There’s a certain recognisable rhythm to our election campaigns. After chairing five of them for my sins, I know it well. The House rising, the hoardings going up, the release of the Prefu, the first debate, and then more often than not a GDP print for a quarter long since expired, to be seized upon by the political combatants and co-opted to suit their narrative.
This week’s GDP number, which relates to economic activity for the three months to June, didn’t disappoint. On the face of it there was something for everyone. A slightly better-than-expected 0.9 per cent in the quarter which suited the narrative of the left, but a pretty poor performance over the last nine months, which suited the right. And an almost universal expectation from economists of tougher times ahead, which probably suits no one.
Look slightly deeper into the numbers and you can find the evidence for why people are doing it tough right now, and why many people struggle to believe we’ve seen any sort of increase in prosperity this year.
When he was in opposition, and in his early years of government, Grant Robertson’s preferred metric was the GDP per capita number, based on the not unreasonable argument that economic activity per person was more relevant to whether people were getting ahead or going backward, based as it is on the size of the population. If the cake is growing more slowly than the population is, people are worse off.
Our finance minister is less enamoured with that measure these days, and a cynic might suggest that’s because the per person measure looks particularly ugly right now.
Our population has been boosted by the pent-up flow of people arriving in the country since the borders opened, and that accounts for more than all of the recent growth. With quarterly real GDP per capita figures between September last year and June this year of -0.9, -0.7 and a measly +0.2, it’s not a surprise that people are feeling, shall we say, flat at best.
Irrespective of all the number parsing, the truth is that in economic terms we are dragging along the bottom. If this is what success looks like, then the current government is lending new meaning to the tyranny of low expectations. Add in stubborn and possibly worsening inflation as a result of recent fuel price rises and the accompanying high mortgage rates, there is little wonder people are feeling very squeezed as we approach the election, and very actively considering a new government. This economic life feels a lot like the dreaded stagflation.
So how do we drag ourselves out of this malaise? What levers can we pull?
The left will have you believe that more of the same will do the trick. Labour came out with their economic plan two weeks ago which spent 11 pages saying almost exactly that.
They are big fans of bigger government and “government-led” economic growth. They are proud of the increase in the size of the state as a percentage of the economy over the last six years and have no significant plans, or any likelihood, of shrinking it. As it is, the tax take comes nowhere near to matching their appetite to spend so, under this “more of the same”, it is safe to assume the thing which will grow most is our debt.
The right has a different recipe. They want to shrink the size of the government back to something like it was six years ago and balance the books. They also want to reduce the tax burden on Kiwi families. These are all worthy goals in their own right. God knows that much of the increased spending has achieved bugger all. And who doesn’t think they could spend their own money a little more sensibly than this government seems to.
We do need to get debt down, and we are overdue to focus on the quality of spending rather than the quantity. However just doing that, although a big enough task in its own right, will be insufficient.
Both approaches don’t place enough emphasis on the psyche of the country’s economic actors. The businesses, the entrepreneurs, the farmers, the innovators, and the risk-takers. The only way out of a flat-lining economy with high inflation is to grow the growth engine; and that means encouraging this group to invest and grow, here in New Zealand. And that’s not as easy as it sounds.
Even the term “businesses” is too amorphous. A business is nothing more than a collection of shareholders who get together and take a risk, to invest some money, hire another person, and start or grow a product or service. And to succeed a business needs customers. People who want to buy that good or service, and are prepared to pay a price which leaves something at the end for the shareholders to pay off the bank, get a return on their risk-taking, or re-invest.
Which makes what passes for most economic growth plans so passe. Many politicians airily wave their hands and opine on what they think businesses should invest in. We should “grow an export-led economy”, become “a world leader in renewable energy”, create “high value tourism” as if they have much say over any of it. All these statements are just dreams, without a farmer, or a tourism business, or a tech entrepreneur taking a deep breath and making that first investment, and without customers agreeing to part with their hard-earned dollars to pay for it.
One of the great forces of human history is the desire to try things and better one’s life. That is the impulse that drives so much in our economy and in many other fields of endeavour. It happens naturally, and a politician’s job is, at least in part, not to get in the way of it. To fire up our economy again, we need to spend much less time on grand visions, and much more time on releasing the animal spirits that drives the risk-takers. That means making it easier for them to access capital (including from overseas), skilled people (from here and overseas), and markets (often overseas), and providing better infrastructure and a friendlier regulatory environment to build their business here.
We’ve tried the government-led, over-regulated, anti-foreign investment, closed shop and it hasn’t worked. If we don’t change something our economic melancholy will clearly get worse. It’s time to embrace the world and let our risk-takers loose on it. Let them find their own niche and stop holding them back. After all, who dreamed we’d be sending rockets into space before we did.
Steven Joyce is a former National Party Minister of Finance and Minister of Transport. He is director at Joyce Advisory and author of On the Record.