Prime Minister Christopher Luxon reveals Cabinet reshuffle from Wellington.
Video / NZ Herald
Opinion by Robert MacCulloch
Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He previously worked at the Reserve Bank, before travelling to the UK to complete a PhD in Economics at Oxford University.
The portfolio was formerly called the Ministry of Economic Development, which was headed by Melissa Lee.
The Prime Minister should put his marketing past behind him. After all, we voted out Dame Jacinda Ardern and Chris Hipkins because of their marketing, public relations and communications spin machines.
During the last election, Hipkins said that New Zealand had the fastest-growing Gross Domestic Product (GDP)in the world. That was a hoax. The International Monetary Fund ranks us 181st out of 190 nations. We have spent the last two years in and out of recession, under both National and Labour.
Why is it a misleading name, not used by any other country?
Because in a market economy like ours, the Government has only a limited and indirect influence over the pace at which it grows. The main job of the Government in that regard is to design quality laws, in particular relating to property rights. Those rights incentivise private individuals to innovate and produce.
It is the people and our firms, by virtue of our purchases and production, that add up to being the two biggest players creating the demand and supply equilibrium that determines GDP and prices.
Since aggregate growth is measured in terms of GDP, New Zealand’s new Ministry for Economic Growth could equally be called the Ministry of Production. As such, it conjures up ideas of communism, command and control and central planning.
There was once a Ministry of Production in England during World War II, in charge of weapons manufacturing. During the war, the Americans had an Office of Price Administration for price controls. These days no nation bothers pretending that it can directly set output and prices.
Furthermore, there are times when GDP should freely fall due to supply shocks, such as oil, or due to a pandemic.
In those times, it’s important for shoddy firms to exit, making way for more efficient ones with new people geared up for a new order, a process called creative destruction. Times of upheaval do require unemployment insurance, but not a Ministry of Economic Recession.
We are now paying the price for our politicians’ and the Reserve Bank’s myopic obsession with faking economic prosperity during the pandemic.
Reduced prosperity and entrenchment of monopoly power in New Zealand occurred after both National and Labour supported offering blank cheques, drawn on your account, to our country’s biggest firms during the pandemic.
In 2020, after that announcement was made, the NZX 50, which comprises the top 50 stocks in terms of size, rose nearly 50% in value, representing a transfer from taxpayers to them of tens of billions of dollars.
Our biggest firms today are busily privatising their gains, while just a few years ago they were busily nationalising their losses. Our present huge public debt and high cost of living is the collateral damage.
The political desire to maintain big business’ economic growth during the pandemic avoided a hugely overdue shake-out in New Zealand.
Instead, it has been small firms – the likes of greengrocers – that have been bankrupted. Big, useless building companies, the big supermarkets, who were the only ones legally allowed to open in lockdowns, and all of the NZX 50 publicly-listed oligopolies, have sailed happily on.
We are now paying the price for our politicians’ and the Reserve Bank’s myopic obsession with faking economic prosperity during the pandemic. Together, they prevented the cleaning out of the big end of town.
Together, they prevented the rise of a new type of kid on the block, armed only with the strength of their character, big dreams and the potential for big achievements.
No wonder those youngsters are leaving the country. National and Labour were complicit in granting New Zealand’s old guard a too-big-to-fail public guarantee. Both parties hunkered down with BusinessNZ to buy the support of its members before the 2020 general election.
They now cry crocodile tears for our youth, while at the same time handing a swathe of big jobs to mates, rather than searching for the best person.
Why has former Prime Minister Sir John Key’s chief science adviser been recycled as Luxon’s Science System Advisory Group chair, along with so many other recycled throwbacks, when a whole new generation of outstanding scientists and business folks emerged in the intervening years, including the Kiwi founder of Artificial General Intelligence?
National and Labour together bemoan a lack of competition, but they engineered it themselves by insisting public funds be used to underwrite our largest companies and business partnerships. Even now, neither party is championing meritocracy in New Zealand.
To explain our country’s poor performance, they conveniently blame each other.
All told, a Ministry of Economic Growth is as silly as Monty Python’s Ministry of Silly Walks.
It denies personal responsibility. It sends a confusing message that somehow our country’s production depends on ministry officials and Willis.
It promotes the idea that a weakly growing economy run by the Government’s cronies and poorly managed firms is more preferable than change, upheaval and a temporary deep recession, even though it would herald a brighter long-term future driven by a new group sweeping away the broken old system, turning it into something better.
