Do not let this Covid crisis go to waste

Opinion: For New Zealand to emerge from the present crisis in a similar way to how we entered it, with stalled earnings and falling levels of well-being, would be a spectacular missed opportunity, writes Robert MacCulloch.

There is an old saying, sometimes attributed to Prime Minister Winston Churchill in the context of World War II, that one should "never let a good crisis go to waste".

This election campaign should not be a backward-looking debate on Covid-19 that highlights past successes or failures of public officials grappling to control an unpredictable and not well-understood bug.

Instead the focus should be on a competition to find out who can produce the best plan to build a seriously exciting country looking forward into the future.

The good news is that truth, rather than ideology, is beginning to emerge, as evidenced by left and right-wingers starting to agree on something.

On the left, former Labour Party leader David Cunliffe is arguing that NZ needs skills, talent and technology. He is calling for a reform of the immigration system.

Meanwhile, on the right, former National Party Minister Steven Joyce is also calling for a reform plan, beyond more public spending and debt.

Between 2012 and 2017, the amount that each Kiwi produced for each hour of time spent at work fell. The country relied on greater volumes of migrants, a property bubble that fed residential construction and overseas tourists for its economic growth.

Where did that get us?

A housing affordability crisis, congestion and a worsening environment. Over the past one and a half decades, newly released Gallup World Poll data shows that wellbeing in NZ has been trending downwards, as measured by how many Kiwis report themselves as being close to the "best possible life".

Maybe too many people got stuck in too many traffic jams.

Rather than finding a solution to this predicament, the election campaign is fast becoming a disagreement regarding how to repay ballooning public debt. The Right are arguing that the Left's answer is to hike taxes. The Left are arguing that the Right's answer is to cut spending and reduce public services.

But the changes both sides are proposing amount to mere tinkering.

Why not instead ask a student for the answer? Since students know that the most satisfying way of paying back their debt is not by scrounging off others or by cutting back on their lifestyle, but by getting a good job or starting their own business.

Similarly, the best way for a country to repay its debts is by upping its earnings potential.

There is talk of building a green, knowledge-based "new economy". A key subject required to achieve such a goal is mathematics. Yet schools are struggling greatly to find specialised maths teachers. New Zealand's international test scores in maths are on a decade-long downward trend.

Building a new economy would require lots of capital. Tesla alone has announced a $7 billion raising of capital this past year. Yet there is much opposition in NZ to overseas investment. Maybe that situation can be overcome if one can source capital locally.

However our domestic savings are way below levels found in nations such as Singapore. By pushing down interest rates close to zero, the Reserve Bank is worsening this problem by cutting returns on savers' money. By inflating asset prices, it's also upping wealth inequality.

One solution would be to help more people to save, not only in the form of owning a house. Kiwisaver retirement accounts should be extended to all workers and new personal Kiwi Health accounts established.

Enabling low-income individuals and families to build personal wealth leads to empowerment, control of one's destiny and escape from dependency. That being said, there is little political will to enact the necessary changes.

Enabling low-income individuals and families to build personal wealth leads to empowerment, control of one's destiny and escape from dependency. That being said, there is little political will to enact the necessary changes.

Remarkably, although people are currently particularly anxious about obtaining quick access to quality health-care, no-one is offering a health-care reform.

Although people are especially worried about job security, no-one is offering an unemployment benefit reform. That system could not cope with the lockdowns and so got patched up with hasty emergency measures, like the wage subsidy scheme.

A side effect of the haste has been billions of dollars paid to our biggest firms. Many didn't need support. The NZX 50 is near all-time highs.

Where does that leave us? What if NZ can't come up with immigration reform to bring top overseas talent over the border and can't solve the maths teacher crisis? What if we can't sort out the savings problem?

What if the plan which both left and right-wingers now wish to see doesn't exist, beyond more public spending, debt and funny money?

Then we won't become a prosperous, knowledge-based economy. In a few years' time it will be back to the old model.

A good crisis will have gone to waste.

Professor Robert MacCulloch is the Matthew S. Abel Chair in Macroeconomics at the Business School.

This article reflects the opinion of the author and not necessarily the views of the University of Auckland.

Used with permission from the New Zealand Herald, Robert MacCulloch: Do not let this Covid crisis go to waste, 16 September 2020.

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