Speech to Primary Resources Forum, 26 June 2002
So let me start with peasants. The peasants I have in mind are Michael Cullen’s. Well, not his exactly. They are the ones the Asian tigers pulled out from behind water buffalos to build electronic boxes. The ex-peasants’ productivity lifted dramatically and so did their economies’ economic growth rates.
Our peasants are not guiding a plough behind water buffalo. They are two metres off the ground on a John Deere. They are among the most efficient peasants in the world. Getting a productivity lift out of them requires heavy investment whether they leave the land or not.
And to get to Michael Cullen’s target 4%-a-year growth rate which is 2.5% in per capita terms requires us to double the rate of productivity growth. Anything higher, such as some airily claim we can achieve, is cargo cult stuff. We might get a gross rate of 5% or 6% but only if, as during the mid-1990s, we have very high net immigration rates. And that does nothing or at most very little for the per capita rate. It also potentially creates inflationary pressures which have to be leaned against with high interest rates, which are not good for high growth rates.
We did actually lift our rate in the 1990s: from 0.8% per capita average in the 1970s and 1980s to 1.7% in the 1990s. That reflects the deregulation of the late 1980s and early 1990s. To hit Dr Cullen’s target we have to engineer another similar lift. And we must do that in a decade when it is highly unlikely the United States will be anything like the powerful economic engine it was in the 1990s when the dotcom bubble was bulging. But Dr Cullen does have two things going for him.
One is that growth rates were constrained in the 1990s in this country by an overpriced exchange rate. That is part of the reason New Zealand did consistently less well than Australia in the 1990s. Australia’s exchange rate was more realistically priced. Our exporters were murdered while Australia’s were coddled. Even so, I might point out, we seem (according to Dr Cullen) now to have a higher proportion of elaborately transformed manufactures in our exports than Australia ETM exports grew from 21% to 29% of total merchandise exports between 1991 and 2001. That in itself may say something else about Australia’s golden decade: that it feasted partly on strong international demand for minerals and metals, which Australia has in abundance. Australia also has oodles of petroleum.
Our exchange rate appears to gone through a structural devaluation in the late 1990s. Even at current rates which have cut my export earnings, as a price taker it is a lot more export-competitive than through most of the lost decade. There is some reason to think it will stay at these more export-competitive levels.
The second thing Dr Cullen has going for him in his quest for a lift in productivity growth is that this country does have some “inefficient peasants”. Jim Anderton makes part of the point when he talks about under-utilised Maori assets, including land. If return on those assets were lifted just to the national average, Mr Anderton is fond of asserting, the overall country growth rate would be substantially lifted. Dr Cullen agrees and says that in a second term the government of which he is part will attend to some of the legislative and other impediments to better use of Maori-owned assets. These are our equivalent of “inefficient peasants”, a productivity lift right under our noses.
It goes much wider than that. We all know that the most important asset these days is not under our feet but between our ears. How much would our growth rate lift if Maori were to raise their average educational and employment performance to match the overall average? I have no idea and I have to admit I have not tried to find a figure. But on the way up Maori would surely lift productivity growth.
Pacific Islanders are similarly “inefficient”. And so are many Anglos. But not Chinese. Chinese work hard and have values which the general population has largely abandoned: values of thrift, saving and investment.
What makes the difference? I suspect that a good deal of it is to do with aspirations: that Chinese have high aspirations and Maori and Pacific Islanders generally low aspirations and Anglos somewhere in between.
Aspirations have a self-fulfilling quality. If you don’t expect much of yourself (which is likely if your parents didn’t expect much of you either) you are likely to make not much of yourself. If you cannot see the point in learning or think those trying to interest you in learning are from an alien planet, you are not likely to get much learning. And if you don’t get much learning you lock yourself out of even modest achievement. And maybe you pass that failure syndrome on to your kids. It’s even worse, of course, if you are hungry and sleepy in the classroom.
There are some marvellous tales of raised aspirations among kids and adults. The work that Christine Fernyhough is doing through the Gifted Kids programme is exemplary and shows up the ministry bureaucrats and objecting teachers for blighted mediocrities. Some workplace learning programmes change adult lives by opening doors they had long presumed closed to them. But these tales are sparse. Generally aspirations are not readily tractable by public policy, without some fairly heavy interventions which would probably run up against privacy and cultural insensitivity, not to mention Treaty, objections.
That would require a massive change of attitudes, in the population, in the bureaucracy and among our politicians. I don’t see much sign of that. Policy mostly ranges from polite benevolence to pull-your-socks-up slogans: both leave low aspirations undisturbed and, it seems to me, compounding from generation to generation. There are some exceptions but, save in rare moments of history, exceptions don’t make a difference. And we had our moment of history in the late 1980s.
Yet if we really want to ride the knowledge wave, we could do a lot worse than try to change aspirations and pay whatever price that requires in government spending and social adjustment. We can probably get a bigger economic lift out of getting unemployed people and low-productivity employed people up to a moderate speed than we can out of whizz-bang startups. Some modest knowledge where there is none is as much part of the “knowledge society” as is Genesis Research.
The exciting startups do not generate much wealth and what they do generate they do not spread around much. They buy in a few services and they employ some smart people and they are plugged into the high end of the world economy and they earn foreign exchange and the owners pay some taxes and then sell them to a foreign company for real dollars. They are islands in an archipelago economy. The rest of us stand around on a gently sinking continental shelf. The more I watch this process, the more I think that if I were in my early 30s now and making the decision whether to return from London as I did in my early 30s quite some time ago I would decide it in the negative.
Would I want to be in a country where the leader of a minor party describes Maori and other polynesians as the “modern version of the white man’s burden” and the comment is scarcely remarked on? Would I want to be in a country which specialises in educating bright people who go off to do well in northern hemisphere economies where the real action is because the ceiling of opportunity is too low here? Would I want to cast my lot with a society which is likely to be hollowed out by aged rich European societies which need educated people of working age as the East Coast was hollowed out by Auckland a generation ago? Would I want my old-age income dependent on the takings of a country that has become a sort of retirement village and refuge from crowded northern cities? Would I want a future in which the All Blacks win one game in five and that’s as good as it gets? Would I want to live in a society of retirees, refugees, deadbeats and some who can make a buck out of that?
No, actually. But is that the future?
First, look back over the past decade. If material wealth is the measure of a country, we held our own in the 1990s at No 20 or 21 in GDP per head. We put a floor under our slide and that is a very big achievement. It only looks indifferent when compared with Australia, as we habitually do, or with the United States.
Moreover, there is a reasonable likelihood we can hold our ground through this decade. For a small country on the world’s periphery with not much in the way of high-earning advantages, that could be argued to be not too bad. And we would still have a relatively higher quality of life than that of our material betters in more crowded countries, especially in east Asia.
But it isn’t enough. We have arrested the relative decline at a point where our medical services are inferior to those with whom we have traditionally compared ourselves and even then our area health boards are building huge debts. We can barely maintain an educational system on the bottom rung of the developed world. It is no surprise that teachers and nurses are striking during an election campaign in which “their” party is seeking re-election. Large numbers of those on low incomes get neither good health care nor a good education by the international standards by which we used to measure ourselves. That state of affairs would have been considered an outrage in 1950: today it occasions not much more than a shrug of the shoulders from most of our citizens who are learning the awful truth that the politicians can’t fix it. That knowledge, too, is lightyears from the assumptions of the 1950s.
Which is why the politicians have been trying to dream up a route to a society that is among the materially best off. And, since they can’t or believe they can’t change aspirations and behaviour, they are trying in the only way they know how: through structural policy. So, since Max Bradford at the beginning of 1999 and especially since John Hood’s “knowledge wave” in August 2001, they have been puzzling over how to construct the “knowledge society”. If we all know more, we will get rich fast.
I suppose I should add that when I say “know more” I also mean “know how to know more” and “know more how to use more knowhow” and “know how to live with not ever knowing enough”. In this room we all take that for granted: knowledge is a process not an end-state, sets of abilities not blocks of information.
I think the present government is trying intelligently to devise policies to get more of those various varieties of “knowledge”. I will highlight only a few:
* The government has recognised it needs to build on the successful increase in quantity of people in post-compulsory education, learning and training in the 1990s to improve quality in the 2000s. Andrew West, as chair of the Tertiary Education Authority, is the most important bureaucrat in the country. He is one of the most unusual and mercurial thinkers I have met. He’d better also be brilliant at navigating the shoals of Wellington when he comes up against the vice-chancellors’ armada.
* The private sector has developed the KEA project and the government has had the good sense to back it. Leveraging off the guilt or sentimentality of expats in useful places is an intelligent way to use technical, marketing and local knowledge to improve processes, forge partnerships and sell more.
* There is a slightly more assertive and slightly more focused immigration policy but not so you would really notice. * There is government backing in centres of excellence, venture capital, incubators, fostering of clusters and hookups with multinationals to expand local ventures locally for startups and promising ventures.
* There is more money for research and development and it is being refocused.
To these I think we will see added next term, regardless of the shape of the government, some “Australian naughtinesses” to wangle foreign enterprise and investment. Play a little bit dirty will be the rule. That’s because, Michael Cullen says, a level playing field at home is not seen as a level playing field abroad and that inhibits investment.
The government has wrapped this in an overarching thought innovation. And within that thought it has identified three areas it wants to emphasise. One of those is biotechnology. Which brings us back to Dr Cullen’s peasants.
Our peasants have long since lost their inefficient status. And they did that by applying new ideas, which I suppose is biotechnology. In my childhood a big dairy herd was 60 and cowsheds had four to six byres and the milk went to the factory in cans on small trucks, trailers behind tractors and even drays behind horses. Now a herd can be more than 1000 and the milk is carted hundreds of kilometres in trains to factories.
There are two obvious points about pinpointing biotechnology as a focus for government policy.
One is that it makes sense to lever off our core industries, those which grow out of the soil, as a focus for cutting-edge research. If we can’t do that, we aren’t up to much.
The second point is that it also makes sense to continue incrementally improving the productivity of those core industries, through research and development, investment in new techniques, computerisation, product development and marketing and new learning. These industries are our export cash flow and lifting that cash flow delivers an important additional gross return.
Ministers have demonstrated they comprehend these two points. They would really rather leap into super-high-tech because it provides much more glamorous photo-opportunities. And there is much of that sort going on, which justifies the government’s inclusion of ICT as one of its other two innovation focuses. But ministers know they must rely on the land-based primary industries a good long while yet. I suppose you might class this as New Zealand’s version of the “where there’s muck there’s brass” line.
In fact Pete Hodgson has been using a variation on that theme to sell the Kyoto protocol. High among his arguments for signing the protocol is climate. He puts the efficiency of our peasantry down in good part to climate. Climate is our export-competitive advantage.
What he doesn’t then say is that we are, on his argument, about to lose that advantage. The next 20-30 years of climate change is now unstoppable, according to the Kyoto rationale. So, Kyoto or no Kyoto, we stand a fair chance of losing our competitive advantage.
This to me creates a puzzle around Kyoto which none of the visiting firepersons from the United States or Britain has ever solved for me. In fact, when I raise it they give me the “get the men in white coats” stare. But how do we know that where we fetch up climate-wise in 25 years is the best place to stop? Might we not then be in a climatically disadvantageous trough? Might it not actually be better for us to go on another 25 or 50 or 100 years? Perhaps then we might then become the world’s most efficient pineapple growers and Stewart Island will become famous for its pinot noirs Whare Rakiura.
If we may not have our climatic advantage for much longer, the more we diversify from dependence on the bulk proceeds of our core industries the bigger the insurance policy. This is a different argument from the one that has been running since the 1960s which took the long-run relative decline in agricultural commodity prices as a compelling reason for investment in other activities. This argument reached its apogee in the disastrous “think big” policy of the early 1980s. There is now some reason to think that the terms of trade for food might actually be improving, partly as a result of the commodification of many other products and computerisation’s reduction of manufacturing and services costs. The climate argument is a different issue.
Then, what about the other side of biotechnology leveraging off our brilliant land-based industries to generate cutting-edge research? That has looked highly promising.
But then we run up against genetic modification (GM). The government congratulates itself on a “balanced” approach. In fact, the government has failed to allay growing very real fears among a widening range of people that GM will make their food, and maybe their whole environment, unsafe: 20% have told a recent poll they want a total ban on commercial release.
And, who knows, they may be right. Then on the other side of the argument the government’s approach is near-prophylactic, with the world’s tightest regulatory regime and a Bioethics Council to catch anyone who might look like getting through the regulatory hoops.
The Greens and Labour argue that GM isn’t all, or even very much, of biotechnology. So a very tight regime and even an outright ban on commercialisation should not, they argue, affect the rest. There will be plenty for brilliant biologists to do. Fine, except for two factors. One is that the headlines say we don’t want GM, which is the glamour end of bioscience and likely to grow in importance. This may (a) deter foreign investors from looking here in the first place and (b) deter bioscientists from committing themselves to a career here. And that in turn may weaken our ability to maintain our biosecurity, which requires a critical mass of bioscientists.
The economic argument for a ban rests on a marketing line: we are so clean and green that we even ban GM. But of course we are not clean and green, just empty. The current to-do over dairy farm pollution makes that point. And we are unlikely to remain “GM-free” for long: the rabbit calicivirus and the varroa bee mite make the point that at some point a saboteur or a mistake will take our GM virginity. Then where would our marketing advantage be?
All this says nothing about Greens defending the horrific amounts of 1080 used on possums when a GM solution might actually be cleaner and greener. It says nothing about GM solutions to pollution and Kyoto conundrums.
Let me be clear: I am in favour of the Greens’ position. That is not because I share the Greens’ belief that nothing GM should be released until “proved” absolutely safe, which science of course cannot do and never will be able to do. I am in favour of the Greens’ position because if they do hold the balance of power after 27 July that will be marvellously destabilising of our politics. Journalists work on the principle of maximum chaos. I hope you’ve got the message.