The Last of the Stardust
Jacinda Ardern's Bachelor of Communication Studies taught her not how to change reality, but how people see it. She became Prime Minister by polling 37 per cent with the same policies that delivered Andrew Little 24 per cent. All of her experience tells her that good communications are more important than good policy. But Thursday's “Wellbeing Budget” will represent the last of her stardust.
Jacinda Ardern is one of the best marketers in world politics, but she is also one of the biggest policy lightweights. She doesn’t care about policy beyond its capacity to further Brand Ardern. The PM has shown very little ability to understand basic economics. She once confused gross domestic product with the government accounts. The “Wellbeing Budget” is just spin designed to hide the fact her Government doesn’t know how to raise living standards or competently deliver core public services. (The two are connected, as we’ll see.)
First, Do No Harm
When doctors take the Hippocratic Oath, they effectively say: “First, do no harm”. Ardern could do a lot of good simply by refraining from enacting harmful policies. Industry-wide collective bargaining – “Fair Pay Agreements” – will tie firms up in red tape. Fees-Free and the Provincial Growth Fund tax billions from the productive economy and blow it on low-value spending. KiwiBuild is sucking precious time and effort away from policies that would make homes more affordable. The Zero Carbon Bill and oil and gas ban will cut incomes here and drive emissions overseas. The Government's flagship policies will not only not help the economy, they will actively harm it.
Then and Now
Would you live in a country in which the average person dies at 45? Where most children aren’t vaccinated and don’t go to school? A country in which most people don’t have access to a telephone or electricity and where washing clothes is done by hand? That was New Zealand a little more than 100 years ago. The difference between then and now is the productivity and economic growth that took place in between. How do we keep growing?
How to Raise Living Standards
Paul Krugman – a Nobel Prize-winning, left-wing economist – once wrote “Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” If we want to be wealthier we need to produce more valuable goods and services each day, week, and year. To do that, we need to combine innovative ideas, more investment in productive assets, and increasingly skilful workers. Productivity growth gives us higher economic growth which gives us higher living standards.
Why Growth Matters
Jacinda Ardern dismisses economic growth as a primitive concept, but it matters. Economist Tyler Cowen points out that economic growth “alleviates misery, improves happiness and opportunity, and lengthens lives. Wealthier societies have better living standards, better medicines, and offer greater personal autonomy, greater fulfilment, and more sources of fun.”
How Are We Doing?
New Zealand isn’t becoming more productive. Over the last five or six years, productivity growth has averaged just 0.3 per cent per year. We have gone from one of the best to one of the worst performers in the developed world. Low productivity is now being reflected in low growth. GDP per capita grew by 0.1 per cent last December and actually fell by 0.1 per cent three months earlier. Our slow productivity growth means our living standards will decline relative to other countries. As we saw above, the Government has no policies that would reverse this trend.
Just Do the Basics
If the Ardern Government promised to do no harm and admitted it had no plan for growth, what could it say this Thursday? Instead of concerning itself with our loneliness or spiritual wellbeing, as the Budget purports to do (no, we are not kidding), it could focus on delivering quality public services and regulation. We pay one in three dollars to government, but the results we get are mediocre. Here are just three suggestions.
A child receives $200,000 in taxpayer-funded education over their life, but the OECD tells us that 17 per cent of children – 1 in 6 – don’t meet basic literacy standards. This is a disaster. The problem is a state monopoly. It is almost impossible for new competitors to enter. We know this because when we did let new entrants into the market, in the form of charter schools, they were quickly overwhelmed and had to hold ballots to select students. A government that genuinely cared about living standards would allow innovative providers to enter the market and allow parents a real choice in education.
Congestion is major a handbrake on growth, costing the economy $1.25 billion a year. Auckland drivers waste 172 hours in traffic each year. National and Labour have spent years idling as congestion gets worse. We must follow international best practice (London, Singapore and Stockholm) and implement road pricing. The demand for road space outstrips supply. Instead of rationing space by queuing, road pricing encourages commuters to find other travel times, routes and transport modes. It uses markets and requires drivers to pay the full costs of their road use. It is fair, efficient, and environment-friendly.
The price of the median Auckland section has gone up 903 per cent since 1993. Over the same period, inflation has increased by 66 per cent. The reason is that, for decades, we have tied new housing developments up in red tape and underinvested in infrastructure. A government focused on housing affordability would free people to build and encourage councils to invest in infrastructure. What would that look like? The RMA would be replaced with a law that lets people build without restrictive zoning such as the Metropolitan Urban Limit. Councils would be allowed to issue targeted rates to pay for infrastructure for new housing developments. And we would get councils out of the building consent and inspection business and introduce mandatory private insurance for new builds.