As we gleefully polish the shine on our rock star tiara, we should be cautioned against falling into the trap of many rock stars - that is, of believing one's own propaganda.
Yes, the New Zealand economy is undoubtedly enjoying a period of solid GDP growth, especially when compared to other OECD countries. And confidence figures are mounting, as are share, house and other asset prices. But, without closer inspection, it would be foolish to believe that this period is a reflection of ongoing improvements in prosperity.
The vagaries of short-term cycles can often get confused with longer-term changes. But if genuine economic progress is the goal, we need a broader and deeper assessment of our current situation.
From one perspective, let's look at Treasury's recent development of a Living Standards Framework. This framework includes four other dimensions - increasing equity, social infrastructure, reducing risks, sustainability for the future - as well as economic growth in assessing overall living standards. The sustainability for the future and reducing risks dimensions are particularly relevant when looking at our recent growth episode, which has undoubtedly been lifted by reconstruction activity in Christchurch. While this is necessary, it is not one that we can rely on to sustain us well into the future.
The diamonds in our tiara are dairy and forestry exports. Our export growth over the past year has been overwhelmingly dominated by these two categories. Of the past year's $3.4bn growth in revenue, dairy and forestry made up $3.9bn - suggesting all other categories combined to go backwards. It's a similar story if we look at the past five years. At which point it's fair to ask, are we reducing the risks facing us, or are we jeopardising our future by narrowing our export base? Having spent many decades trying to diversify the New Zealand economy, are we now at risk of going backwards in this effort?
Half a century ago, while wool was our biggest earner, dairy and meat were noticeably large contributors and together these three powered more than 85% of our merchandise export earnings. Fast forward 20, and then 40, years, and we see wool earnings almost evaporate, with meat also on the relative decline. However, on the plus side we saw the emergence of a range of smaller categories (including elements of manufacturing, as well as metals and other agriculture products), providing us some comfort that our diversification strategy was bearing fruit.
But, the last ten years has seen a reversal. Not only has the proportion of 'other' declined, so that we're almost back to where we were thirty years ago. But meat has suffered a further relative decline and our agriculture revenue is even more dependent on dairy.
A similar story can be told if looking at our destination markets. The progress in moving from a high-risk, high-dependence UK market some 50 years ago, to a broader range of markets 20 to 40 years later, was promising. A decade ago our top two markets, Australia and the US, accounted for only 35% of our total export income. Now our top two markets, China and Australia, make up more than 40%.
We have spent many decades attempting to diversify our economy to reduce the risks we face in a volatile global marketplace and to introduce some sustainability into our longer-term economic development. The latest growth cycle is not particularly promising in broadening our relatively narrow export base. Indeed, there is a case that we are running the risk of turning back the progress that has already been made.
And if we are serious about long-term prosperity, then we have to also consider climate change impacts on global commodity demand, as well as on our production activities. And then there are the geo-political dimensions of becoming increasingly beholden to one superpower. Further, what are the risks if our agriculture becomes even more increasingly concentrated in dairy? And, what of the mix of our forestry exports - which appears to be being tilted even more towards the undiversified raw commodity?
These are critical, long-term economic development issues (and policy decisions) that warrant informed debate. Assuming that we are interested in the long term and not short-term political fixes, perhaps that's what we need to bring to the forefront. Much of our current economic policy commentary and debate focuses on the short term. Interest rates, the price on last week's dairy auction, or this month's real estate data inevitably make headlines. Longer-term issues largely tend to be seen as not pressing and are conveniently kicked to touch; or are relegated with a 'nice-to-have, but-there-are-more-important-matters-on-our-plate-now' platitude. As we navigate the challenges and changes coming towards us this century we need leadership fostering a focus on longer-term challenges, rather than glib debates on who promises the bigger GDP next year.
So, yes, let's enjoy the glow from our rock-star status; but let's also not shy away from issues of central importance to New Zealand's future progress and/or prosperity.
Having spent decades attempting to diversify New Zealand's economy, it doesn't make sense to now re-expose ourselves to the risks of an unsustainable narrow commodity and customer base.
To kick off this debate, I'm hosting a live chat today at 5.30pm to explore how we might reverse the recent return to our dependence on diary and logs, and create a more resilient model of economic progress in the 21st century.
