When the balloon goes down
Dinner speech at Treasury productivity symposium, 28 July 2004
You have heard all day from economists and now you get a journalist. My economics stopped at the Philips curve, or shortly thereafter, so you should rhyme journalist with generalist. My beat is politics, which is a generalist's haven. I suppose I am supposed to be some sort of connection between the arcane and the banal. And be brief about it.
I shall start with an MP farmer with whom I fell into conversation a few days ago. He was a sharemilker who bought his first farm in 1983, with equity at the bottom of the bankable range. He went through the last goetterdaemerung year of Muldoon then the firestorm of Rogernomics. He survived partly by dint of some ingenious variations on cooperative deal-making, the rationale for which sounded perilously close to the rationale for unionism. Over the last 15 years or so, according to him, his farm has increased production 10% a year on average.
Maybe when you do the numbers it isn't really 10%. Maybe it is a simple average not a compound number. But, whatever the number -- and you people are experts at numbers -- that is not the point. He has been expanding output fast, as have large numbers of other farmers. He is one of the missing peasants Michael Cullen used to talk about a couple of years ago.
Peasants are growth agents in early industrialising economies, as you all know. When a peasant becomes a factory worker his or her productivity leaps. So does his or her income usually but that is by the by. Peasants moving in droves into China's factories have been important drivers of China's phenomenal productivity leap.
It gets progressively less easy after that -- which is Dr Cullen's point. We don't have peasants -- those on the land are highly productive and getting more productive. From an object of pity as a sunset industry in the 1980s they are the saviour and boom-maker of the 2000s. The terms of trade for high-end protein seem to have picked up. Our peasants might have gone AWOL, as my farmer MP has, but what they have turned into is rather helpful.
But it is not enough. Now that the veil is being lifted from the early 2000s boom and households are about to get the bill for their credit card and mortgage binge, it is back to the hard yards. Dr Cullen's job is to get productivity up. It is a tough job -- on at least three levels.
One is what has been discussed here today: distilling what lifts productivity and devising policies that facilitate those attitudes, events and practices.
It doesn't help that some of the argument seems to be circular, as I thought Ken Oxley neatly encapsulated this afternoon.
Nor does it help that "more" isn't the answer: more humans, more dollars invested, more education. Alison Wolf, I thought, had disposed of the last. A good deal of what goes on in tertiary education, as we heard today, is questionable: what sort of return will we get on it? For genuine higher skill that is applicable, yes. Getting school dropouts' feet on the ladder, as the waananga are doing, yes. But bachelors degrees that are trudged through as if they are school certificate? Nursing degrees? Whatever happened to the notion that at a university you learn to think? Michael Cullen won't say it out loud but he struggles with the notion that what were elite institutions have been mass-production factories.
And, finally, it doesn't help to make inappropriate comparisons. Again, it was Ken Ox-ley -- and Brian Easton earlier in the day -- who reminded us of this. Australia has mines. We don't. Perhaps it doesn't matter. But perhaps it does.
And we have Polynesians: Maori and Pacific islanders. They lengthen the "tail" in our education system. They are a much bigger proportion of the young than of the old and so they will be a bigger proportion of the workforce. If they under-learn and then under-work Michael Cullen's productivity challenge gets that much steeper. Let's hope the experimental work Stuart McNaughton is doing in schools in South Auckland -- and more recently elsewhere -- changes the horizons of teachers and kids and gives them aspirations and the tools to be the productive workers their upbringing does not set them off to be. We -- and teachers -- perhaps need to recite every morning in some sort of mantra: Maori and Pacific kids can learn and want to learn; Maori and Pacific kids can learn and want to learn. It is an investment which will take a generation to produce a return but it will be worth the wait.
I said in that paragraph a dirty word: "aspiration". It is almost as dirty a word in this country as "excellent". You will scan the briefings to the incoming government in 2002 in vain for the word "aspiration", just as you will search nearly in vain for the words "individual responsibility". The middle classes instil aspiration in their kids and ensure they get the certificates that will be their passports into the next generation's middle class. But rather too many suburb-dwellers -- and I don't mean just Maori and Pacific people -- have low or no aspiration. The risk for the country is that they will live up to those aspirations.
The cabinet -- rather splendidly described by Dr Cullen today as "a conference of one which produces lots of resolutions" -- could perhaps play a part. It has been much more interested in restoration of "fairness" than leading us to sunlit uplands. I do agree with Dr Cullen that indiscriminate adoration of "visions" is hazardous: Hitler had a vision and set out to realise it. But the cabinet has been a lot better at painting pictures of the present and the past than tableaux of a future.
This is not the place to go on about this. But it is relevant to what you are discussing be-cause there needs to be some point to lifting productivity before you will get public buy-in. Without public buy-in, productivity will not lift as much.
Dr Cullen discussed this this morning: the wariness of "economic growth" and "productivity" among a wide swathe of the populace, particularly those who went through the economic reforms and lost jobs or income or just got scared or angry at what felt like harsh, foreign doctrine and dogma.
Yes, that populace has benefited from the productivity leap after the reforms: society as a whole is considerably more prosperous than if the pre-reform productivity growth had continued undisturbed: households have higher money incomes than they would have had, fewer households are without an income-earner and fewer people are unable to earn a living than would have been the case with 1960s-1980s productivity growth. All this has swelled taxes which have paid for a better health care system than we would have been able to on lower productivity growth and our educational institutions are less resource-constrained than they would have been. In short, material welfare -- in consumer goods, assets, education and health care -- is higher than it would have been and that improvement in material welfare has undone much, though not all, of the damage done by the economic reforms.
But the good times for most did not kick until Dr Cullen's party took office and mostly for reasons that had nothing to do with that change. Nevertheless, Labour did go on at length about the "failed policies" of the 1980s and 1990s and the public got the message. If Dr Cullen is to get public buy-in now he has to undo his own propaganda. "Fairness" is at the heart of this society's ethos and belief about itself and Labour restored a sense that "fairness" would be central again, which is no bad thing. But alongside "fairness" once used to be "getting ahead". We seem to have lost that as a proclaimed national characteristic, however much there are individuals who do it in their daily life.
This country is unsure whether it wants to be rich or relaxed. "Lifestyle" is advanced as some sort of competitive advantage and maybe it is: we could be a sort of high-end theme park, selling our restfulness, our leafiness, our leisure-richness, our personal warmth, our safety. But is that the route to higher material welfare? And where does productivity growth fit in? Isn't there a danger of conflicting outcomes: more big pulp plants, more roads, fewer high-net-worth tourists coming to the last large area of un-spoiled nature; more brilliant work by gene scientists with milk, fewer finicky Ameri-cans, bothered about genetic modification, coming here.
I prefer to think about this quality as "space to think", the place to do high-end software and other creative business ventures. In that sense what might be called "lifestyle" might be saleable. But that is not my point. My point is that we are muddled about what we want to be and whether whatever it is we want to be is worth the effort. Getting productivity growth up does require a lot of effort and the government has rather little it can do. Much of it is rather like pushing on a string -- an open door to investors and stable macroeconomic settings doesn't automatically produce a rush of high-tech investors; low taxes don't necessarily translate into more entrepreneurship; more "education" doesn't necessarily produce higher-producing workers and entrepreneurs or may produce them for some other country; and so on.
I say all this because I happen to think getting productivity growth up is an excellent thing. If we shifted sustainably on to a higher productivity growth path, that might persuade me to reverse the conclusion I have come to in the past few years that if I was 33 now and making the decision I made when I was actually 33 as to whether to return from abroad I would probably decide to stay in London. It's not just more vibrant and a great city and all that; asset values are much greater. You choose a lower wealth quotient if you choose the lifestyle here now.
That is a decision being made by large numbers of young expatriates and Don Brash is turning it into an electoral issue. I don't think Dr Brash has the answers to his determination to bring back a Napier woman's children who live in Australia and have settled there and have children who are Australians. But he can create a lot of angst for Dr Cullen.
Which is why there was a sharper focus to Dr Cullen's speech this morning -- quite apart form his quip at the Prime Minister's expense. He needs a way to convince New Zealanders to change their ways and embrace the message this symposium is measuring and mulling over.
But there is a bigger picture -- and Marilyn Waring's presence here reminds us of it. The point of getting richer in material welfare is to be richer is all respects: in mind, soul, our daily contact with others and our sense of wellbeing. The 1980s and 1990s reforms damaged that sense of wellbeing. If productivity growth is to be a national creed, it has to be as the servant of a cohesive and generous society that values all contributions.