New Zealand, like many other developed economies, faces a decade or two of painfully slow to no economic growth. Our economic engine is misfiring badly and our ship is drifting.
The world’s ability to invent and develop new tools and techniques to increase productivity has atrophied over the last 30 years. The internal combustion engine is still our dominant means of transport. Burning coal and oil is still our main way to generate the energy we need for our modern way of life. Passenger jet speeds haven't increased for 50 years. The burst of amazing innovation during the 1940s and 1950s that gave us nuclear energy, supersonic jets, radar, transistorized computing and penicillin hasn't been repeated during the 1990s and 2000s.
Instead, the energy of the world's best and brightest over the past two decades has gone into globalising and financing the global economy. This has reversed decades of rising incomes and wealth for the middle classes in the developed world. The fruits of any productivity growth was flooded upwards to shareholders, managers and bankers, as banks took a greater share of profits and the globalisation of supply chains helped shift income from workers to owners. To maintain real living standards and incomes, these middle classes were encouraged to borrow to fill the holes in their hollowed out incomes. High paid factory workers were laid off and became real estate agents and bank tellers. Rocket scientists got jobs at investment banks and hedge funds.
A generation or two pulled forward resources from the future and over consumed through the 2000s. By the end of the decade household debt built up in the developed world became unsustainable, unleashing an almighty fight over who would pay the price.
Rising debt is sustainable when it grows slower than incomes, but when it becomes clear that incomes will grow much slower than debt, this usually triggers a revaluation and restructuring of this debt. Those at the bleeding edges of that debt are usually wiped out first. Usually, that is bank shareholders, bank bond holders and then bank depositors, in that order. In 2008 this didn't happen. Governments chose to take over the bad debts to protect bank bondholders and managers. This shifted bad debts from one group of private lenders to taxpayers in general.
All over the world this has broken economic growth and the result is that economies are drifting. Aging populations are going to retire and get sick over the next 20-30 years, leaving a smaller group of passengers working and paying taxes for health care costs and pensions. This isn’t the time to be up on deck sunning ourselves. We need all hands below deck to rebuild and restart the engine while we still have time.
I will be exploring these issues and more at the Voyage of a Lifetime event held at the Q Theatre in Auckland on Sunday the 10th of June. The passage is already fully booked, but those keen can go onto the waiting list by registering at www.thevoyage.co.nz and watch it live streamed on http://www.ustream.tv/channel/voyage-of-a-lifetime Follow @voyagenz on Twitter to keep updated.
Bernard Hickey is the managing editor of interest.co.nz