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January 1, 2010 8:58am by David Farrar

Where the economic growth has been

This graph from interest.co.nz (originally Treasury) shows the price we paid for the third term of Labour.

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Comment35

NZ Politics
economic growth

Comments (35)

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Leonidas

Is that what earns an ONZ?
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January 1, 2010 9:25am
redqueen

This is hardly surprising, given that Labour’s economic policies were designed to encourage over-employment (beyond even full employment, as it turned out) and were based on creating domestic consumption and a housing boom (‘feel good factors’). It’s also unsurprising given that the government was expanded so much, which is by definition not a tradeable sector (if we could find a way of trading officials, we might be onto something…). Whatever the case, surprise surprise, but I doubt there’s been any serious pick up this year and really would like to see the Government (regardless of which party in the coalition) start instituting policies which stop distorting our economy and leave us to do what we should be doing: making things to sell (whether goods or services). It would be interesting to do an analysis of government bureaucracy and regulation and see how those two match up with the decline of tradeables.
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January 1, 2010 9:26am
reid

redqueen the biggest contributor was the housing boom which was the largest and longest in my memory and while Cullen should and could have done more to dampen that other politicians in other countries didn’t dampen it either.

I agree with you that the expansion of govt both in personnel and in bureaucracy exacerbated that and I’d like to see a breakdown of the non-tradeable sector so we can trace the contributions of each individual sector.
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January 1, 2010 9:42am
expat

The “tie dying table cloth course” effect
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January 1, 2010 9:44am
redqueen

Reid, given the connexion between the housing sector and employment, I’m not really able to attribute any proportional blame. The Government chose to enact policies which certainly helped cause the boom (restrictions on supply, immigration, and over employment), but this all occurred in an environment of ‘easy money’. Given our relatively small size, the availability of cheap credit (internationally) for such a prolonged time, whether we want to blame China, the US, EU, etc. made the situation highly likely here. So I can’t really attribute blame or responsibility.

But we can certainly blame Labour for introducing policies which shifted economic activity away from private enterprise, and tradeables, and reduced both the supply of workers and increased regulations and distortions of the economy (just try and read the Income Tax Act 2007…). On the issue of tradeables that is where we must find some fault against them, even if other economic distortions occurred as well (whether or not they were primarily responsible for them too).

I just really want to see whether there is a link between Helengradism and our productive economy declining, or whether we’re chasing a paper dragon because of our own personal distastes.
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January 1, 2010 9:53am
Danyl Mclauchlan

Hidden due to low comment rating. Click here to see.
the price we paid for the third term of Labour.

Yes, how irresponsible Clark and Cullen were to be in government during a global financial meltdown.

[DPF: Umm the crisis did not begin in 2005]
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January 1, 2010 9:57am
whalehunter

save it.

those were the years where we had massive surpluses.

the money was spent on soes, growing the government and election bribes.

when national got in, the money was gone and the global financial crisis unfolded.
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January 1, 2010 10:09am
redqueen

Umm…yeah, Danyl, when exactly are you asserting this crisis started?
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January 1, 2010 10:24am
whalehunter

we are rooted,

we love to consume imports, mainly because they are cheap but also because we cant produce them, we pay for them with money borrowed from overseas..

property over business, sport over education.

a society that taxes the rich and hard working and gives to the poor and lazy.
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January 1, 2010 10:27am
Danyl Mclauchlan

Umm…yeah, Danyl, when exactly are you asserting this crisis started?

2007 (Bear Stearns). New Zealand was already in technical recession then, mostly because of our drought.

Take a closer look at the graph, thinking beyond David’s half-witted good guys/bad guys mentality. Which party is good for tradeable economic growth? Labour’s was really bad for the last term but really good for six years before that. Back in the 90’s under National tradable growth sometimes grew and sometimes didn’t. Gee, it’s almost as if economic growth has almost nothing to do with the party that’s in power and everything to do with global economic conditions at the time!
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January 1, 2010 10:38am
side show bob

I guess we should give Danyl credit for dreaming a an excuse that may have some semblance of truth. I bet if you wheeled out the socialist clowns that organised this fuck up the full moon would be getting the blame again.
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January 1, 2010 10:50am
redqueen

Danyl, as I pointed out, I’d be interested to see more than just tradeable information and look at regulation and government growth/policy.

Similarly, on the one hand you’re saying that it was a drought, on the other hand it’s international. Sorry, but Labour rode a consumption boom abroad in the earlier part of the decade and since 2005 managed to even mess that up. That isn’t a statement of party politics, nor blaming them because they’re Labour, but is an issue of government policy at the time. While you simply dismiss DPF in a brazen fashion, you seem to demand that such an attitude is not taken about Labour. I am not taking that position, no matter how much I might wish to, but instead am pointing out that your assessment of them not being responsible is wrong. The third term, even if you exclude the year prior to the election, saw a significant drop in tradeables before any corresponding international problems. That’s two years of trouble which can’t be passed on.

That the 90s saw upturns and downturns isn’t disputed. The difference was that you didn’t see such a marked deterioration, even under Labour and the economy wasn’t over-regulated or the domestic sector encouraged.
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January 1, 2010 11:03am
Rob Salmond

Danyl is, of course, dead right in that (1) a large cause of economic decline all over the place was the financial crisis, which makes DPF’s New Year’s politiking pretty facile; and (2) that in New Zealand the party in power has little to do with the economic growth rate. Here are two of the archived posts from 08wire.org which made this second point prior to the 2008 election, using better data and analysis than DPF has here:

http://08wire.robsalmond.com/2008/08/18/the-freedom-of-smallness/
http://08wire.robsalmond.com/2008/10/06/shrimps-barbies-snakes-and-drainpipes/
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January 1, 2010 11:18am
whalehunter

u guys are exactly right.

both major parties have advanced socialist policies of government growth and social welfare.

increasing our productivity and reducing our appetite for imports have never been given anything more that lip service.

we have always relied on forestry and farming.
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January 1, 2010 11:31am
Johnboy

Danyl of course is a specialist at writing biting satire. Here we have just seen two perfect examples of his wit. Well done Danyl!
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January 1, 2010 11:32am
eszett

All in all, a very poor post. Show a graph and then say it’s Labours fault. No analysis, no data, no reasoning.

So what exactly changed in the third term? And what was National promoting to do differently and how would that have changed the picture. And by the same reasoning it seems that for the first 6 years Labour was doing the right thing then, wouldn’t you agree?
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January 1, 2010 12:13pm
Inky_the_Red

Can we see a comparison with the rest of the OECD?

Increases in the services sector are not all bad. But I agree more manufacturing would be much better than tourism. Tourism is a blight on us all!
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January 1, 2010 12:20pm
Pete George

Interesting to see the tradables flatten off in National’s last term too, and resume climbing in Labour’s first term. Coincidental?
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January 1, 2010 12:25pm
Chthoniid

No, the early 2000’s were characterised by the trifecta of a low exchange rate, high commodity prices and good growing seasons. In addition, Cullen was acting with commendable constraint on the spending front (initially anyway, but the tax side was not so good).

More importantly, the productivity increases aimed for were not achieved. And you can’t build policies on the assumption that commodity prices and growing conditions would always be favourable. What started to bite was the growing macroeconomic imbalances- household dissavings rose, the current account worsened. These imbalances worsened from 2005 when fiscal restraint was largely abandoned. If dairy prices hadn’t defied gravity, the downturn in tradables would have occurred earlier.
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January 1, 2010 12:37pm
Chthoniid

Plus, the flattening in the late 90s was coincident with the Asian Financial Crisis, combined with less fiscal restraint as Peters demanded extra spending as a means to solve our low savings rate.
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January 1, 2010 12:39pm
David Farrar

It is hilarious how people try to deny the obvious. The tradeable sector had growth from 1993 to 2003/4, with the exception of the external Asian crisis.

From around 2003/04 to 2008 the tradeable sector did not grow at all in real times, despite no external shocks. It is now only around 15% greater than it was in 1999, while the non-tradeable sector is around 50% higher.
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January 1, 2010 12:48pm
Viking2

There is more info available form the doomsayer at interest.co.nz where the graph is from.
http://www.interest.co.nz/ratesblog/index.php/2009/12/31/summer-chart-series-the-chart-that-shows-how-unbalanced-our-economy-is/

We need to call into question the myth that housing was the cause of all this. Dr Don in his report studied that andd found that we spent no more nor no less than the OECD average. You can read it in his reporting.

The nub of the issue is that people don’t want to invest in shonky companies or take risks with their money (albeit that many have with finance companies.)
We have stopped spending on R& D in NZ due to Govt. policy because we buy most of it in.
We have stopped patenting many new idea’s. No education on the process, no assistance other than being rorted by patent lawyers.
We have ripped the heart out of our science facilities for a funding model that doesn’t work.
We have a securities commission that went to sleep (or overseas to fix the world) rather than scrutinize our companies properly.
We have taxed everything that moves or doesn’t move and plan to add more.
We have increased those taxes.
But worst of all we have attacked the independent spirit of people and put them down, smothered them in regulations and benefits.
Why do Kiwi’s in Aussie always laugh and have fun when we here are so taciturn and depressed?
We need to uplift the human spirit in Kiwi’s in business. Want an example, how about the team to go to the Soccer World cup?
We used to do all this but it was slowly and surely repressed.
We need banks that will take risks with innovation e.g. DFC before it went wrong.
We need lower taxes and if the trade off is that some have to pay for more things then so be it.

We need in short a Govt. that opens our freedoms up again and spends the money in the right places.
What would you all say if instead of spending so much on welfare we spent it on Crown Research Institutes, letting them get on and play with research? (That’s what’s made H&P and Toyota and dozens of other world companies.) Lets tip another 500 million into the science pockets instead of increasing the benefits. ( That would be about 30% of new Govt. spending this year.)
Lets have seed funding for new idea’s. 200 Mill would be a good start. Some will fail, some will be mediocre and some will be amazing. Doesn’t matter for the good will be greater than the not so good. Don’t try to pick winners, let the market do that but lets at least get the idea’s to market, (with hte appropriate protections of course.).

Cycle ways won’t produce our next billion dollar industry but seed funding and science will. ( good example; the 45 million given to Zespri.)

You can analyze everything to death but in the end you must do something for change. The greatest change comes from changing attitudes and we need to change our attitude from crime and lawyers and laws to freedom of ideas, people and attitudes. We need to go from helping everyone to helping only those that can’t help them selves, we need more individual responsibility.
We need to support those that are unable to help themselves.
But above all we need the right to be me. The right to grow and prosper and to help others do the same.
These are the
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January 1, 2010 1:06pm
Johnboy

But one must look on the bright side. Thanks to good old Dame Helen we now have a wonderful tradeable asset in the thousands of policy analysts just ready to jet off overseas to assist the regimes in Iraq, Iran and Afghanistan rebuild their economies (once their employment contracts are settled).

SOB! How will we survive without their services? 🙂
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January 1, 2010 1:06pm
Jack5

Clark and Cullen failed. End of story.

Viking2: please don’t hold up the DFC as an example for anything. What a bloody disaster that ended up. And Govt seed funding is just more soclalism.
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January 1, 2010 1:15pm
Viking2

I Guess what I was trying to say is that the graph is a reflection peoples will to do things in NZ. It reflects citizens reaction to the rules of the game. Who asked the citizens if that’s what we wanted??
No one but and this is true, we did indeed indicate reasonably clearly to the present Govt. that we didn’t want to carry on that way and they indicated that they agreed. So far however we are left idling along waiting for change to be implemented.

Dare I say this here but David Lange was an inspirational politician (till he found the Pope of course.)
Currently we don’t have anyone that is inspiring.
Kiwi’s need inspiring again. (Not by a socialist though!)
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January 1, 2010 1:18pm
expat

Sounds like Danyl and Rob are in denial, the fact is the Labour government spent up large on fairly non-productive rubbish during their 3rd term to try and buy another term.
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January 1, 2010 2:07pm
Jack5

Viking2, I think you’re right (1.18 post) about Lange pre-Pope. Could Douglas and co. have implemented their reforms otherwise?

I agree we NZ citizens need inspiring. John Key has won popular appeal but generally he appears to reflect rather than to beam out inspiration.

Commercialising science is a stiff challenge everywhere, and the technology start-ups in NZ generally struggle. The recent receivership of Botry-Zen shows that. Its organic fungicides for grapes and some other horticulture crops ought to have vast appeal to a wackily-Green world. It and other tech start-ups struggle and struggle to find capital to reach break-even.

If only ten per cent of the billions that went down the finance company drain had gone towards risky technology start-ups (and perhaps oil and gas exploration) NZ might be on the road to economic health.

IMHO, we are starting to sprout Third World characteristics, and we ought to be debating underlying issues related to these, all of which will ultimately dominate the economy. The Third World warnings as I see them:

-Persistent current-account deficits as imports outbalance exports. When will we find a way of making ends meet as a country?

– 40 per cent of the population in one city (in the US, this would equate to New York having around 120 million citizens).

— Demands for the Government to solve all problems.

— A creaking health system where a foreign-controlled and state-owned MSM lambast providers and heighten unrealistic public expectations.

— A weakened, politicised education system. Examples: you can now get a tertiary, non-honorary degree for non-academic experience, also the taxpayer funded free introductory courses to computing where these were once provided by volunteer computer user groups. The failure of state schools in the education of boys is more serious.

–A foreign-dominated financial system (the trading banks and Rabobank etc);

— Weak financial regulators: the Securities Commission, the Commerce Commission, and Reserve Bank sleeping through the finance-companies disaster;

— Coalition governments with the power they give to tiny minorities and their difficulty in taking unpopular but necessary economic action when the coalition maker has to pander to so many tiny groups;

— Failure to address incipient race/culture problems and crucifying those who dare raise them (Don Brash). We are indoctrinated with the leftist doctrine of multilculturalism (see link below for a Rightist take on this). Where is the discussion on whether we should have an assimilist policy for our new ethnic citizens? The question parallels the change in immigration sources, which regardless of whether these were good or bad, was introduced by immigration consultants led by former politicians, all without consultation with voters or any debate. Meanwhile activists within the coaliation seek for the indigenous minority apartheid-like separate institutions, even to the extent of Maori-ising local use of the English language. In all cases of race/culture discussion the MSM co-operate with activists to stifle debate quickly with accusations of racism. How are we going to have a viable economy when it is split in two, and where will the new ethnic communities fit?

The link to a Rightist view on multiculturalism: http://www.amnation.com/vfr/archives/000637.html
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January 1, 2010 2:11pm
David in Chch

Viking2 – cogent post at 1.06 pm.
Specifically about R&D: I am one scientist who was in favour of axing the tax policy proposed by Labour. It was NOT going to get us any more of what I and many others would call R&D. I know of one company that was going to use the tax refunds to pay for “research” into the sort of billing format their customers preferred. Since when is that R&D? It was a policy that was made to be abused and misused with no get real gains.

The current funding model demands that science have some immediate technological spinoff, when every study and report ever done has shown that unfettered research produces the best and strongest economic results, but that it takes 20 years to show in the stats. All of our leaders, political and economic, keep thinking short-term. And that will ALWAYS bear short-term fruit and long-term “drought”.
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January 1, 2010 2:50pm
redqueen

I entirely agree, David. The distortions that tax policy caused, and still causes, are based on short-term gains and the desire to receive credits for ‘R&D’. The fact that many of the implied requirements are subjective has led a similar system in the UK to be nothing more than a political tool (like so much taxation). What continues to be lacking is a real sense of the objectives of science, which has become a fundamental problem in our society. We want economists, but they shouldn’t predict outside of closed-interest groups (government, the banks, etc.). We should have scientists, but they should be geared solely towards our ‘social objectives’ in ‘relevant fields’ (if government funded) or are expected to produce short-term benefits (if privately funded). It really would be interested to see how much of this is a distortion of general tax policy, but also whether lacking a venture capital scene which can handle growth industries isn’t causing us severe harm. We seem very happy to dump absurd amounts of money into housing, but won’t spend any money on potential growth companies (something I am just as guilty with myself). While a few notable exceptions exist, even these rarely are technological breakthroughs and rather just an extension of existing technical abilities.
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January 1, 2010 4:27pm
Viking2

redqueen. a
A week or two back I posted about how dumb our research situation is. A customer of mine in one CRI lost his funding to a relative of mine in another CRI. Both were researching the same subject albeit from different angles and in different islands. Because each CRI has to fight to survive and pay a CEO as well they do just that.
There is no cross fertilization of the research and because a CEO gets a bonus there never will be. Stupid, mindlessly stupid.

All brought to you by the mindlessly stupid Simon Upton of the new bread of university educated National Party.
I kid you not but they have more of that sort of stupidity there yet.
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January 1, 2010 8:21pm
David in Chch

It’s not just in the National Party. The Labour Party has it too – but for social engineering purposes.

NO ONE has the guts to simply fund science adequately (and I don’t mean open up the coffers and let us have EVERYTHING we want – there still has to be _some_ oversight and care, we should still be made to justify what we want to do and the costs) and then step back and let things happen. It’s because “they” want instant returns. And there is an insistence on “full cost” funding, as if the infrastructure and such wasn’t already there and funded to one extent or another.

It’s almost as bad as investors in the stock market who want immediate returns instead of building a long-term sustainable entity. Hmmm … come to think of it, that also seems to be the “modern” business model. Just look at the dot coms, etc. Instant gratification. Instant billionaires. Made up of nothing but fluff and puffery, with a bit (lot?) of marketing and spin.
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January 1, 2010 9:27pm
David in Chch

Oh, and by the by … latest excellent cartoon from XKCD, who obviously understands science, technology, etc.
http://imgs.xkcd.com/comics/science_montage.png

Thought those following this thread might enjoy it. 🙂

Permanent link is http://xkcd.com/
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January 1, 2010 9:32pm
Anthony

Hey Johnboy, one of my ex colleagues in the public sector did secure himself a post in Iraq only his wife wouldn’t let him go.

Another ex colleague moaned that as the number of policy analysts employed in Wellington went up, the quality of analysis went down – as did accountability.

For my part I have argued for changes to the tax system for years – and did get manage IRD to change the way it calculated depreciation rates so it didn’t favour longer lived assets. However, the incorrect inputs weren’t changed. Who really believes a building only lasts 50 years? If that were so, half the houses in Wellington should be falling down and unfit for habitation.
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January 1, 2010 9:58pm
NeillR

If you ever needed proof that Cullen sabotaged the economy knowing that National was certain to win in 2008 then there it is. They should print copies of this graph to be shown at polling booths at every election – lest we forget.
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January 2, 2010 9:16am
Bogusnews

This graph proves that a picture is worth a thousand words.

Clark and Cullen took over NZ’s economy when things were really starting to move. From 1990 to 1999 we had gained over 280K jobs, taken the country from the verge of bankruptcy to having a 1.5Bil surplus, paid off (from memory) 32Bil of overseas debt and built personal productivity up to three times higher than it was at the end of Cullens reign.

Cullen immediately started a tax and spend approach with a focus on redistributing wealth rather than creating it. It took some years before the good work of the 90’s was unwound and eventually productivity ebbed away and with it the prosperity of the nation.

I think the most telling sign of this was when Cullen had to admit under intense questioning in parliament at the end of their second term that while the average NZ’er had taken a step forward with the economic growth, the government had forced them to take an equally large step backward because of the 41 additional taxes we had been thumped with.

Imagine that. After six years of the best economic conditions in any ones living memory and by Micky Cullens own admission, the average NZ’er was right back to where he had started.

The most accurate comment is that they were the most incompetent government in NZ’s history.
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January 2, 2010 11:24am

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