A time of change – learn from past mistakes
by Lockwood Smith
The times, they are a-changing. While we’ve had to deal with shocks before, they haven’t been on this disastrous scale — at least not in my lifetime. I was born after my father returned from the second world war.
The global financial crisis and the Canterbury earthquakes were major events, but the one that really changed our relationship with the world, just as Covid-19 has the potential to do, was Britain’s decision to join the EEC in 1973.
Sure, it wasn’t the same life-and-death disruption as Covid-19, but it was the political decisions made in its aftermath that we need to learn from.
In the early 70s, more than half of our dairy exports went to the UK. In fact, a third of all our exports went there. We were able to negotiate tariff-free quota for sheep meat, but the dairy product quota included a stifling tariff and that for beef was little more than I produce on my own farm.
Future growth for New Zealand meant looking elsewhere. Tariffs above 100% on agricultural products in other major markets, such as the United States and Japan, meant those weren’t an option. The politicians of the day decided New Zealand needed to “reset the economy” — just as the Minister of Finance is saying today.
Industries needed for that reset, we were told, required protection from imports. Tariffs and import licensing were stepped up, and so started a decade of greater government intervention.
That, of course, had the effect of putting up our internal cost structure, and our major export sector, agriculture, demanded support to make up for those higher costs.
Governments of the day devised all sorts of schemes culminating in the Supplementary Minimum Payments (SMPs) of the late 70s early 80s.
Our government-controlled economy bumped from one crisis to another. By the year I entered parliament in 1984, we’d seen carless days, wage and price freezes, and thousands of tonnes of frozen sheep meat turned into fertiliser because government intervention had so dislocated production from the marketplace.
The new Lange/Douglas Labour government, confronting a bankrupt nation, had no choice but to commence far-reaching reforms to free the economy from the shackles of the State. Carried on by the Bolger/Richardson National government of the early 90s, impediments to competitiveness were reduced and the entrepreneurialism of the tradeable sector unleashed. Instead of trying to control what businesses did, governments focussed on negotiating access to global markets, especially in Asia.
The result was staggering. From a bankrupt economy in 1984, New Zealand rose to number one in the world, 32 years later, on the 2016 Global Prosperity Index published by the Legatum Institute in London.
Instead of turning frozen sheep meat into fertiliser, a lamb today can be processed into 42 different cuts, marketed in 100 different countries around the world. Without the distorting subsidies, we have less than half the number of sheep, but each one produces almost twice the amount of meat. The productivity improvement is something NZ farmers should be so proud of. Not only is 23% less land used to produce that meat, but greenhouse gas emissions have been reduced by more than 30% a kilogram of product.
It’s not just the sheep industry. Liberalisation also saw a once government-protected wine industry grow from one, in 1984, wallowing in a wine lake for which there were no markets, to one today earning at least three times as much as wool exports and commanding the highest average price of any country in the world on the London market.
This history is important because anyone under the age of 40 today has no direct memory of the mess politicians got us into as they “reset the economy” following Britain’s decision to join the EEC.
What’s scary is that our Minister of Finance has in recent days talked about his government’s desire to reset the economy. Hon Grant Robertson is a capable politician. After all, his BA (Hons) from Otago is in Political Studies.
I first met him in the early 90s when he was Students’ Association president there, and I was Minister of Education. He was a good guy and already politically astute, but his experience in competitive business is limited. All my political life, I ran a farming business.
While, in today’s crisis, we need government to help business get through, to help maintain jobs that are so at risk, it’s critically important that the mistakes made all those decades ago are not repeated.
Economically, today, things move far faster than then. If you want to see NZ’s future prospects stifled, just let the State play too great a role. Twenty-nine years of seeing well-intentioned policies produce perverse outcomes have driven me to this view.
Liberalising global markets in the past 30 years has helped raise more people out of poverty than any other government action. Let the “economic reset” the current government has in mind not distort effective markets, or else our people’s wellbeing will pay the price.