New Zealand on the wrong road

Press, 22 September 1984, Page 18

New Zealand on the wrong road

By

W. ROSENBERG,

formerly Reader in Economics at the

University of Canterbury

The Economic Summit Conference was an exercise in blind optimism. After repeated outlines of the crisis in which New Zealand finds itself, the main point of crisis — our growing foreign indebtedness — was all but forgotten.

No reference did I detect anywhere that the growing international debt, which is becoming unsupportable, is due as much to too many imports and other payments abroad (such as travel) as to insufficient exports.

The illusion was that the recent devaluation plus export-led policies alone could deal with the situation.

Even should exports be increased without increasing imports, and even without other payments rising to nullify export efforts, the policies will take a long time. By the time they are successful, our international debt

will possibly have doubled. Immediate action is required to deal with our balance of payments. Such action can be connected only with a radical reduction in imports. There was much talk about “austerity” and “belt-tight-ening”, but there was not one word concerning New Zealand’s willingness to refrain from eating French butter, Swiss cheeses, and from buying Singapore orchids, Korean clothes, or Japanese ceramics. On the contrary, there was much talk about increasing imports by allowing “more international competition.”

The story of the beneficience of “the cold winds of competition” on a national economy were all told to. the British people when joining the E.E.C. When I saw the practical absence of British cars on the roads of Britain and watched the development of the British economy during a recent visit there, I

wondered whether the three and a half million unemployed in Britain are not at least partly the result of these “cold Do we want to imitate the sad British story, and that under a Labour Government? The belt-tightening consensus at the Economic Summit Conference thus did not refer to import restrictions, but to Government taxation increases, wage “stabilisation” (with rising prices eroding the real purchasing power of wages) and expenditure cuts — public and private. It also referred to further destruction of small “inefficient” — that is internationally not competitive — manufacturing industry. The only note of dissent to these unemployment-creating proposals came from the Federation of Labour and the Combined State Unions. On the other hand the committee set up at the eve of the conference to deal with the problem of unemployment is not a policy committee, but one which may remove some of the victims that will fall from the unfenced cliff by an ambulance placed at the bottom.

In their comprehensive paper,

the F.O.L. and C.S.U. have outlined a complete policy of industry assistance and investment They have also made highly positive proposals concerning taxation and Government expenditure. All this they have made part of a general tripartite (Government-employers-unions) policy on incomes, prices and fiscal consultation.

However, the paper insists — and Rob Campbell who spoke at the summit conference confirmed — that the “export-led” policies endorsed by the conference are the wrong strategy. The F.O.L. and C.S.U. cannot co-operate in a strategy which is bound to undermine employment and living standards. They seem to be prepared to give the Government a sporting chance for a period. However, they give reasons why they think that the “export-led” policies are going to prove disastrous. The following are the reasons given: The policy of “export-led" development envisages a decline in the relative importance of the domestic market as a base for the economy. A maintenance of era-

ploymerit levels becomes heavily dependent on adequate prices received from, and volumes being sold to foreign markets. However, other countries which suffer the same international recession as New Zealand are trying to achieve the same “export-led” recovery.

The consequence is a "treadmill” effect In order to compete against other countries that themselves are trying to secure a competitive advantage by reducing real wages and devaluing their currencies, the new Zealand economy has to run faster and faster, generating ever cheaper goods for external supply, merely to stay in the same unsatisfactory place. In the meantime, the necessary reduction of real incomes, and the self-inflicted deterioration in terms of trade by devaluation — we try to be able to reduce our prices expressed in foreign currency while paying our exporters higher New Zealand dollar equivalent — lead to a shortage of domestic purchasing power. While this shortage forces those manufacturers who still remain in business to look for export markets — a planned and desired effect — it also leads to the redundancy of large numbers oi workers who formerly produced for the local market As local market industry stops producing, imports replace the product and much, if not all, of the increased export revenue is absorbed by increased imports. The balance is absorbed by increasing interest payments on foreign debt and increased profit remittances to the foreign owners of industries in New Zealand. Countries like South Korea with their ever increasing foreign deficit are examples of the false assumption that export success alone can deal with growing foreign indebtedness. With ever growing exports, South Korea’s foreign debt now exceeds SUS4O billion and the country is forever teetering on the edge of insolvency. Growing mass unemployment and growing dependence on international finance and outside business conditions is the result of “export-led" development. It also leads to a polarisation of society between those who benefit by foreign trade — and who must b rewarded amply to maintain their incentives — and those who are called upon to do the belt-tighten-ing to remain competitive with the cheapest cometitors in the international market. It is clear to those who have the welfare of working New Zealanders at heart that the “export-led” consensus achieved at the summit conference cannot last once the results of the policies decided there become obvious.