The international reach of a local calamity

The earthquake is, first, a Christchurch catastrophe. It is, second, a national calamity. And, third, it has international reach.

The upbeat international dimension is the wide range of countries which, unasked, sent support teams. That attests to a reputation for fair dealing, constructive engagement and independence built up over some decades.

Like little Norway, New Zealand’s voice is respected abroad. Some internationally useful thinking is done here, mostly out of public view, by non-bloated, non-waffling public servants and by some engaged individuals and interest groups.

In some places that international respect could be at risk if foreign, trade and strategic policy were to return to a pre-1984 automatic alliance with one side in today’s multipolar world. So attention is turning to developing with China a “track 2” engagement of business, officials and ministers similar to the one with the United States in Christchurch which the earthquake interrupted (and to those with Australia and Japan).

Second, regulation has an international dimension.

Buildings collapsed. Is that because no regulation could have saved buildings from this shake’s lateral movement in some spots? Or were the building regulations inadequate to protect buildings from this sort of earthquake and now need tightening? Or did some building designers, builders and owners not conform fully to the regulations? Or did the city council not monitor and enforce them hard enough?

It is far too early to ask, or answer, those questions. The focus is on sustaining life. But questions will be asked in some form by some prospective foreign tourists, buyers of education services, investors in productive enterprise and international reinsurers of local insurance companies. Christchurch was outside the known earthquake zones. Is nowhere safe in a country perched on the meeting place of giant tectonic plates?

The point is that if the regulatory implications are not fully examined, that might risk leaving a dent in New Zealand’s top-end reputation as a rule-of-law country. An article in Nature on 13 January — taking into account the September 4 quake — correlated corruption and poverty with loss of life in earthquakes and found New Zealand was an exemplary outlier, at the opposite end of the scale from Haiti and way better than the United States.

The Pike River mine disaster has warranted a royal commission. Logically, there is also be a case for a serious inquiry about earthquake standards, either to reinforce, or to recover, the reputation Nature highlighted.

The third international aspect follows from the fiscal flow-on.

In the wake of increased spending commitments and lower revenues last year, in part due to the initial earthquake on September 4, John Key and Bill English have said they will cut new spending for 2011-12 well below the rate of inflation.

Reconstruction, which was expected to be a major driver of a lift in economic activity this year, is now delayed. Christchurch business has been brutally hit. Climbing back to a new normality will be a hard slog.

So government revenue will be lower than forecast for a time. And on the spending side there will be a large cost sustaining businesses and households into and through the long rebuild.

Australian Prime Minister Julia Gillard responded to the disastrous Queensland floods with a graduated levy and a restated determination to get the budget back to surplus on target. This has prompted a debate there on whether it is more sensible in the short term to ride out natural disasters than compensate for their fiscal effect.

If English takes the ride-it-out route, pushing out his return-to-surplus date, he will widen the deficit and add to the country’s overall external debt, which could trigger a downgrade of sovereign debt by the rating agencies despite their initial sanguine assessment, affirmed by the august Financial Times. (It is irrelevant that those agencies gave outrageously benign ratings to the bad debt that preceded the great financial crash. They still are taken seriously by lenders and investors.)

A credit rating downgrade pushes up the cost of funds to banks and other borrowers of offshore funds. That slows economic growth. But compensating with spending cuts or a tax impost also slows economic growth.

That conundrum in turn focuses attention on the Reserve Bank. It is usually on the other end of a seesaw from fiscal policy: looser budgeting requires tighter monetary policy and vice-versa. Should the Reserve Bank break that rule and let inflation rise for a bit?

And in behind that is the fourth international dimension: the need to keep the exports flowing, to maintain an outward focus at a terrible time when all human instincts are to turn inward.

The good news is that amid tragedy and trauma Key has (again) consummately combined uplift with realism. He is at his one-of-us best in such awful times. And — for the future — he is an internationalist by instinct.