THE PRESS THURSDAY, DECEMBER 18, 1986. The Douglas view of N.Z.

Press, 18 December 1986, Page 16

THE PRESS THURSDAY, DECEMBER 18, 1986. The Douglas view of N.Z.

Much of the comment about the speech given last Thursday by the Minister of Finance, Mr Douglas, to the Labour Electorate Committee at Ohariu has concentrated on the suggestion that unions should approach management in an attempt to achieve higher productivity. Mr Douglas advocated this, but his speech was considerably more complex than that and has brought forth an interesting response from the member of Parliament for Sydenham, Mr Jim Anderton. The speech was Mr Douglas’s most formidable attempt to deal with the accusation that, because of the economic policies the Government has followed, it is not a “caring Government.” Mr Douglas drew an analogy with a child who cries and whose parent gives it a lolly which results in short-term pacification of the child, but meant the eventual pain of visiting the dentist or losing teeth. His argument is that a caring Government requires the people of the country to face up to developing the ability to survive in the real world in which products have to be sold. He recalled New Zealand’s slide from having the third-highest living standard in the world to the thirtieth; and he said that, if the economy is not put in order, the slide will continue until New Zealand occupies the sixtieth or the seventieth place in living standards. He cited the effects this slide had had on the education, health, and welfare systems in the country. The reason for the decline was given in a single declamatory sentence: “The mess arises because, for 30 years, we have been misallocating our development resources.” He made the point that New Zealand’s investment was as much as the average for the 24 Organisation for Economic Co-operation and Development countries, but said that New Zealand put its money on the wrong horses. Mr Douglas may not be the easiest person to reason with; but he is generally rational in his own approach. On this occasion, having worked himself up to draw a picture of a thoroughly mismanaged New Zealand, he was not above adding the odd extravagant touch. He lamented the fact, as he sees it, that the misallocation of resources has wasted the lifetimes of large numbers of people. Mr Douglas believes that the now misallocated skills will have to be shifted and that the Government should be judged on its provision of new skills for people, and on the way it enables them to move from one task to another. His comment about productivity was part of his conclusion in which he criticised entrenched attitudes in various sectors of New Zealand society, including those among management and unions.

Not surprisingly, condemning pre-Douglas New Zealand so roundly was more than Mr Anderton could stomach. Mr Anderton drew his alternative picture of New Zealand in which he said that policies were developed in response to the experience of the 1930 s Depression. These policies entailed achieving full employment, . health, housing and educational opportunities as of right, a social welfare system, and in the late 1950 s and early 19605, a programme to widen the

employment base for New Zealanders by introducing new industries, protected by import controls, to strengthen New Zealand’s economy.

Which picture of New Zealand is right? To a certain extent they both are. New Zealand certainly did encourage new industries, protected by import controls, with the aim of diversifying the economy and providing greater employment opportunities. The aim was laudable and much of it worked. Without some of these industries, the country would be very much poorer today. At the same time, some of the moves resulted in a misallocation of resources, mainly because protection went on too long. This led to the decline in economic performance so roundly condemned by the Minister of Finance.

There was, however, a sense in which New Zealand could afford the misallocation of resources for a long time. Although New Zealand had a long-term balance of payments problem, it seemed generally manageable, and the earnings from increased primary production looked good. Then came the early 1970 s which brought the first oil shock and the changes in the terms of trade. Had earlier conditions prevailed, there would have been some bad consequences, but nothing like the problems New Zealand has now.

Although New Zealand found new markets for its dairy produce after Britain joined the European Economic Community, New Zealand did not adapt so rapidly to the new world brought about by the huge rise in the price of oil; when it acted to provide alternative fuel sources, on a scale large for this country, but very modest by world standards in the industry, the downward trend in prices was not foreseen. Even now, no-one can judge with certainty how important the fuel projects will be over coming decades.

Apart from import substitutes, the hopes for a recovery in produce markets, capable of earning the required foreign exchange, were held for too long, and at the price of misdirecting too much investment. The country did not take sufficient notice of what was happening in meat markets. The hope persisted, for example, that if the lamb industry could be nursed through, the world markets would change again. Thus, some of the difficulty was New Zealand’s own fault; but some of the economic problems came about because of bad luck and from events well beyond New Zealand’s control. Hindsight is easy;

Mr Douglas was too sweeping in his description of New Zealand’s past. Mr Anderton, for his part, has a tendency to hark back to a New Zealand which was not quite as silly as Mr Douglas makes it; yet Mr Anderton may be thinking of a Utopia which is no longer attainable. Mr Douglas’s harsher view still looks as if it will serve the country better in the future, if only because the experience of the last two decades has proved that New Zealand survives in a harsh world — one against which it cannot build comfortable shelters.