Frank Greenall: Trudging the road to serfdom

Self-reliance or serfdom?

Trade Minister Tim Groser regularly trots out the old chestnut about how we supposedly "can't get rich by selling goods and services to ourselves". The subtext is that New Zealand, as a small, isolated nation pocketed deep in the South Pacific, depends for its very survival on vigorous international trade. Ergo, we must move heaven and earth to ensure a steady outflow of goods at virtually any cost, or else we're toast.

I'm not sure about heaven, but we've certainly moved earth - our farming practices are washing away our soil at almost 10 times the world's average rate. But the basic assumption that somehow more and more exports are the only way out is tosh. No one would argue that a healthy exchange of goods and services with our offshore neighbours isn't a good thing.

But the key word here is "healthy". Unfortunately, our present situation is not healthy at all, and it's largely self-inflicted. This is because, collectively, we've put ourselves in debt up to our eyeballs to offshore money-lenders, and many are now on a treadmill going nowhere fast, trying to service that debt.

New Zealand now has an extremely high gross external debt/GDP ratio of over 100 per cent, with our net external debt virtually doubling over the past 14 years. We have relatively small capital markets, and borrowers therefore rely on overseas funding for domestic leveraging. In reality, this means a good chunk of the Auckland housing market madness, and the farm conversion gold rush that accompanied fair-weather milk solid pay-outs, has been on the back of off-shore borrowing. So in effect, many Kiwis have exported a serious lien on their future labour in return for anticipated up-front assets. Except that some of those assets are now looking very shaky.

Initially, this was in the hope that the cream would be in the capital gains. It's a high-risk game, as any interruption to income stream, or absence of real capital gains, can prove disastrous. Already we've seen consequences in the tragic rising farmer casualty rate. How "rich" did those farmers get on the back of increased exports?

And in an Auckland where house prices are finally levelling, count the stresses resulting from servicing a house price/average income ratio four or five times larger than a few generations ago.

For the many - both urban and rural - now stuck in this bind, it's a future long-term prospect of economic serfdom. Once again, the devil is mainly in the debt itself. People who take out any sort of loan to a certain extent mortgage their economic freedom. But those taking out what is in effect a big overseas loan are also exporting their economic freedom. And the ferryman always makes sure he gets paid.

The economics of a nation are only the economics of a household writ large. If you hire a painter to paint your house, you have to "export" some of your labour or goods to the wider community in order to pay him (assuming you're not doing a barter). If, on the other hand, you decide to paint it yourself, you short-circuit the whole process, and will indeed get richer (through improved house value) by in effect selling your own goods or services (your labour) to yourself.

At an international level, the same applies. By reducing demand for offshore goods and services, by encouraging local enterprise and manufacturing, the need to commensurately export similarly lessens.

Given the glut of the shonky and shoddy pouring in through our ports that barely touches the ground before helping max out the nearest landfill, this can only be a good thing.

It's an old gag that you can double your quality of life overnight by simply halving your expectations. But it's not as facile as it sounds. If, for instance, you forgo living somewhere that involves eye-watering mortgages or rent, or debt-cranking, you also avoid attendant debilitating demands.

By reducing work and travel hours needed to service the overheads, with less stress and higher-quality family life, you can come out way ahead of the eight ball - exporting less, and all the richer for it.

-Frank Greenall has a master's degree in adult literacy and managed Far North Adult Literacy before moving to Wanganui.