Should anyone above the age of 25 be allowed to run New Zealand? The idea is not as absurd as it might seem. My generation of New Zealanders and the one before it have presided over a gradual, interminable decline in relative prosperity at least since 1950; that represents 60 years of retreat.
The very best we have achieved is perhaps - and the jury is out - perhaps to have recently halted the relative decline, but most likely only for a limited period. If our generation had been the management team our Board of Directors would have sacked us by 1965 at the latest. Somehow we have disgracefully hung on for a further 45 years.
In that time we have overseen our standing in the OECD steadily fall and have suffered the ignominy of countries that we once determined to be unsophisticated pass us by. Just this past week it was reported that the district health board where I live could not bequeath its unfit-for-use hospital beds to developing countries because many of these countries were already using better beds.
How bad does it have to get before we act? The data that clearly indicate what is wrong have been with us for years; we simply need the courage to be decisive.
By far the most serious issue is the gross misallocation of capital in New Zealand. Productivity data tell the story. Whilst in more recent times we have achieved high levels of labour productivity - that is, mobilising people into paid work and making the most out of them - our total or multifactor productivity growth rate is almost static. The explanation is that we are investing our capital into unproductive assets, or assets that only return poorly.
A full 76 per cent of New Zealand's capital application is into housing compared to Australia's 52 per cent and the USA's 37 per cent. You'd need a pair of tweezers to find the amount that we invest in stocks and shares, where real wealth can be created by productive enterprise.
In order to realise the value of speculative housing we need positive population growth and as our birth rate is just below replacement and, in the long-term, falling we will increasingly rely on immigration to boost population and stimulate demand for housing, along with the break up of the "nuclear family" and fall in average household size. Courting cashed up immigrants as we do - and placing the majority in Auckland - serves to stimulate inflation.
This is where our savings tactic (the value of housing) runs headlong into monetary policy, the means by which we attempt to regulate the temperature of the economy through the price of money; real interest rates are ramped up and their impact is muted by fixed mortgage instruments.
Therefore, our effective target with monetary policy is the export community. To regulate economic activity we artificially elevate interest rates and drive exporters to the wall; our currency is very highly traded and this makes it highly variable; exporters have tremendous difficulty responding to this, which contributes to our appalling rate of export growth.
The remedy is simple. It only takes vision and courage; we have lacked both for 60 years. Firstly we must ensure that our investment environment is just neutral and that is does not favour relatively unproductive assets - land and buildings. A capital gains tax or land tax would assist that.
Secondly, we need to introduce compulsory superannuation and focus a reasonable percentage of those savings into productive enterprise onshore. Opening up some of our best companies to mum and dads' equity investment would help secure this. Then we need to abolish use of the price of money to regulate the economy, at the very, very least find other tools to supplement it.
Singapore varies the savings rate to superannuation in this regard and it's a very successful economy. So should we; it's your money to be spent later rather than today, it will be invested in creating better jobs and it doesn't disappear into an offshore bank reducing the balance of payments and destabilising the exchange rate in the process.
The remedy is so simple. There is nothing radical here; most of it is routine overseas. The fundamental problem is culture, one that is currently speculative, impatient, intra-generational and focused on the balance sheet. I have three young kids and I want them to stay in New Zealand in the long-term.
That is what motivates me. So, I want the presiding culture to be sophisticated, patient, inter-generational and focused on the profit and loss statement, that is, on consumers offshore who will pay us a decent whack for a new generation of knowledge-intensive goods and services. If my generation doesn't decide to do it then it's time to pass the baton onto those who are 25 years and younger who definitely will. After all, who else is going to pay for our retirement?
* Dr Andrew West is the Chairman of Innovation Waikato
<i>Andrew West:</i> We're talking about my generation
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