Bernard Hickey: No one spoke of pain

Finance Minister Bill English. Photo / Mark Mitchell.

Opinion

The powers-that-be have been telling us for a couple of years that the economy needed to be transformed.

They spoke about a rebalancing from being a borrowing, importing and spending economy to a saving, producing and exporting economy.

The theory is we will start saving, the money will be invested in new export businesses, higher-wage jobs will be created and the economy will grow faster.

Nice theory, but is it happening and how much might it hurt before we get there?

Prime Minister John Key, Finance Minister Bill English and Reserve Bank Governor Alan Bollard have done the theory part. And they've painted a rosy picture of the future. Higher wages and a lower current-account deficit are, of course, a good thing.

But this transformation isn't going to happen without disruption, dislocation and pain.

Not much has been spoken about the pain or disruption.

It was also supposed to just happen, as if by magic. It's clear now, as the economy struggles to recover, the cracks and tears caused by this transformation won't be covered by the benefits of strong economic growth.

That was the hope last year of Key, English and Bollard. As long as the economy was growing at 4 per cent or 5 per cent it was possible to mumble or look away when asked about the possible losers in any transformation.

But what if growth is an anemic 1.5 per cent or 2 per cent? Or even worse, no growth at all? This is now the prospect for this year after a near double-dip mini-recession in the June and September quarters of last year.

The losers in this transformation are becoming clearer. Retailers hoping Christmas would rescue them are now realising something has changed. This is not like any previous recovery. Shoppers are reluctant to spend. Discounts seem to be almost permanent. Profits are scant or worse.

Any business providing anything seen as non-essential or as "affordable luxury" are struggling.

The evidence is only anecdotal, but many small retailers are expected to close their doors early in the New Year after the last throw of the dice failed to deliver the salvation of a strong Christmas.

Anyone providing services to the real estate sector is also struggling. Real estate agents, mortgage brokers, bankers, insurers, home renovators and others who rely on the regular turnover of properties for their incomes had hoped that spring would restart activity. Instead volumes for most parts of the market are down 15 per cent from a year ago and still half what they were during the previous recoveries from 2004 to 2007.

Shop owners and real estate agents will have to find new jobs. Mortgage brokers will have to retrain to do something else. People will be unemployed or on low wages during the changeover.

This is the point where many wonder why no one told them the transformation of the economy would be painful for some. Why didn't anyone tell us about this?

If this transformation does happen in any meaningful way, hundreds of thousands of workers will have to change jobs. Some businesses will go out of business. New businesses will have to be created. Fortunes will be lost and made.

And unfortunately, because growth is so weak and debts remain so high, the rising tide of economic growth will not arrive to lift all the boats.

The election year of 2011 may become a year of dawning realisation for a naive and unprepared electorate.

The failure to prepare or warn voters may eventually be seen as a failure of leadership as much as a failure of planning. No one told us it would be like this