Yes, we are a small country, more dependent, per capita on overseas trade than any other in the developed world, so it is critical we re-develop our economy to give us the best possible balance in international trade.
The exchange rate gives the greatest encouragement to export industries to earn the overseas income on which we live and also discourages excessive importing of consumer goods when the country cannot afford them.
Twice in the past year, when the exchange rate has come down to a reasonable level, I asked the Minister of Finance, at public forums, what policies the Government had to maintain the exchange rate at that acceptably low level.
The response was dismissive: We don't have such a policy; we don't need one; we look to the US economy improving; that will bring its interest rates up and lower our exchange rate relative to the US dollar. We are still waiting, and our dollar is increasing.
One of the few independent economists who has addressed this challenge is NZ-born Bryan Gould, who spent much of his life in journalism and politics in Britain before returning to New Zealand as vice-chancellor of Waikato University.
His summary page of his excellent book Rescuing the NZ Economy is reproduced below. Its value lies in showing there are many ways in which NZ can - and must - address its problems and not leave us at the whim of international forces.
Not all of his recommendations will be viewed favourably but they should at least provoke debate. They go against the status quo, which has enabled some favoured sectors of the economy to prosper at the expense of less-favoured sectors such as regional NZ.
Difficult as it will be to implement this major re-balancing, it must be addressed. Things will only get worse if left to fester.
There are 12 months before the next election. Let's hope all political parties address the problem in that time and come up with credible policies to set us on a new course.
¦Jim Howard is a trustee of the Lincoln Westoe Trust.
From Rescuing the New Zealand Economy by Bryan Gould
A succinct answer to the challenge that there are no viable alternative policies would specify the following possibilities, which could be used singly or in combination:
¦Greater reliance on macro-economic policies in areas like the exchange rate and interest rates to achieve greater profitability, competitiveness, productivity and innovation. In other words, policies directed at controlling inflation by increasing supply.
¦Greater use of fiscal policy and an integration of fiscal policy with monetary policy, so that quicker-acting and better-focused fiscal measures would take more of the burden of controlling inflation.
¦A wider remit for the Reserve Bank so it was required to look at broader goals such as growth and efficiency.
¦Entrusting decisions on inflation control to a wider group than just the Governor of the Reserve Bank.
¦A more effective monetary policy that takes account of the major inflationary factor - the huge increase in bank lending for the purpose of buying residential property.
¦Tackling the housing market by bringing the taxation of housing investment into line with other kinds of investment.
¦Replacing the Official Cash Rate with the Interest-Linked Savings Scheme, which would be more effective in controlling inflation.
¦Encourage saving so that we could increase investment in our productive industries.
¦Combine with other countries in restraining the volatility of foreign-exchange markets and in establishing a better balance with the interests of foreign investors.
