Jim Eagles: It all comes back to the bottom line

When Bill Clinton ran for President of the United States in 1992, his winning slogan was, "It's the economy, stupid."

The economy has certainly not been at the heart of the present election campaign and yet, as Business New Zealand's election conference concluded on Wednesday, it should be.

This week the Business Herald has run interviews with four of the country's top chief executives - Craig Norgate, from Fonterra; Theresa Gattung, from Telecom; Greg Muir, from The Warehouse; and Chris Liddell, from Carter Holt Harvey - all of whom believe a long-term lack of economic growth is the big issue confronting the nation.

That is not, they hasten to add, because economic growth is an end in itself but because, as Norgate puts it, "only through growth will we be able to preserve our egalitarian society and have world-class social and environmental policies".

All four agreed to air their views publicly - in spite of the fact that speaking out carries risks - because they are astounded at the lack of national urgency about how far New Zealand is falling behind.

They are concerned because, in Liddell's words, "There are still too many New Zealanders who don't recognise that strong growth is absolutely fundamental to our future and that of our families."

Why is there not enough money to pay secondary school teachers what they want? Or indeed to provide free tertiary education to all?

Why have area health boards been forced to pile up hundreds of millions in debt? And why are there still huge waiting lists for most operations?

It's the economy, stupid.

As Norgate says: "We are fairly isolated here, and life is still comfortable, so we don't notice what is happening, what is creeping up on us as a country.

"But you only have to look across the Tasman to see that the difference in incomes between Australia and New Zealand has widened dramatically in the past decade.

"Ultimately, unless we start growing faster than Australia, we are going to fall further behind and that will affect not just incomes but also our ability to afford the same social services and environmental standards."

The economic statistics are clear and frightening.

On the latest OECD figures (for 1998) the share of resources New Zealand allocates to education, 7.2 per cent of GDP, is well above the average of 5.3 per cent. Our spending on health (in 2000), at 8 per cent of GDP, is right on the 30-country average.

But in terms of actual spending per person, we don't do so well. That 8 per cent of GDP spent on health is, according to the OECD, equal to US$1623 a person. But for Austria, which also spends 8 per cent of GDP, it equates to US$2162 a person.

Why? Because in the past 20 years our economy has grown more slowly than those of other developed countries, such as Austria.

The latest OECD figures (updated to July) show New Zealand's GDP per capita to be US$13,300. That compares with an OECD average of US$22,700.

Luxembourg is top of the table at US$43,000 - more than three times our figure - while the United States is on US$35,600, Ireland US$25,200, Austria US$23,300 and Australia US$20,200.

In other words, to spend the same amount per person on health as the OECD average, we probably need to set aside not 8 per cent of GDP but more like 14 percent.

That leaves us with three choices: accept that services such as health and education will not be up to the standard of countries like Australia; keep increasing taxes to try to maintain the level of services as our wealth declines; or launch a crusade to develop the economy faster.

As far as the business leaders are concerned, there is only one possible answer.

"We have to get growth on the agenda, and get people to understand that we have to get our growth rates up, and we have to do it consistently for a decade out," says Gattung.

"Otherwise this is going to become the sort of place where people come and take photos of our cute children as holiday snaps and go away again."

All four have similar views on the practical steps necessary to get the economy moving faster and, not surprisingly, they are pretty much the same as what the country's 250,000 small businesses want.

First, they believe New Zealand needs to have a more favourable business climate with lower compliance costs, a Resource Management Act that doesn't obstruct growth, employment rules that don't discourage businesses from expanding, a good transport system, lower taxes - though no one wanted to highlight taxes - and strong capital markets.

The problem with all the red tape at present, according to Muir, is not so much the impact on big companies like his own - though that is an issue - but the fact that too often "they stop the little guys having a go. And that's not what we want. We want them having a go."

Second, there is support for a lot of the Labour-Alliance Government initiatives such as setting up industry taskforces, targeting foreign direct investment, encouraging better links between research organisations and industry, seeking free trade agreements, fostering innovation and setting up entrepreneurial programmes.

The reservation is that to date there has been more talk than action and, in Liddell's words, "we just need to put some significant policy effort and resources into them".

Third, all four believe very strongly that the education system holds the key to success but fear that at present it is part of what Gattung calls "a cult of mediocrity".

They want to see more resources put into education, but also want a return to basics such as reading, writing and arithmetic and a strong focus on excellence, achievement and success.

But most important of all, they all share Gattung's hope that after the election the new Government will acknowledge that "you can't achieve sustained good social outcomes without growth" and will lead the nation in a crusade for improved economic performance.

They hope - with varying levels of confidence - to see the next Prime Minister stand up and tell the country why we need to grow faster and what has to be done to achieve that aim.

That vision will have to involve sacrificing some social policies such as extra holidays, the right to hold general strikes, higher state spending, a more generous welfare system and stricter planning controls in order to invest in a more prosperous future.

It will mean creating a climate where tall poppies - in business and science as well as sport and the arts - are cultivated, encouraged and rewarded.

Perhaps most of all it will require a national recognition that when a business idea succeeds, when a local company grows to international size or when a New Zealand entrepreneur becomes rich, it is actually a good thing because successful businesses employ people, pay taxes, earn overseas exchange and, ultimately, pay for the goods and services we all want.

The secondary teachers who are striking for more pay should, in fact, be leading the charge towards a more productive economy.

As Norgate says: "Sure they deserve more - and so do people in the health sector - but at the end of the day somebody's got to produce the wealth to pay for that and that comes back to relative growth rates ...

"We simply can't expect to enjoy a First World education system on a Third World income."

That's the economy, stupid.

Full news coverage:
nzherald.co.nz/election

Election links:
The parties, policies, voting information, and more

Ask a politician:
Send us a question, on any topic, addressed to any party leader. We'll choose the best questions to put to the leaders, and publish the answers in our election coverage.