John Roughan: Why do we still help exporters?

The kiwifruit industry has met the perils of success. Photo / Steven McNicholl

A man who came to clean the carpet posed an awkward question.

He said, "There is one thing I never understand. All the time there are lots of businesses being started. Many of them get into difficulties and they don't expect the Government to help them out.

"But when something like this kiwifruit disease strikes a farming business, it's different. Why is that?"

It was an honest question, asked without a political undertone, and I couldn't offer an answer.

I ran the obvious one through my mind: farmers produce exports. But he knew that. He was asking why wealth created by selling a kiwifruit abroad is more important than wealth created by cleaning my carpet.

A dollar is a dollar, a job is a job. It really doesn't matter where it happens.

It used to matter when governments managed the whole economy and overseas earnings were supposed to pay for all the imports we wanted, more or less. But that ceased 25 years ago.

Since the dollar was floated in 1985, governments haven't had to worry much about external deficits. We have been free to buy all the world's products we can personally afford because, in theory, the currency will fall if exports can't pay for them.

In practice it has never fallen far enough to price imports out of our reach, though the balance of payments has nearly always been one of the worst in the world.

We have discovered we can live on credit, as many wealthy countries with trade deficits do.

We can do it, I guess, because we pay our bills. It turns out that a small national economy without trade barriers can operate in the modern world much like a small business. It can live on perpetual credit as long as it continues to be well managed.

"Well managed" in a national sense plainly means minimising unproductive costs and sovereign debt, maintaining public accounts that show the true costs of all services, controlling currency inflation and letting free prices ensure that all the capital in the economy is allocated for the best possible return.

That is more or less what New Zealand governments have been doing for 25 years, often to public abuse.

They were castigated, even in business circles sometimes, for leaving the allocation of capital largely to markets. Ireland, we were told, was demonstrating what selective tax favours could do to attract the likes of Microsoft.

This weekend, Ireland is facing state bankruptcy, or a European Community bail-out which is an admission of the same thing.

For a long time, we have been exceptionally well governed, particularly by comparison with bigger economies that have been able to absorb waste and inefficiencies on the level of French pensions, Japanese food tariffs, European agricultural subsidies or the political "pork" in American federal budgets.

Good government is the best thing we have going for us.

So why do we continue to worry about exports? Security, I suppose.

Good government is a fragile commodity. The budget is back in deficit and the Key Government is not doing much about it.

Creditors can be fickle. A diverse range of top-shelf branded exports would be a wonderful backstop. Kiwifruit is one of few we have found.

It has been a particularly smart industry. Having developed a marketable variety it promptly gave the secret away, realising it was better to be a competitor in a big market than to monopolise the tiny one it could supply alone.

At the same time its growers' co-operative retained the exclusive right to export New Zealand fruit, and used that monopoly to finance research and development of new varieties.

Now it has suffered on both counts.

The vine disease probably originated in other countries and a new variety was the first to succumb to it. It sounds like the perils of success.

But shouldn't a leading global enterprise be geared to deal with a fairly predictable risk to its product? Don't farms carry insurance against weather extremes and crop diseases? It would be better for the economy that those risks were properly assessed by insurance and reflected in prices.

It is always valuable to have industries expanding abroad, but only if their roots at home are sturdy.

Any that need sustenance from the public are placing costs on other taxpaying industries and compromising good government.

Any other business would be insured in these circumstances, and wouldn't expect any favours if it wasn't. Or so the carpet cleaner reckoned.

And he did a good job.