THE PRESS SATURDAY, DECEMBER 30, 1978. An illusion of affluence

Press, 30 December 1978, Page 12

THE PRESS SATURDAY, DECEMBER 30, 1978. An illusion of affluence

Three years ago a newly elected National Government with an overwhelming majority faced high inflation, rising unemployment, a high level of borrowing, and a deteriorating balance of payments. Tough economic measures early in 1976 were expected by much of the community: they would have been accepted and even welcomed. Instead, the Government played its hand cautiously and engaged in little more than economic tinkering Now another newly elected National Government, with a small majority and an even smaller reservoir of good will, must grapple with the same intractable issues.

This time, surely, the Government will have no alternative but to adopt policies, however unpopular they might be in the short term, designed to restrain imports and to increase productivity. Knowing that the great majority of imports are essential to keep the New Zealand economy going, the Government has little room to manoeuvre, especially when the prices of imported items and of services that must be paid for in overseas funds continue to rise.

In such room as it has the Government will have to act more vigorously in the coming year to encourage the production of substitutes for imports, and to moderate consumer expenditure that is directed at imports. The most likely course for the Government to follow will be increases in tariffs on all but the most essential imported items. Even this course will be less effective than a boost in production for export and further emphasis on New Zealand salesmanship abroad.

Some of the economic medicine will be unpopular, especially in the wake of a Christmas in which more New Zealanders seem to have enjoyed more affluence than ever before. The vital word is “seem.” This country remains the victim of policies overseas which it can do only a little to influence. Further uncertainty about the supply of oil in the wake of events in Iran, the growing strength and exclusiveness of the European Community, tension between the great Powers in the wake of the American recognition of China — all these can be expected to increase New Zealand’s difficulties as it attempts to make and pay its way in the world.

New Zealand has continued to live beyond its means, and to borrow to meet the gap. Without that borrowing the level of unemployment would be higher than it is today: but New Zealand cannot go on forever borrowing to pay for imports that keep New Zealanders employed. The dilemma has become starkly clear New Zealand must produce more, and sell more abroad, without increasing its internal costs if the present affluence is to be maintained. Otherwise, the general standard of living must fall. This, to many people, would be more desirable than continued unemployment: but adding to labour costs by increasing the volume of labour used will not solve our economic problems unless either wage levels are tightly controlled or productivity is substantially raised.

One course calls for some sacrifice by the majority of citizens for the benefit of those now unemployed. The other, towards higher efficiency and productivity will succeed only if the total of production is increased.

One of the lessons of the last few years has been that greater efficiency, born of economic necessity in business, increases the number of unemployed unless output is raised. The Government. when it has the power to do so, must act firmly against the forces that discourage production, risk, and investment. Industrial stoppages and high rates of interest, are among these forces.

These economic difficulties are appreciated by a surprisingly large proportion of New Zealanders. There is even some evidence of a readiness on the part of groups such as the Federation of Labour and the Chambers of Commerce to attempt a bipartisan approach to the search for ways out of this country’s persistent difficulties.

Whatever attitude is adopted by the politicians, the coming year will see the intensification of a contradiction inherent in New Zealand society as in most other advanced Western communities. Only the Government has sufficient power and resources to improve the economic climate. Yet any sensible approach to development must be based on a decrease in Government activity at local and national levels. New Zealand needs less government, less regulation. less intrusion in social and economic life if there is to be a sustained climate of optimism and belief in the rewards of work and higher productivity.

The country needs less taxation and lower rates if adequate funds for productive investment are to become available. In the United States opposition to the growth of rates and taxes has crystallised into a movement which has begun to affect the results of elections. Similar movements have appeared in Europe. The beginnings can be seen in New Zealand.

It is probably too soon to predict that people in this country will again be prepared to accept greater individual responsibility for their own welfare and for the results of their own actions, rather than go on demanding increasing assistance from the übiquitous “Them” in central and local government. The beginnings of such a movement exist and can be expected to spread in 1979.

Herein lies one of the awkward contradictions in public policy. The community demands more from the Government, especially by way of services and welfare expenditure: less money and less manpower are left to produce the wealth from which these services must be bought. The coming year may be one in which both the Government and the community at large become more conscious of the need to make a profoundly important choice: between increasing the nation’s real wealth and reducing the general standard of living.