David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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Our starkest economic policy choice in decades - Rod Oram

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This article originally featured in the Herald on Sunday.  


Our economic growth probably peaked during the past two months and has begun to fall back to its long-term rate of around 2.5 per cent.

This prompts three crucial questions:

      - Why did we manage barely two years of above average growth?

      - Why are we falling back?

      - Could we lift our performance by changing our economic policies?

The evidence of a slowdown is mounting. In the June quarter jobs growth stalled everywhere except Canterbury; external trade weakened; freight movements measured by ANZ’s Truckometer indicated the economy grew by only 0.6 per cent in the quarter; and corporate debt growth and investment are weak.

We’ll know the trend for certain when the June quarter GDP data are published on September 18, two days before the election. But we’ll get a good fix on conditions when Treasury releases its Pre-election Economic and Fiscal Update on Tuesday.

It’s clear why our growth spurted then weakened. Two particularly strong sectors – the Christchurch rebuild and commodity exports – fuelled the expansion. But there was insufficient momentum more broadly across the economy.

GDP was bolstered by the sharp acceleration of Christchurch’s rebuild. Construction activity will increase further but more slowly, thereby having a smaller impact on the GDP growth rate.

Worse, commodity exports were flattered by sharp spikes in the volume and value of milk and logs. Brief booms were caused by unusual conditions in production here and markets overseas, particularly China. In both sectors, volume and value are now back in line with economic and market fundamentals.

The trade data are revealing. In the year to June, the value of our exports to China rose 50 per cent, dairy exports were up 40 per cent, logs 20 per cent and our overall exports were up 12 per cent, thanks to the commodity spikes.

But net of spikes, the data show we are becoming increasing dependent on selling fewer, simpler products to one customer. China is our largest trading partner, taking 23 per cent of our exports in the year to June. While China accounts for some new business, a big chunk is merely redirected from other markets.

The growing dominance of commodity dairy exports is striking. They have doubled their share of our total exports over the past 20 years to about 27 per cent today.

However, the upside is limited. For example, Dairy NZ estimates milk production will grow at 2.5 per cent a year, below its long term average. This reflects farming limits imposed by new freshwater regulations and less land available for conversion to dairying.

Such factors are undermining the government’s key economic goal of doubling our exports by 2025. To do so, they would need to grow by between 5.5 per cent and 7.5 per cent a year.

However, in May’s Budget Treasury forecast export growth would average 2.2 per cent a year out to 2018. Yet, there’s no weakness in demand. Our trading partners’ economies will grow at almost twice that rate.

We need a broader, more sophisticated range of exports to overcome our commodity constraints. But we’re going in the opposite direction. Manufactured goods have fallen from about 37 per cent of exports in 2003 to about 22 per cent today.

This increasing simplification of our economy towards low value commodities has accelerated in recent years, according to data from a long-term study of countries’ economic complexity run by Harvard and the Massachusetts Institute of Technology.

In 2008, we ranked 39th in the world in terms of economic complexity, in the company of countries such as Brazil, Russia and Greece. But by 2012 we had fallen to 52nd.

The Harvard/MIT study shows that the more complex an economy is the more value it generates in terms of GDP per capita. We are very efficient so we are better off than countries of similar simplicity. But in wealth terms, we’re well behind the complex economies in the OECD.

This analysis shows that the world is divided into those economies that are getting simpler and poorer and those that are getting more sophisticated and richer, says John Walley, chief executive of the New Zealand Manufacturers and Exporters Association. You can read his blog post here.

Which direction a country takes is heavily influenced by its economic policies, he says. The complex ones have central bank and government policies that focus on growing the competitiveness and sophistication of the economy and companies.

Examples of such countries are Japan, Germany, Switzerland, South Korea and Finland. They have either maintained their high ranking on complexity or increased it markedly.

Conversely, the US and UK have fallen in the Harvard/MIT rankings over the past 30 years, while we’ve plunged 21 places, Canada 25 and Australia 47.

There is a common theme for English-speaking countries: monetary and government policies have favoured the domestic over the export economy, asset appreciation over productive investment, and simple low value activity over complex high value business. This is particularly true of our three countries dominated by our natural resources – NZ, Australia and Canada.

We could shrug our shoulders and say we are an inherently low growth economy and we can’t do much about it. But anyway it doesn’t matter because our natural resources and commodities enjoy such strong demand.

If this is what we want, National is offering a perfect set of conservative policies to keep delivering it: 1980s monetary policy that controls inflation but to the detriment of the dollar and interest rates and thus export competitiveness; a superannuation time bomb; and tax policy that skews investment to property and away from production.

Moreover National offers R&D grants to a few companies at the expense of wider innovation; incentives for more natural resource depletion and commodity production; and declining investment in science in real terms, as shown in the government’s draft 10-year science funding strategy.

Or, if we want a sophisticated, wealthy economy, Labour and Greens are offering progressive policies to trigger the shift: a modern monetary policy that targets inflation and our external competitiveness; and compulsory superannuation that deepens our capital base and adds another tool to monetary policy to help take the pressure off interest rates and the dollar.

Moreover, they also offer a capital gains tax to help level the investment playing field; and science, education, skills, investment, R&D policies that help companies develop high value products and invest in new areas such as clean technology.

This is our starkest choice in economic policy in decades. 

tags: rod oram, economy, complexity, manufacturing, exports, economic complexity


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