Talking Point: Dr Ganesh Nana: The most valuable commodity right now? A clear head

Dr Ganesh Nana is research director for Business and Economic Research Limited (BERL).

The extent, spread, and length of the Covid-19 public health crisis remains uncertain.

We must acknowledge that the level of uncertainty and the unprecedented nature of the situation make our conventional models redundant.

As the IMF's latest World Economic Outlook (https://www.imf.org/en/Publications/WEO?page=1) states:

"This crisis is like no other. First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis. Second, like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock. Third, under current circumstances there is a very different role for economic policy."

And, in words that many privately feared, but no one wished to hear:

"It is very likely that this year the global economy will experience its worst recession since the Great Depression …"

This level of uncertainty is also why the most valuable commodity required by all now is a clear head. Only bad decisions are made when you are overwhelmed by stress and/or not thinking clearly. There will be no rapid return to "business as usual".

It is clear that, across all scenarios, government will play a greater role in future economic activity. The role of local government will be just as critical as central government.

Private sector businesses will concentrate their efforts to maintaining cash flow. Despite such efforts, ongoing uncertainty and international upheaval will limit confidence.

There will be little appetite for investment in renewal or expansion. Similarly, families, whānau, and households will face uncertain employment and income prospects. Their appetite for spending will similarly be constrained.

It will be left for central and local government to underpin spending and to also reinforce confidence in future plans. The latter includes maintaining confidence in social and community networks as the safety net for businesses and for families.

Local government can ensure local demand remains strong. Increased (or, at the least, maintained) investment by local government will support the local recovery.

Local government has closer levels of engagement and stronger relationships with local business.

Continued spending and levels of operations in the economic and social infrastructure of communities will be critical to enabling a return to some confidence in future opportunities.

In addition to a clear head, and just as relevant, is a clear understanding of one's purpose or kaupapa. It is pertinent to restate the purpose of local government, as per section 10(1) of the Local Government Act 2002.

• To enable democratic local decision-making and action by, and on behalf of, communities

• To promote the social, economic, environmental, and cultural wellbeing of communities in the present and for the future.

Despite the upheaval and uncertainty, the kaupapa enshrined in the four wellbeings remains unchanged.

Alternative financing options for local government like special purpose vehicles or growth zones should be explored. The use of debt funding should also be explored (and revision of debt-ceiling constraints) – given the likelihood of ongoing low interest rates.

Deferred payment schemes are preferred to zero rates increases. Zero rates increases will jeopardise the delivery of future services. This will act directly against the kaupapa of the wellbeing of current and future generations.

Suggestions for across-the-board pay cuts, redundancies, austerity type cost-cutting exercises, and service delivery reductions act diametrically against the objectives of underpinning local demand and supporting confidence.

Some may wish to reduce their own remuneration as a reflection of their leadership role. Depending on the circumstances, this may be appropriate.

However, imposing such actions on those with less power and in more vulnerable positions is the antithesis of leadership.

Previous recessions have seen the unskilled and least paid most vulnerable to job loss and community dislocation.

Without doubt, Māori have been disproportionately represented in such groups. A narrow perspective on protecting council finances will be reflected in deficits across other wellbeing domains.

If repeated, the impact on Māori will be acutely felt by their currently young population. Decisions to defer infrastructure spending (whether on social networks, community facilities, or physical and natural capital) will impact disproportionately more on Māori.

Should infrastructure be neglected now, young Māori will bear proportionately more of the load of restoring, repairing, and overhauling infrastructure in the future.

The growing role of central and local government must include Māori. With Māori at the table, a longer-term horizon for decision-making may be encouraged.

It will be a world that is different, and will require different thinking, different behaviours, and different models. But the kaupapa of inter-generational wellbeing need not change.

• Dr Ganesh Nana is research director for Business and Economic Research Limited (BERL)