International is mainstream now

Foreign policy is trade, Sir Robert Muldoon said 35 years ago. Murray McCully and John Key have in effect been saying the same since they took office. Actually, trade is foreign policy — and foreign is domestic.

This was the import of a little-noticed recent speech by Treasury Deputy Secretary Gabriel Makhouf. The time when a government, especially of a small country, could separate international relations from the rest of its operations is long gone.

In the 1990s Tim Groser, then a trade official, laid down a four-part trade policy agenda. The first plank was an efficient domestic economy with internationally competitive regulatory, tax and government spending settings.

The Treasury has argued that for more than three decades. But it was not much more than a bystander and occasional technical adviser on the three other parts of Groser’s schema: a multilateral trade deal, open regional trade groupings and plurilateral/bilateral free trade agreements. They were handled by the Ministry of Foreign Affairs and Trade (MFAT).

When “New Zealand Inc” entered the political rhetoric, it was essentially intended to bring together MFAT, New Zealand Trade and Enterprise and tourism and immigration officials. John Allen made that a priority when he took over MFAT in 2009 but has made slow progress.

Makhlouf essentially argued in his June 1 speech that New Zealand Inc must involve far more government agencies — and especially the Treasury. He focused on three “key areas”, one of which was domestic policy settings and another the need for the Treasury to have active relationships with counterparts in major trading partners.

In fact, in addition to regular talks between the heads of Australia’s, Britain’s and New Zealand’s Treasuries, there is an “annual strategic dialogue with our Indian and Korean counterparts, fledgling discussions with the United States” and moves for a “strategic dialogue” with China.

This illustrates that “trade is foreign policy” rather than the other way round. McCully’s initial narrow focus on trade missed the point that for trade to flourish, the whole gamut of each bilateral relationship needs tending. Because of McCully’s influence over Key in foreign policy, that infected foreign relations policy generally.

McCully has this year shown signs he might be parting his blinkers slightly. But Bill English is still not part of the international action, except to keep overseas lenders sweet.

China is now a big part of that agenda because of its massive reserves, some of which are fetching up here, invested in government bonds and, gradually, directly into productive enterprises. This got attention in late May when David Mahon said New Zealand risked losing China’s goodwill with its unwelcoming policy toward that direct investment — notably in the Crafar farms case. Labour is more unwelcoming still.

In fact, Makhlouf said, New Zealand “does not rank among the highest-scoring countries” in international measures of ease of trading across borders. It “does not score well” in “openness to foreign investment”, even though “highly dependent on foreign capital”.

We could slash that dependence with a massive switch from spending to saving. But that would miss Makhlouf’s broader point: we now live in a “global village” in which “moving ourselves or our money, seeking out better opportunities, has never been easier”.

So, he argues, if we want to be a prosperous player in that village, policy on matters “such as tax, education, labour, immigration and management of the environment” become critical as definers of our attractiveness to migrants and investors who can boost prosperity.

That requires that this country “internationalises” its domestic policy. Internationalism is no longer a desirable (or undesirable) option. It is mainstream. That is the hard lesson the financially-pressed United States middle class is learning.

For the government here it implies a big rethink. English is actually a key foreign-relations minister. Other ministers, too, are part of the New Zealand Inc international story. Key might usefully look out beyond McCully to the new world.