More observations from PCE Simon Upton

Last week I blogged a speech from Simon Upton, highlighting five inconvenient truths he highlighted to the Environmental Defence Society. A reader has suggested I also cover the rest of his speech, which also had good food for thought.

We need innovation and a focus on increasing value, not producing more. 

Economies can grow by ‘working harder’. This has been the main driver of growth in New Zealand over recent decades – importing more people, working longer hours, using land more intensively. We know the outcome.

Another option is working smarter. In other words, seeking productivity growth. Here our record is dismal to say the least. Yet this is where something closer to what we can call ‘green growth’ happens.

Very much agree that productivity growth is essential. Working harder is good, but has a limit. Productivity growth is the key.

Resources are limited. Time is limited. But our capacity for innovation is unlimited. This is where we need to focus.

Resources are limited in that there is for example a finite amount oil on the planet. However as we found out with peak oil, our estimate of when we reach those limits proved to be highly inaccurate due to new technology. The reality is we will never come close to reaching the hard limits of resources, but we will come against the soft limits, which is where it becomes too costly to extract them. And of course we need to consider the environmental impact of any extractive industries.

Unlike most small advanced economies, New Zealand has no companies in the Forbes 2000 list of top global firms. These tend to be firms that support much higher research and development spending, create and export value-added products, and ultimately support prosperous domestic economies. These large companies act as anchors for successful local industries.

I didn’t realise we had none. Australia by comparison has 31.

One way to do that is to focus on services that make little call on natural resources. For example, the potential for a global software-as-a-service company like Xero to grow in a global market is essentially unlimited. But as a nation, we haven’t seized the opportunity to ply businesses like this with as many skilled workers as we can muster. Xero, like others before it, has progressively shifted its operations overseas in search of the skills and capital it needs to grow.

Xero has been our biggest success story, but unfortunately yes it is now an Australian company.

We need to ensure the value of the environment is recognised and not drowned out by the narrative of traditional economic value. To do that, environmental value and economic value need to be brought onto the same playing field. In Going with the grain, I suggested increasing payments to landowners for ecosystem services over time. Biodiversity credits are a good example, provided they can be made to work. The big question is where the money should come from. The logical answer is by increasing levels of environmental taxation over time.

If environmental taxes aren’t used to increase the overall tax burden, but are used to either reduce other taxes, or initiatives like biodiversity credits, then I think they can play a useful role.

 Congestion charging now looks to be on the cards with cross-party support. Road user charges that reflect the true capital and maintenance cost of heavy freight on our roads would help mode shift.

As readers will know, I am a big fan of congestion charging.