Russell Bell: Clear, committed policy needed to bring back economic certainty

Russell Bell writes that he disagrees with Finance Minister Grant Robertson's statement that the market forces at play are transitory. Photo / Mark Mitchell

Opinion:

When driving while taking Junior Bell to school, I was listening to a business report on the downturn in confidence in the business sector driven by ongoing uncertainty caused by the virus, which may (or may not) have emerged from a gain of function experiment gone wrong.

The "S word" of stagflation (inflation in a stagnant economy) wasn't mentioned but, the commentator in one breath said that we shouldn't jump to conclusions, and in the other said, "this will be interesting to watch over the coming months". While market analysts will continue to hedge their bets, there are signs of change on the horizon that flow right through to everybody – regardless of whether you are in state-sponsored employment and Covid is a whole lot of "never mind", or if you are enduring sleepless nights wondering when "normality will return" and you can get back to business.

Unfortunately, globalisation and the interconnectedness of people and markets mean that when negative change occurs it can spread widely. Pandemics are examples of this on steroids. So, in these times we cannot get sucked into the belief or assumption that nothing is going to change. Buddhists have a term I like – impermanence. And there is a sense of impermanence in markets that can and should be applied to business thinking – particularly when planning.

Inherently, I remain positive about the future, but in times of uncertainty we look for leadership and confidence from policymakers. This includes delivery of policy and how markets interpret these actions. On the local side, it would be good to hear what is planned for managing inflation and interest rates – both of which flow through to businesses and Kiwis in general. Internationally, supply chain and labour constraints (regardless of whether you agree on their longevity) will impact world markets and flow through to local businesses for some time to come.

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Unfortunately, I don't think the Finance Minister is correct when he says that the forces at play that resulted in the largest increase in inflation in over 10 years are transitory. It will potentially take years to reset processes and infrastructure supporting the world and local economy. In such an environment, should our economy lean towards medium-to-long-term stagflation, it would be a very bad situation and the impacts of such a downturn will create even more pressure on businesses doing it tough right now.

Economists will confirm that we are seeing unprecedented volatility because of shifts altering world economic foundations and those in our own country. It is no wonder that business confidence overall is on the "nervous" side because of the uncertainty. And we haven't really started the conversation on the economic opportunities and costs associated with climate change, for example.

So, right now more than ever, what we need is clear and concise policy to bring certainty back, at least locally. Recent weeks have seen a very clear and concise narrative from those in power morph into contradictory and foggy messaging. I have advocated that there be a plan to emerge from isolation and get the productive sector contributing more to economic growth – any growth since March 2020 is likely to be artificial because it's powered by money printing and government debt.

With that in mind, we look to Friday and the announcement of a "plan". It needs to be clear and realistic. Despite the horror from left-leaning medical "experts", the Government is moving in the right direction, but it needs to execute this call with minimal error. There needs to be a vaccination target and it needs to be achievable, there needs to be a date when the economy can open up locally followed by another date internationally. Finally, there needs to be a concerted effort to get the vaccine to hard-to-reach communities – if it's "the only game in town" as a level 4 lockdown advocate said recently – everybody needs a chance to play.

But after those aforementioned dates, we need to move on and start to move away from an economy high on the sugar rush of debt and quantitative easing towards a reignited and properly supported productive sector.

It's great to still see brave, local entrepreneurs stepping up to the plate and opening new businesses or investing in existing businesses. Likewise, it is sobering to see doors closing on established businesses, now becoming commonplace in Auckland.

Those who are prepared to take the risks, especially in the times we are in, need to be supported by clear and committed policy.