When muddle through works — and doesn't

John Key take note: Kim Jong Il, whose dynasty has impoverished and starved his people, has been re-elected to North Korea’s legislative assembly with a 100 per cent vote. In a world that is in economic reverse, are the North Koreans on to something?

For two decades there has been anguish about our economy’s slide down the OECD wealth and output ladder. We are now in the bottom third of the 30-nation group. Miracle-economy Ireland, once a sick joke, roared past.

Productivity growth stalled here in the 2000s. The Clark governments were more determined to reverse the 1990s rise in inequality than to drive up productivity.

So we muddled through while in the star economies brilliant people did brilliant things. We did fewer of the bright things they did. Our standout bright spots remained dairy farming and hobbit-boosted commodity tourism, neither high-wage, up-the-OECD-ladder occupations. Our economy went more slowly.

Much of the foreign brilliance turned to tinsel in 2007 and the tinsel to tatters in 2008. Ireland is a basket case, its too-smart banks insolvent, its budget shot to hell. There are no miracles, it seems, only parables. Not-so-funny new Irish jokes substitute “r” for Iceland’s “c”.

Those which were fast risers because they did the wrong brilliant things are now fast fallers.

Thus, ironically, vanilla New Zealand may well be set to rise in the OECD league table because, while New Zealand is contracting, some now higher on the table are contracting more.

So Key and Bill English may well be able to trumpet at the next election that they have turned around the long decline, even though actual people in actual houses in actual unemployment and actual penury will be feeling worse. That’s political happenstance.

The ironic message is that if New Zealand does now climb back up the OECD ladder a bit, that will be a tribute to muddle-through. Over the past couple of decades we dawdled because, in part, we didn’t do enough smart things. Now some smart things have turned out to be dumb things.

The banks here didn’t do brilliant mathematical aerobatics. Result: they are close to the top of the world in size and safety.

Likewise, with food still a core export and limited dependence on consumer goods exports, which foreign households under stress can go without for a time, we can muddle through the downturn.

As the March 7 Economist magazine says: “With its roots in the soil, farming is everything that complex financial capitalism is not. You know what you put in — and what you get out usually ends up on the table.”

That is why some are sanguine in Wellington right now. Food is not a stellar productivity growth driver in a plasma and iPod world. But people keep eating. Prices go down but volumes do not, much. Consumer gadgets plunge. Export data in east Asia are of train wreck proportions.

Now add in a phenomenon which has Trade Minister Tim Groser pleased but also a mite puzzled. The deal with ASEAN has been signed. India and South Korea are to negotiate free trade agreements and the trans-Pacific partnership linking seven economies, including ours, with the United States is still in prospect.

Just when protectionist worries are rising and the Doha multilateral trade liberalisation round is gasping for breath, New Zealand is improving its trade access. Keeping trade moving is one path out of the mess for the world — and critical to a small, open economy.

Which is a clue for the future. New Zealand’s trade policy is not vanilla. It is recognised — not least by World Trade Organisation chief Pascal Lamy here last week — as high quality and a bit risky.

The issue for Key and English, now the job summit and the 100 days are over, is what happens when this recession/depression ends. Will New Zealand still be muddle-through vanilla, then resume our slide? Or will it have done some of the tough, risky, bright things that make a smarter, richer economy (green smart, to leverage the clean-green brand)?

Note two straws in the depression winds. John Key described himself in the Wall Street Journal this week as “centre-right” — that is, to the right of “centrist”, last year’s self-description. That implies bolder policy than telegraphed before the election.

In fact ministers are being bolder in sacking public servants and redesigning regulation, as first steps to lifting productivity growth. The Budget will focus on regulation and on infrastructure, another productivity-enhancer. There is (belated) talk even of an innovation policy, the critical, but too often neglected, productivity ingredient.

The mantra is: “Don’t waste a good crisis.” The theory is that stunned voters can be more tolerant of risky politics (as in 1984).

Muddle-through is fine for now if our economy slows more slowly than others and we thus climb the rankings ladder. But to hold the higher rank, the economy will have to climb faster when the others start climbing again. Top-grade policy is a (Key?) part of that.