Dialogue: Success has a habit of breeding more success

TIM HAZLEDINE* says that a change in attitude - our own and others - is fundamental to turning New Zealand's fortunes around.

How many Olympic medals did Ireland win? It's an apt comparison with New Zealand because the two countries have similar population sizes.

We can make apt economic comparisons, too, and here New Zealand does not look very good. Since 1985, Ireland's per capita economic growth has been extraordinary; second only to Korea among the 26 OECD economies - the rich countries' club.

And New Zealand? We came 26th. Yes, that's last. And the Irish did so well despite flouting most of the economic rule book that has been gospel in New Zealand since 1985.

They protected their farmers, regulated many services, accepted huge handouts from the European Union and gave out huge handouts, including tax breaks to businesses. They also retained collective bargaining, taxed incomes too heavily and poured money into tertiary education.

Well, perhaps we can learn something from Irish success and Kiwi failure. I am not going to suggest that we in New Zealand should start subsidising agriculture again or reregulate our service sector. Those are silly things to do. But the big point is this.

The Irish can afford to indulge Kerry dairy farmers and Dublin taxi drivers because they've got the other side of the economic equation sorted out. Simply speaking, they produce stuff, lots of it: three times more per person now than they did in 1985.

In New Zealand, we have focused on consumption efficiency; on getting the prices people pay in markets as low as possible so as to drive out inefficient producers and thereby to free up resources for more efficient operators to make use of.

The first part happened. Plenty of resources were freed up, one-third of the manufacturing sector shut down by 1991, for example. But the second part did not work out. The resources were not taken up, which is why our growth has been so low and our balance of payments deficit is so large.

We now must see that consumption is secondary to production, and we need to rethink and redirect our economic policies accordingly. Here are some suggested principles for a new production-growth oriented economic strategy:

Virtue is not its own reward. It is not enough for the Government to set up a business-friendly economic environment and then sit back. The Government has to become actively involved with making things happen in the economy in partnership with the private sector, including the trade unions.

Cultivate our own garden. The domestic New Zealand market is four times larger than our export market, yet it is the more glamorous business of selling overseas that gets most attention. But we need to strengthen our import-competing domestic sector for all sorts of reasons, including building a strong platform for sustainable export growth.

We need to join a club. All economies are regional economies now. We cannot join the European Union, but there is Australia. We should be pressing for full commercial union with the Australians, including customs and currency union.

Don't throttle growth at birth. Monetary policy should be directed at encouraging growth rather than suppressing inflation. Tax policy should look to expanding the tax base over the longer term rather than religiously balancing the short-term books in the name of fiscal responsibility.

Encourage stickers, not snatchers. We have made it so easy for foreign investors to dash in and out of New Zealand, stripping our assets on the way and destabilising our financial markets. We should be going for what the Irish call stickers: solid international firms willing to undertake greenfields investments in new factories and businesses which will be with us for the long haul.

More brain food, please. I suppose I would say this, but we really do need to beef up our commitment to excellence in higher education and scientific research.

I expect that these and other ideas would help. But perhaps the biggest change we need is in attitude - our own and others. In the new global economy, expectations become self-fulfilling. We are seeing the down side of that now, in our low dollar and feeble investment.

But the other side of the coin is that success breeds success, and that if we can show some positives, the resources will flood in. The expatriates will be on the next plane home.

It is just about crunch time. We have to turn this thing around, soon. Like many New Zealanders, I am sick and tired of putting up with our slide towards second-world status. I'm tired of the people who bad-mouth the country and thereby talk it down further.

I think that our national dependence on sporting success to raise our collective spirits and sense of self-worth is pathetic.

I would rather be proud of living in a prosperous country with good jobs, growing incomes, a buoyant sharemarket, and a healthy public sector. Like Ireland, say.

Oh, and how many Olympic medals did the Irish win? Just one, a silver. But who cares?

* Tim Hazledine is professor of economics at the University of Auckland.