Trade and Economic Policy: Do We Have It Right?

Trade and Economic Policy: Do We Have It Right?
Address by Richard Nottage
Secretary of Foreign Affairs and Trade

Wellington Club

22 July 1999

This evening (as I give what is almost my last address as Secretary of Foreign Affairs and Trade) I will chance my arm and speak not as a bureaucrat, but rather as an individual who has spent thirty five years chasing the national interest.

This is not a formal speech. It is not too long. It will not be a comprehensive manifesto: nor propaganda.

I want to make six propositions.

Proposition 1: trade liberalisation and economic openness are the best policy settings if New Zealand is to prosper

In fact, this statement is less straightforward than it seems.

The statistical evidence in favour of free trade and openness is surprisingly murky.

But perhaps this is an issue where intuition and anecdote are more reliable guides. South Korea has done better than North Korea. Market economies have done better than command economies. In our own case, the interventionist and heavy-handed policies of the Muldoon years were not sustainable and openness has brought us macro-economic benefits undreamed of in the 1970s and 1980s.

It is no coincidence that the dominant global model is for liberal and open market economies.

And so, without staking any claim to perfect confidence, I am prepared vigorously to argue that small economies lack scale and power and so benefit from openness and from an international trading system which is rules-based and liberalising.

Proposition 2: the playing field is not level, the goal-posts do shift, and the opposing teams do play dirty

Trade is a tough game, and we are one of few countries that strives to play by the rules. As a result, we cop plenty of hits, from our foes and sometimes from our friends.

At times it feels like being the only honest cop on the beat. But I can't see a better way.

We can't afford to match the subsidies of our competitors. We can't in the long-run afford the luxury of propping-up inefficient firms. And we absolutely cannot afford to join with others in twisting and breaking the rules. Because once we start to play dirty then we lose any right to go to the referee and complain about the illegal practices of others.

The way we can best tilt the playing field back in our favour is by strengthening the rules, and using the rules against those who do not play by them. Further, we can best attack the vested interests of others by not having to protect vested interests of our own.

One of the vital outcomes of the Uruguay Round was to establish a dispute settlement system that is robust and that works. Size and power can no longer prevail over advocacy and adroitness.

New Zealand has proved this. Officials from my Ministry took the EU to the WTO, and won, and made possible a settlement on spreadable butter which is worth millions of dollars every year to New Zealand. Those same officials took Canada to the WTO and won. Chile has defeated the EU. Costa Rica has defeated the US.

Of course the rules can be strengthened. Of course the processes can be further streamlined. But at least there is a referee on the field, and those who play fair are able to prevail.

Proposition 3: trade liberalisation and economic openness do have costs

While I believe that liberalisation and openness are the best policies for New Zealand to follow, I also acknowledge that there are casualties.

It has been said that the benefits of reform are diffuse and the pain is concentrated. This is a wise comment. The average represents many atomised life histories, some of which are decidedly unhappy.

Efficiency and competitiveness must be means, not ends. The objective must be prosperity and security for all New Zealanders. It is right and proper to speak of the long-term dividend we will reap from reform, but we cannot afford to ignore the short-term costs which fall on some individuals.

It seems to me that a strong economic base lies at the heart of all the other things we want. If we do not generate growth and wealth then we cannot deliver the prosperity and security that New Zealanders expect and deserve.

This requires an attitude of constant improvement, and a willingness to accept the reality of ceaseless change. Other economies are moving ahead. We must always be looking to refashion and repair our economy, to be more competitive, or else face the risk of relative impoverishment.

The challenge is to compete and grapple with change, and to create our growth and wealth in a way which does not rend the social, cultural or environmental fabric.

Proposition 4: policymakers, too, were children once

The email is an excellent way of receiving messages you don't want from people you don't know. I am often told by others what is good for me, and where to go. I am criticised for not listening, for not responding, for being out of touch, or for toadying to the prevailing ideological wind.

I deny the implications lying behind such messages.

If my own Ministry is anything to go by then most public servants are dedicated to the national interest. If you knew how inadequately my people are remunerated, the hours they put in, and the respect they command overseas, you would be surprised. These are the best and most talented kind of New Zealanders. You would be privileged to have them work for you, as I have been. But they choose to work for Government, because they want to make a difference. And thank God we do have excellent people willing to make such sacrifices. They do not deserve the cheap put-downs they sometimes receive.

Let me assure you that while public servants must support and not under-cut declared Government policy, in private it is our task to give the most robust and credible advice we can. And we do. Far from being the blind, deaf and dumb servants of Government, we are sometimes the sternest of free and frank advisers. But we cannot afford to be politically naive either. And our criticism is mediated by the protocols of professionalism and privacy, and by the rules of civilised if robust conversation. So it should always be.

Like many of you, it grieves me to see firms closing-up and shifting to Australia. Like many of you, our three well-educated children are working abroad, and I wonder if they will return, and to what. Like many of you, I am concerned that the reforms of the past 15 years have not delivered the breadth and depth of benefits that New Zealanders deserve. Like many of you, I worry about the loss of entrepreneurial, risk-taking talent to New Zealand.

The things that concern most New Zealanders also concern policymakers. But while the problems are always easy to identify, the solutions and prescriptions for solving them are not. It would be so much easier if policy was based on ideology, but instead it is based on pragmatism, limited resources, and what is politically do-able.

And perhaps it is not going too far to say that the outlook for New Zealand, ultimately, will depend not on policy but on the attitude and energy and commitment and skill of New Zealanders. Government must strive to establish a climate of success and achievement, but it cannot itself deliver the future. Only individuals can do that.

Proposition 5: we spend too much time thinking about the past that wasn't, and not enough time thinking about the future that is

Memories are like stones. Time and distance erode them like acid.

Let's think back to 1984.

The country was on the verge of bankruptcy. National debt as a proportion of GDP was a serious concern. Inflation and unemployment and the current account were recurring problems. We had currency controls that were draconian, and a fiscal deficit that was explosive. The selection of goods on supermarket shelves was very restricted, and imported goods were very expensive. Our economic growth had stagnated for a generation. And you couldn't find a cab on a wet day.

The policies followed since 1984 have seen a remarkable turn-around. They have not been without cost. They have not always been effective. I daresay our return on the pain suffered should be greater. But let's be honest. The good old days were not that good. In fact, they were bloody awful and getting worse. Thanks to the courage of official advice and the policies of successive governments, we are better off today than we were in 1984. At least we have some manoeuvring room as we enter the future.

And it is the future we need to focus on. We are a country of nostalgia junkies. We like to look back to so-called "golden days" and hunger for what was. It really is time we started to look forward.

Proposition 6: we need to be much better at identifying and debating the key economic policy issues

It seems to me there are signs that the predominant economic model of the past 15 years is being gently refashioned. That is not a sign of weakness. Rather it reflects the development of new ideas, and the fact that policy is at its most potent when it is attached to a clear vision of where we are headed.

The Government's "Policies for Progress" released last year, and the "5 Steps Ahead" programme being prosecuted by Max Bradford, are examples of how Government is taking upon itself a greater leadership role and trying to marry improved economic performance with building social capital.

Committing to a phased removal of tariffs. Funding New Zealand on Air as a cultural good. Openly consulting on issues like APEC and the new WTO Round. Redressing Treaty grievances and empowering Maori business. All of these place Government firmly and helpfully at the nexus between the economic and the social. This is welcome, and should have begun earlier.

But there are other ideas and issues which might rationally and sensibly be discussed. These come from all parts of the political spectrum. I am going to list some of them now, not because I necessarily believe them to be "right" but because it would be bad public policy simply to dismiss them out of hand:

· a common currency - there are potential options here
· funding for venture capital
· better encouraging and targetting research and development
· setting and achieving more ambitious immigration targets: we need more people
· reconciling partnership and Treaty obligations with the inevitability (I think) of becoming a republic
· investing in and maintaining the competency and long-run capability of the core public service
· better development of human capital, including the introduction of business skills into school curricula
· promoting the growth of domestic savings, greater levels of domestic investment, and a culture of self reliance
· keeping entrepreneurial talent in New Zealand - we must do more to hold onto our intellectual capital
· not losing sight of the fact that New Zealand's comparative advantage still exists most dramatically in agriculture; but that it must in future exist in value added, service and knowledge-based sectors

Conclusion

To be blunt, New Zealand is not doing as well as it should. We do risk the spiral of relative impoverishment. We have been captured by our habit of nostalgia. We are handicapped by our small size, our parochial rivalries, and our introspection.

We are also suspicious of cant. That, I daresay, is a good thing. But it should not make us blind to the importance of vision and leadership.

It seems to me that anyone who is motivated by a sense of national interest, who writes well and speaks well, and who has ideas, deserves to be listened to and the idea tested. If the idea is a good one, and if it is consistent with who we want to be as a nation, then it deserves to be implemented.

As for myself, I am about to join the ranks of the pensioned who worry about capital and cash-flow and health costs and why the bus from Roseneath to the city doesn't run at the right times. But if all else fails I'll endeavour to maintain some profile in the nation's newspapers, as a crusty contributor to the "Letters to the Editor" page.

ENDS

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