to say nothing of the latest estimate from Telecom that the annual cost of the new separation arrangements designed by the politicians will be $115 million.
Banking regulation
ANZ Bank faced costs of $250 million (net present value) from the impact of the Reserve Bank's regulatory requirements. This offset the estimated synergy gains from the ANZ-National Bank merger for no perceivable gain and certainly with no cost-benefit analysis from the central bank, which should have known better on this front.
Failed policies of the past
The disappointing story is comparing progress under Labour from 2000 to 2005, when the annual multi-factor productivity gain was 1.1 per cent, with progress made under what the ruling party calls the failed policies of the past. In 1998-2000, productivity grew 2.1 per cent a year, and in the post Employment Contracts Act period (1992-2000) the annual gain was 2.5 per cent.
Electricity transmission
Before the last election, the Government made it clear it did not want the Waikato transmission upgrade decision to go ahead pre-election, so the poor old Electricity Commissioner ensured the process was delayed mightily. But when Auckland suffered another major transmission outage, guess who got the blame and was fired ? The commissioner.
Public servants increase
Wellington has the highest per-capita income and the highest density of public servants of any town, as well as one of the slowest regional growth rates - half the national average of 4.7 per cent. The dilemma is that public servants do not create productivity growth or real economic growth, they mostly redistribute incomes rather than generating income - so the bigger this part of the economy is in relative terms, the harder it is for the private sector to generate growth.
