Two years ago, I worked with the Fabians in presenting an event series called The Voyage of a Lifetime, which aimed to identify and address long-term structural issues in the New Zealand economy. Several speakers highlighted the problem of New Zealand's consistently overvalued currency.
One speaker, New Zealand Manufacturers and Exporters Association CEO John Walley, was particularly persuasive in setting New Zealand's situation in the context of the "Dutch Disease". In a short preview of his presentation here on Public Address he wrote:
Broadly, the term [Dutch Disease] describes the negative impact of a dominant part of an economy on the rest of the economy. Farming in New Zealand has become more of a property development game; production is a secondary issue, there to service debt up to the point that the current owner cashes out to the next tax-free.
Macro-economic settings drive behaviour. Innovation needs investment and predictable margins to fuel experimentation and to fund failure. Without the oxygen of margin innovation either fails or fails to happen. Highly innovative businesses must export and run on the smell of an oily rag.
New Zealand’s macroeconomic settings support low revenue to asset ratios activities like those found in dairy farming, and as exchange rates escalate the same settings poison activities that have high revenue to asset ratios like manufacturing and software companies.
In the presentation itself, he made a persuasive case for the claim that the only real money in our primary production sector wasn't income earned on assets, but capital gain on the land it used. It was the biggest heads-up in a provocative lineup that also included Bernard Hickey, Rod Oram, who talked about our foreign investment problem and Rick Boven of Stakeholder Strategies, who spoke about the economic implications of climate change.
I was the moderator for presentations to both private and public audiences and I came away thinking that the ground had been laid for big ideas to address big issues. Both David Cunliffe (who was then on the naughty stool) and David Parker were present at the Auckland event. Let's see where this goes, I thought.
Until very recently, it seemed to be going nowhere. Labour's last big offering was the promise to ban trucks from the fast lane of motorways. It was hard to think of a smaller idea.
But this morning, David Parker announced Labour's new "monetary policy upgrade", whose three key elements are, in Labour's words:
1. Maintain the Reserve Bank’s independence and its inflation target.
2. Broaden the objective of the Reserve Bank to include the external balance and allow it to use current tools to tackle our overvalued dollar.
3. Give the Bank a new tool to adjust universal KiwiSaver savings rates as an alternative to raising interest rates. This would mean Kiwis would pay money to their retirement savings instead of higher mortgage payments to overseas banks.
We've done a lot of hand-wringing over the New Zealand dollar's exchange rate and the factors that drive it. Bringing it within the purview of the Reserve Bank is certainly more than hand-wringing. And giving the Bank a new instrument that, just quietly, means the introduction of compulsory retirement savings, is a very big idea indeed. No country has done this before -- but it's a really interesting policy.
I suspect that the battleground will be at a much lower level: will quelling the exchange rate mean children's clothes cost more? (Yes, a bit, but it will really help our export sector.) How can this work for earners who can't afford to lose a dollar when the benchmark moves, even if it is for retirement savings?
When the Voyage events were held two years ago, the message from the Treasury benches was that we should sit tight and stay the course. That's still the message. But the long-term economic issues identified by those speakers went largely unaddressed. Is this going to do it? And, perhaps more importantly, can Labour sell it as a solution if that means first explaining the problem?