June 18, 2013 9:55am by David Farrar

Herald on manufacturing inquiry

In politics, as in all spheres of life, timing is everything. Take the report into manufacturing released yesterday by the Labour, Greens, New Zealand First and Mana parties. When their inquiry began last October, times were uncommonly tough in the sector. Just last Friday, however, the latest BNZ-Business NZ performance of manufacturing index indicated that it was expanding at its fastest rate since 2003, and at one of the world’s highest rates. Equally, a tumbling exchange rate has eased many of the sector’s woes. In that context, the report’s talk of the killing of manufacturing seemed lame at best.

I’m surprised they scheduled to release it the next working day after the PMI index came out. The index is on a regular release schedule and better political management would have seen them make sure they avoid being too close to the release of any major manufacturing data in case it undermined their claims of a crisis.

Yet even if current conditions had mimicked those of eight months ago, the report would have been counted a barren exercise. Its three core recommendations are as flawed as they are predictable. The first wants monetary policy to be aimed at achieving a lower and more stable exchange rate, as well as a lowering of structural costs in the economy, such as electricity prices, and a refocusing of capital investment into the productive economy, rather than housing speculation.

Normally one can use an inquiry to at least come up with some new ideas or policies – but they have failed to do even that.

The report’s recommendation for a lowering of structural costs in the economy refers specifically to electricity prices. This is a clear nod to the Labour-Green proposal for a single buyer to purchase all electricity generation at what it deems a fair price. Presumably, this is seen as the forerunner of a greater emphasis on central planning. Manufacturers would, of course, applaud lower power costs. But what they would also get would be inefficiencies, unintended consequences and, if history is a guide, blackouts.

And I may be wrong, but I think most manufacturers need electricity to actually operate!