Spin….just spin

I suppose all Prime Ministers these days feel the need to spin.

Ours was at it again yesterday.   She was talking over breakfast –  a vegetarian one the Herald account tells us – to the Trans-Tasman Business Circle.  Her topic?

The topic I have been given for today – ‘The Future of Work and how the government is preparing for the economic challenges of the future’

It is pretty much downhill from there.

Countries the world over are currently grappling with digital transformation, and transitioning their economies, and New Zealand is no different in that regard.

Even if you pardon that abuse of the language (“transitioning”), does anyone have any idea what this means. Individuals and firms are getting on with their lives, looking for opportunities, as it long has been and no doubt long will be.  Are technologies different than they were fifteen years ago?  Of course.  But is our economy that different than it was fifteen ago?  Sadly, probably less so than one would hope.

That isn’t the prime ministerial spin though

Where we are different, I believe, is in the way we are responding to those challenges, turning many of them into opportunities.

The country with weak productivity growth, drifting further behind the rest of the advanced world, and with declining shares of GDP accounted for by trade with the rest of the world.

As it happens, the annual national accounts were released later yesterday morning.   I was playing around with the data and might use it for various posts in the next few days, but since the PM was talking about “digital transformation”  I thought this chart was interesting.

cap stock 19.png

Now not all of these, by any means, are about the narrow “digital transformation”, but if such a thing were happening on a large scale, in which new world-beating opportunities were being developed and seized, these indicators are among those where we might expect to see it.  As it is, over the last few years things to have been more or less going sideways.

The PM went on to first offer some context

Firstly, the NZ economy is in good heart amid the global challenges and what many believe are new economic normals,

Well, okay, believe that if you want.  But most respondents to surveys don’t share your positivity, and in general they are less likely to be motivated reasoners than a PM.  And

Secondly, the Government and Reserve Bank are doing their bit to ensure that fitness endures and it’s important business continues to work with us too – after all, we mustn’t talk ourselves into a funk

We are right, you are wrong.  Get with the message.  Or at least that seemed to be what she was suggesting.  Just a shame the data don’t tend to support her.  I’m still not sure what the Reserve Bank has to do with “that fitness” (whatever it is) –  presumably she hasn’t had it schooled into her that the OCR is typically cut (in an economy without big positive productivity shocks) because demand is weak and things aren’t going that well.  Oh, and is she perhaps aware of those big new capital requirements the Governor is wanting to impose on banks, and hence on the availability of credit to the economy?  If she is embracing those, that would be an interesting call –  her Finance Minister has been very careful to disown all responsibility.

Anyway, she gets into her stride in a section headed “It’s the economy”.

All of you in this room will know that this Government’s approach to the economy is that it is not an end it itself but, rather, a means to an end.

Which might be news if, just perhaps, she could point us to any government in history, or even just New Zealand history, for whom that was ever not so.

That of course means building strong economic foundations. And on that front we’re doing pretty damn well actually, especially amid global uncertainty.

The argument must be weak so lower the tone of the language.  No one is going to dispute that successive New Zealand governments have successfully focused on budget balance and a modest level of debt.  What about her other claims?

So far our policies have delivered growth of 0.5 percent in the June quarter and average growth of 2.4 percent in the year ending June. That shows that the New Zealand economy continues to outperform those of Australia, Canada, the Euro area, the UK, and the OECD average – basically those we compare ourselves to.

That tired old line so beloved of whoever is in office, right or left, and their champions.  Never mind that we have substantially faster population growth than all of those countries except Australia and that any reasonable and honest use of GDP statistics in a a discussion about success, wellbeing or whatever, starts from a discussion of GDP per capita.    On that score, there is nothing impressive about even our recent record, let alone the longer-run picture.

Also, recent data shows New Zealand’s manufacturing and services sectors are both expanding.

Well, yes that is probably so, but…..when your population is growing by 1.5+ per cent per annum if those sectors (ie the bulk of the economy) were actually contracting it would be really quite alarming.

We have record low unemployment and annual wage growth is at its highest level since the 2008 financial crisis. Average wages have increased by 4.2% in the last year alone.

Yes, relatively low average unemployment –  consistent with the typical person being unemployed for “only” two years in a working life –  is one of the successes of the New Zealand policy framework.  But the current rate is nowhere near a “record low” –  not even during the 30+ years of the HLFS (that was just prior to the last recession), let alone the post-war decades prior to the quarterly survey getting going.

New Zealand continues to be a good place to do business, topping the World Bank’s 2019 Ease of Doing Business index. Our globally competitive economy is underpinned with stable political and regulatory systems, an innovative well-educated population and our proximity to 60 percent of the world’s population. We are a safe place to invest.

Such a great place to do business in fact that (a) business investment remains persistently weak, especially given the surge in the population, (b) our economy is becoming more inward-focused (trade shares have been falling) and (c) another tired old line –  we are close to 60 per cent of the world’s population –  that bears just no relation to reality whatever.  Yes, we are closer to the centre of gravity of world economic activity than we were 100 years ago – when we traded mostly with the then-dominant power the UK –  but these days the UK is still closer to India and as close to China as we are.  In both cases, far away.  Oh, and we are also a long way from those leading productivity economies in Europe and North America.

And last on this list

And you’ll note that when the Reserve Bank announced its decision to hold the Official Cash Rate at 1 percent last week, its analysis confirmed the economy is in good shape, amid global economic headwinds. The Bank pointed out that employment is pretty much at its maximum sustainable level, residential investment is increasing and that economic growth is expected to rise next year, due to the Government’s investments. While the RBNZ noted that global headwinds have impacted business confidence in New Zealand, it also said that our investments are forecast to support and grow the economy next year.

When the Prime Minister says “investments” here she really just means more government spending, most of it consumption or transfers.  Probably she didn’t read the Reserve Bank’s statement, but she will have had a personal briefing from the Governor.  He too is inclined to spin, but his document had a rather lot on the downside risks –  in fact they explicitly noted, and formed policy on the basis of, the balance of risks being to the downside.  And while the Bank had rather upbeat growth forecasts, few private economists shared their optimism.

I am not wanting to suggest things are disastrously bad, at least in a short-term cyclical sense in New Zealand, but at very very least the PM is gilding the lily.   Perhaps you might think that is her job, and on a bad day I could share the cynicism, but we really should expect something better from people who hold office as leaders.

But her own summary is this

Ultimately, we have a positive story to tell, including to investors, and one of my consistent messages is that we are a stable, reliable  investment option, with plenty of success stories. Now, domestically, we  all need to act like it.

I’m right, you are wrong, get with the message.   Or so it seems.     And, yes, we do have a fair measure of political stability –  no Brexits, no civil wars etc, no impeachment hearings (just the ongoing stench of the political donations scandals) –  but that doesn’t markus out from most advanced countries, those that have been performing pretty strongly –  actually securing the productivity gains on which so much else rests –  and those, like New Zealand, that haven’t.

The next section is headed “Govt doing its bit”.  Here there is a lot about capital investment

It won’t surprise you to hear me say – infrastructure, infrastructure and infrastructure. There’s no question that we have a range of deep policy issues to address as a nation, but unless we get the basics right of providing decent housing, transport and health and education services, we’ll only compound those more complex issues. That’s why the Government’s Economic Plan, which you will have heard many Ministers talk about, is designed to build an economy that protects and improves the living standards and wellbeing of all New Zealanders through ensuring we get those most basic fundamentals right.

That’s why we are investing record amounts in hospital and school building programmes – including the fact that in our first two Budgets we’ve invested $2.45b into upgrading and building new hospital and health facilities- that’s twice as much as the previous government managed in nine Budgets – alongside large investments in transport safety, regional roads, and public transport, and we’ve done that while maintaining a responsible budget surplus.

“The Government’s Economic Plan“: that’s a good line.  I hope it got a laugh.  But perhaps the audience were more polite than that.  Infrastructure?  Well, shame about the roads that aren’t getting built, even as the population grows rapidly.  And here is another chart from the annual national accounts, showing general government investment spending as a share of GDP.

govt GFCF

Nothing startling about spending in the first full year of this government.  But perhaps it will be different in years to come.

And then the empty boasts about housing

Not to mention our comprehensive plan to fix the housing crisis which includes delivery of: more state houses than any Government since the 1970s, banning offshore speculators, expanding Housing First to end homelessness, a $400 million package for a progressive home ownership scheme, and making saving for a house deposit easier by lowering the deposit required for a Government-backed mortgage or first home grant from 10 per cent to five per cent. These are real, tangible, things that will help New Zealanders and their families.

“Comprehensive plan” and yet not a mention of the only thing that would make a durable, substantial and sustainable difference, lowering prics of houses and urban land, land use reform.  Allowing people to borrow 95 per cent LVR loans – even as her Reserve Bank keeps on LVR restrictions on private credit –  is at best papering over the cracks of the failures, chosen, of successive governments, including her own.  But give her credit for consistency:  Labour leaders (whether Little or Ardern) have never been willing to champion serious land use liberalisation.

A little further one and we get this recapitulation

Ultimately, this [Infrastructure Commission report] should all be sending two really strong signals. That we are planning for the future and that now is the time to invest. New Zealand is doing well and there are enormous opportunities if we act now. The best thing for the NZ economy at the moment is optimism, planning and investment action. We’re doing some pretty heavy lifting to shore that up in terms of spending and infrastructure investment, the RBNZ is doing its bit with record low interest rates – the private sector needs to ensure it’s on board too.

But, our economy (a) isn’t doing that well (see above) (b) and firms –  people with shareholders’ money on the line clearly aren’t seeing “enormous opportunities” to invest, either now or (in fact) for decaders past.  If it were otherwise now then, all else equal, interest rates just wouldn’t be this low –  as a macro 101 reminder to the PM, interest rates are low because demand for resources at any higher interest rates would be even weaker.

But the PM enjoins us to “only believe”, to join some sort of cheerleading squad building castles in the air.

In fact, one of my staff members asked an economist earlier this week to sum up the economy in one sentence and was told – “it’s ready for lift-off”.  I could not agree more.

Perhaps there is such an economist.  Perhaps he/she doesn’t even work in DPMC/PMO. Perhaps there even will be a bit of a recovery next year.  But just nothing suggests this economy is “ready for lift-off”.  The basic imbalances and severe structural problems haven’t been addressed, haven’t changed.

She goes on.  There is the claim

we have laid out a clear agenda. Yes, it includes change, but by now you’ll all know what that agenda entails and how we’ll deliver it.

Somehow, I suspect the farmers angsting about the current water proposals don’t see it that way.   And the government might have passed a Zero Carbon Bill, but (whatever its merits) it involves almost no substantive certainty about anything affecting business.  Do we know what is happening about Fair Pay Agreements?  And so on.

The speech goes on into a variety of other areas.  The last I wanted to comment on was this –  something to look forward to next week

Today I am also able to provide you with some insight into an upcoming announcement for the Forum. On November 25 the Forum will publish its Strategic Assessment of Future of Work Priorities. This presents four initiatives as priorities:

  • The first is Industry Transformation Plans which will ensure we add value to key sectors of our economy and leverage new opportunities. These plans – for the food and beverage, digital technology, forestry and wood processing, and construction and agritech sectors will describe an agreed vision for the future of each sector, and set out actions required to realise this vision.

(So actually, some of the “clear agenda” isn’t laid out yet, but will be next week?)

Presumably the Prime Minister takes this stuff seriously, but really who supposes that a bunch of central planners, bureaucrats and their corporate equivalents, are really likely to come up with anything useful in these “industry transformation plans”.  Haven’t we had numerous such plans before, stretching back many decades, and precisely what useful has come of them?    Market economies just don’t succeed with “agreed visions” across government and the upper tiers of existing industry players, but by competition, trial and error, creative destruction, unexpected discoveries…..all supported perhaps by governments willing to do what it takes to put a supportive overall policy environment in place.   Our goverment, much like its predecessors, is all too fond of the status quo, and unwilling to –  probably uninterested in –  getting to the bottom of why that continues to produce such mediocre economic results.

As a hint, the real exchange rate –  a key relative price that never seems to make it to the PM’s upbeat economic speeches –  remains well out of line with what you might expect for a country with such a disappointing long-run trade and productivity record.  It might be consistent with that performance, but simply isn’t consistent with delivering something much better, that “productive and sustainable” mantra ministers always keep reciting, while never doing anything much to bring about.

I guess Prime Ministers feel the need to spin, perhaps especially those who aren’t willing to do much substantial.    But it is a shame there isn’t a lot more honesty about the underwhelming state of the New Zealand economy and the reluctance of our policymakers and their advisers to do anything much about changing it.  Sheer spin might get a good headline in the next day’s newspaper, but longer-term it just feeds the growing cynicism about politicians and the political process.  It is cheap, has some short-term sugar-high effect, but is pretty deeply corrosive.  Why take seriously anything they say?

30 thoughts on “Spin….just spin

  1. First a comparsion;
    “It is cheap, has some short-term sugar-high effect, but is pretty deeply corrosive”.
    This like pouring concentrated acid on ones hands, short intense pain then your fingers drop off.

    Your article is all very sadly covered by your final sentence, “Why take seriously anything they say?”

    No more complaints, please just provide New Zealanders with a clear pathway to success. What do we have to do to make the country an outstand place to live? Step one, two and so on.

    Liked by 1 person

  2. I was surprised to hear David Seymour say yesterday, in response to a petition calling for more funding for Pharmac: “Political debate in New Zealand has forgotten about economic growth. We believe we are first world, but in reality we are 40 per cent poorer than Australians. We must confront these realities if we’re going to deliver the pharmaceuticals people need within a rules-based system.”
    I’m afraid we are heading towards the status of Chile and Argentina, as we allow more and more people to flood in to take a share of national wealth…

    Liked by 4 people

    • We all known the secret agenda of David Seymour’s Euthanasia Bill is intended for. If we can’t afford health care and funding for Pharmac to ease pain and suffering due to our increasing numbers of old and sick people, just kill them off.

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      • Rather unusual view. David is not a great politician, but this is a tin hat worthy idea. Giving people freedom to chose seems to be lower on your priority list than funding a system that treats a body still breathing, even if only with assistance, as a money making asset to be kept alive as long as the taxpayer can be milked.

        Liked by 2 people

      • GGS: I was reluctantly dragged to a grey power meeting a week ago and David Seymour made a brief defence of his Euthanasis bill. I was impressed and will be voting for it. The bill is conservative compared to the laws enacted by other countries; nothing is perfect but it does seem safe to me. As Mr Seymour pointed out many of those in other countries who elect to get an approval certificate never actually do through with it. It remains a personal choice. Maybe not the forum for this discussion but I do recommend you learn more.

        Liked by 2 people

      • I’m strongly opposed to Seymour’s law, but I don’t want it debated here.

        I was, however, pleased to see him remind people that growth/productivity matters, even if his party has little sense of what changing the NZ outcomes might take.

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  3. I must give Jacinda Ardern the credence of emptying out many state owned houses in Mt Roskill to rebuild brand new higher density houses. This was indeed a rather brave move which the National government just simply avoided as a political nightmare to remove state tenants who have lived in their properties for 20 years and more. Phil Twyford and Jacinda did not even blink with removing them from their homes and extending the numbers of the homeless living in cars and decrepit motels..

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  4. Honestly, can we expect anything more from a 39 year old who has a Bachelor of Communication Studies (whatever that is) then worked in an “80-person policy unit of then-British prime minister Tony Blair (she never met Blair in London) – and then back to New Zealand with a brief stint s President of the International Union of Socialist Youth, spending time with ‘comrades’ in Jordan, Israel, Algeria and China before parachuting into Parliament at the ripe old age of 28.

    Basically, she’s never studied a real degree, she’s never worked in a real business, and she has absolutely no idea how wealth is generated.

    To ask her to understand business is like asking an Eskimo to describe living on a tropical island…

    And Grant Robertson is no better. Nor is Winston – lets move the Port of Auckland to Whangarei – Peters (what an utterly insane waste of capital that would be).

    These people spend our wealth without any regard for how darn hard it is to create… they are an embarrassment.

    Liked by 4 people

    • My daughter has a Bachelor of Communication Studies. She works in middle management for Samsung. If I ever owned a company she is one of the first I would offer a job to.

      Jacinda’s background is not too bad for a Prime Minister – it is mainly public relations. She must have been brave or very well protected to go to Algeria; I went 40 years ago and it was the most beautiful country but the worst place I’ve ever been. Did her China experience ever involve trips to Tibet or East Turkestan – she would find wearing a muslim headscarf a brave action now.

      Liked by 1 person

      • Samsung is a real company certainly. But if your daughter was middle management in Korea then her depth of experience would be amazing. But over here in NZ the experience would be what? Customer support? Warranty queries?

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  5. It was not a forum for any other message.

    She said “” we are planning for the future “”. Is that a plan for replacing infrastructure and civil service jobs at a rate of roughly 2.5% (assuming on average roads, schools, hospitals and teachers, nurses, police are replaced every 40 years) or at 4% assuming 1.5% to 2% population growth.
    Actually rather worse since immigrants however much you try and allocate them to rural NZ always end up in our cities – that was proven by sociologists in USA a hundred years ago; it was true even in London when the Huguenots arrived about 1670.
    I first saw NZ in 1995 and I clearly remember thinking as I crossed the harbour bridge for the first time – this bridge needs replacing soon.

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    • Apparently Singapore replaces everything like sidewalks etc in 7 year cycles. They also have an interesting housing scheme – you essentially can buy into a state owned house twice, and most people use it to buy a first home easily to build equity, then when downsizing when retiring.

      Liked by 1 person

    • I guess my point is that a serious leader could have given a quite different message, which would have been uncomfortable for the leader and the audience perhaps but would have had the merit of at least being honest about the failings – no more Ardern’s fault than those gone before her, except that she put her hand up to lead and won, she is now responsible.

      Liked by 1 person

      • My point is in 2005 a population of 5 million was planned to take 45 years but in reality it took 15 years and that has left us with many headaches. If they had planned for growth triple what eventuated then we would have an excess of teachers, police, nurses and rather empty roads, minimal urban pollution, some moth-balled hospitals. Not ideal but better planning.

        Liked by 1 person

      • Most of provincial NZ has a declining permanent population. What is propping up these provincial towns is the 4 million tourists through Air BnB rentals that have now boosted the desirability as rental investments and boosted hospitality services. When National took power 11 years ago, it was a lousy recession and immigration was running negative with rents falling and lots of vacant properties.

        Wellington is being propped up by the thousands of consultants brought in to advice the government through 100s of working groups. Most of the growth has really been in Auckland.

        It was really only a few months ago that the Phil Twyford and the Labour party in opposition for 9 years and in government for 2 years realised that building homes ringed by 52 Volcanos is not that straightforward.

        Liked by 1 person

  6. Government and business do not mix which is why “agreed visions” inevitably turn out to have been delusions. The best thing governments can do is get out of the way, while maintaining the legal framework to protect rights to life and property. But that is anathema to socialists who seek to control every type and phase of human activity within their ambit.

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  7. I get left cold by phrase by phrase analysis.
    Yes the speech is all spin, one John Key would have been proud of – except as to its content.
    I am thankful that we as yet have not given our leadership over to the ungovernable messes of Spain, Israel, Italy, Greece, Venezuela, US’s presidency, UK’s Brexit and coalition problems in Holland, Belgium.
    So far that is.

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    • At present, the polls suggest the UK will soon sort itself out with a majority govt.

      my son was posing an interesting question the other day re NZ: what would happen if both Labour+Greens and National+ACT ended up with 60 seats. I presume Ardern would remain PM but be unable to legislate anything material.

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      • Michael, thanks for your comment about the UK.
        Frankly, I have been watching (I have some investments there) and any attempt to implement Brexit will be a disaster. There are no resources to develop trade agreements outside the EU who will put on tariffs and the WTO rules will not compensate. For all the bluster, Johnson is totally incompetent and has filled his cabinet with inexperienced associates.

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      • I’m keener on Brexit, even if it will be somewhat disruptive in the short term. But my only point here was the a majority will actually resolve some issues. I’m no fan of Johnson.

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      • Tell your son that ACT and the Greens stand for something but Labour and Nationals just want the status quo – so they have the basis for a coalition. Jacinda as PM because the media still prefer her. Tweedledee and Tweedledum. And the same policies both have pushed in the past and the same level of achievement.

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  8. His scenario was one where after all that it was still 60:60. On reflection – and although it hasn’t been a problem yet – it does seem strange that we chose to go for an even number of seats, which increases the probability (albeit still small) of such an even outcome.

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  9. Fake – a thing that is not genuine; a forgery or sham

    The Dark Art of Deception – words are important

    quote:
    “in our first two Budgets we have invested $2.45b into upgrading and building new hospital and health facilities”

    The word invested means “spent”

    Clever – She means she has “budgeted” to spend $2.4 billion
    Q:- how much of that has actually been spent?
    A:- very little to none at all

    Liked by 2 people

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