Guest Author: David Cunliffe on Scandinavian Economic Development
- Hon David Cunliffe, Labour Economic Development and Associate Finance Spokesperson, Clean-tech Cluster Chair
Published 30 September 2012
Scandinavian Economic Development Speech: Fast Forward – Growing Good Jobs
Speech to Laingholm District Citizens Association, Laingholm, 30 September 2012
Robert Louis Stevenson, the man who wrote ‘Treasure Island’, once said: “Everybody lives by selling something”.
In these days of economic treachery, this sounds like a very negative statement.
Everybody lives, today, by selling something.
But actually, the phrase: ‘Everybody lives by selling something’ is merely stating a simple truth.
In order to survive I must breathe air.
In order for me to breathe air, there need to be green plants producing oxygen.
So, when I breathe in, I’m breathing in air that was mostly made in the green plants.
But this is not a one-sided trade. I don’t just breath in air, I breathe out carbon dioxide, which is in return breathed in by the green plants, and converted back into oxygen, for me to breathe once more.
The green plants and I need each other. We trade what we produce, and both sides survive and prosper as a result of our necessary partnership.
Ecologists call this process of mutually-beneficial trading ‘symbiosis’.
WINNERS AND LOSERS
Motivational speakers have a simpler term: they call this process ‘win-win’. There’s no winner and loser when I trade my carbon dioxide to the green plants and get oxygen in return. I need the oxygen; the plants need my carbon dioxide in order to convert sunlight into food.
Provided both sides play fair, this is truly a win-win situation.
The problem is, too often over the last 30 years, and some would say for much longer, the world’s economic system has not been win-win for the average person, indeed for most of us. It’s been win-lose: they win and you lose.
The rich speculators and traders get richer, while the rest of us get poorer. Like it or not, our country is going backwards.
What happened? This widening gap isn’t the Kiwi way. What’s changed over the last thirty years?
Let’s have a quick recap of history. As a result of the Great Depression of the 1930s, the New Zealand Labour Party – like its counterparts around the world – legislated to rein in speculation, to protect jobs and to protect human rights.
Most of New Zealand’s great economic assets, such as our farms, our roads and our forests, grew and prospered as a direct result of these policies. As our nation grew more prosperous, the wealth was widely shared. No children needed to starve in the New Zealand I grew up in.
However, the 1980s and ’90s saw the rise of a philosophy developed by the rich, for the rich. It was called Neo-Liberalism.
Neo-Liberalism is based on the idea that it’s a dog-eat-dog world. Neo-Liberalism is based on the idea that greed is good, that we’re all locked in an economic life-and-death-struggle with each other. Neo-Liberalism says that compassion is for suckers. Neo-Liberalism says that if the world is going to the dogs, it might as well be the top dogs. Indeed, to borrow from Oliver Stone’s Wall Street, not only is greed good, “it’s legal.”[i]
When the British Conservative prime minister Margaret Thatcher was asked about the effects that her Neo-liberal policies would have on society, she replied:
“There is no such thing as society… There are individual men and women.”[ii]
The amazing thing about the Neo-Liberals is their wilful blindness to how badly their ideas have failed. Not just once, but repeatedly. Neo-Liberal policies directly caused two of the largest financial crashes in history. Did they apologise? No way. Like some mad doctor, when the first dose of medicine didn’t work, they wanted to double the dose.
And so, the Neo-Liberal bandwagon rolls on. Right here in New Zealand, the National Party is still trotting out the same discredited economic policies that got us into this mess in the first place.
I have just returned from Denmark and Finland, and I am convinced there are lessons for us all in how these Scandinavian countries run their economies. In particular, we need to take note of why the Scandinavian countries are slowly winning while many other European countries are rapidly losing.
Let’s take a quick look at the ‘Scandinavian model.’
The ‘Scandinavian model’ isn’t really Scandinavian at all. It could also be called the traditional New Zealand model. A model based on the idea that the economy is like a farm or garden. If you want a garden to grow, then you have to dig the soil and plant the seeds. You have to feed and nurture the plants and you have deal to the weeds when they grow up amongst the crop.
If this sounds like simple common sense: it is.
Any farmer will tell you that you get back from a farm what you put in. If you let weeds grow, you get a farm full of weeds. If you nurture your soil, livestock and crops, you have a good chance of a healthy farm, and a healthy return on your investment.
Which countries are currently surviving the recession best? The ones with the Scandinavian economic model.
According to Neo-Liberal economic theory, the Scandinavian countries should have collapsed by now. After all, they have large numbers of public employees on decent wages. Large trade unions. Very high taxation. A huge amount of government spending. I’m not arguing for a carbon-copy, but it has worked for them.
While the Neo-Liberals in America, Britain and New Zealand have been targeting those on welfare, blaming them for the world’s problems, the Scandinavian countries have been doing the opposite. That is, they’ve been helping those on welfare to get jobs, not blaming them for being poor.
After taking a big hit from the global financial crisis in 2009, the Scandinavian economies have bounced back strongly, while most of the rest of Europe seems stuck in reverse.
What’s the Scandinavian secret? The Scandinavian people have mastered the art of win-win.
For example, on my recent visit, I saw the Danish approach to economic development.
Denmark doesn’t tell its businesspeople what to do. Instead, Denmark sees its businesspeople as partners. The Danish government sits down with its key business groups. The two sides plan a workable strategy. After listening to its voters, workers and business partners, the Danish government doesn’t muck around. Incentives, sector plans, skills training, research and development, industry investment, targets and timetables are all actively used to get the economy moving and to keep it moving.
There is real symbiosis; it’s a win-win partnership, and the whole country benefits.
No surprise then, that Finland and Sweden came third and fourth respectively in the latest World Economic Forum competitiveness survey.[iii]
This competitiveness is driven by a government that understands how to invest in its people. According to the World Economic Forum, the key to the Scandinavians’ success is largely the result of a high level investment by the government and industry in education and training.[iv] The Scandinavians understand that ignorance is poison.
The Scandinavians know they cannot compete with China for low labour costs. They don’t bother to try. Instead, the Scandinavians have learned the value of working smarter instead of merely working harder.
Scandinavian bosses and workers don’t see each other as natural enemies. They may not always get along and they may not always agree, but they understand clearly that bosses and workers need each other.
I wish our government understood this.
GROWING JOBS, NOT WEEDS
So what would a good farmer do to grow the farm called New Zealand? What practical tools and lessons can we take from the small, smart countries of Scandinavia?
A good farmer ploughs the soil to create the conditions for healthy growth.
Getting the economic basics right is important.
The first economic basic that we need to get right is trust. Whether it’s with respect to John Banks skirting around the truth or John Key burying his head in the sand over the Dotcom saga, New Zealand’s reputation as an honest country in which to do business is under serious threat.
We have to restore trust, both in New Zealand and overseas. Investors won’t come to New Zealand if they think we’re a banana republic.
And make no mistake about it: Labour welcomes investors to New Zealand. However, we welcome investors who come as partners, not masters. Our country is not for sale. New Zealanders do not wish to become tenants in their own country.
We also need to stabilise our currency, so that businesses have some certainty. We need to keep the New Zealand dollar from continually rising, because if the dollar is too high then our exported goods become too expensive. Other countries do this – so should we. The high New Zealand dollar is making life hard for exporters and it’s simply ruining manufacturing in New Zealand.
As my colleague David Parker has said recently, targeting inflation alone is an old orthodoxy that few countries support[v]. We need more balanced objectives, and a broader range of tools to achieve them.
We also need to stop the housing market from spinning out of control. Not only do high housing prices make homes unaffordable for many ordinary families, but housing booms are usually followed by housing busts. We’ve had quite enough economic train wrecks in recent years, thanks very much.
But economic and financial stability is about more than just keeping prices stable.
Watering the soil
Good farmers don’t just dig the soil, they keep it watered.
The lifeblood of business is capital, but many private investors have taken flight since the crash of 2008. A business community without investment is like a field without irrigation: without some water, the crops will wither and die.
I’m not advocating the government dolling out taxpayer funds to big business. There’s been too much of that already. Taxpayers are sick of it. I’m sick of it.
However, there’s no reason that the government can’t help those who are helping themselves.
For example, suppose a private company needs to do some expensive research and development, and this research and development benefits the whole country.
As another example, suppose a private company is researching a cure for Kiwifruit disease? Labour’s research and development tax credits would help that company find a solution.
Accelerated tax depreciation for short-life technology, and other measures soon to be announced, would also assist the innovation process.
Those kinds of policies could be part of a broader win-win approach. That’s how things work in the Scandinavian countries. That’s how the Scandinavians gets results.
Investment also comes from savings. For those who don’t know it, New Zealanders in recent times has had some of the lowest levels of savings in the developed world.[vi] This is wrong for two reasons: one, without savings, our citizens have no fall-back position if something goes wrong. Two, because when people save these savings can be invested wisely.
That’s why Labour’s universal KiwiSaver plan lifted our savings rate four times faster than National’s alternative. Under Labour’s policy, New Zealand would have more capital available for local investment, rather than relying so heavily on foreign-owned banks.
That’s a lesson the Scandinavians have learned and that our Aussie mates have also got right. We need to get it right as well.
Another area in which Labour is streets ahead of National is in the area of capital gains tax. Let me explain this very briefly: many New Zealand businesses have given up investing in useful and productive areas. Why? Because the New Zealand tax system encourages business to invest in the wrong places. That’s because many of the richest New Zealanders have grown rich from capital gains. They buy a piece of land for a million and sell it for three million. That’s a cool two million dollar profit, much of it tax-free. Regardless of how they earn their income, everyone should pay the same rate of tax.
Investing in property for capital gains not only makes home buying unaffordable for many families, it sucks billions away from productive investments.[vii]
Worse still, history has shown that what goes up generally comes down, and often with a crash.
What a capital gains tax does is encourage all investors to put their money into areas that produce something. This will have the effect of dampening the current property bubble, while freeing up billions for investment in areas like computer technology or energy production.
This is not some freak theory; it’s acknowledged internationally. That’s why there are only two other developed countries that don’t have a capital gains tax.
Pro-growth tax reform, including a capital gains tax and the restoration of tax credits for research and development, is needed to water the soils: feeding real Kiwi businesses and creating real Kiwi jobs.
Planting the seeds
Good farmers carefully sow and nurture the seeds and tend the crops as they grow to maturity.
The seeds of our economy are the innovation and ideas that can be raised in our universities, businesses, garages and garden sheds.
Kiwis are an innovative, creative people. Our capacity for working wonders with reduced resources has led us to developing the world’s first electric fences, jet boats and so on. The list is almost endless and the ideas are often brilliant. But too often, unless the inventor has deep pockets, too many good ideas don’t get off the shelf. Once the seed capital from ‘friends, fools and family’ runs out, often, so does the business. The sad fact is that – even during the economic good times, four out of five Kiwi business start-ups withered and died in the first two years.
In Japan and Korea, four out of five new businesses survive past two years[viii]. The difference is that in Japan and Korea, there is comprehensive government support for small business development. Support with budgeting. Support with obtaining investment. Support with business plans. Support with taking successful products and showing them to the world.
Last week, the New Zealand Herald told the sad story of how 32 of New Zealand’s biggest high-tech companies have been sold off overseas at an early stage[ix]. That’s like ripping out a crop when it’s half-grown. It’s madness.
Labour welcomes positive investment, but we want to avoid the best and brightest of our young companies being continually hollowed-out from Kiwi ownership.
We need policies that will help young Kiwi companies grow for longer, and become stronger, right here in New Zealand. We know the main problems: a lack of capital to support growth, a lack of experience in trading outside of New Zealand, difficulty communicating with overseas customers and a difficulty delivering the product or service around the world. David Shearer, who is also our Innovation Spokesperson, will be speaking more on our ideas in this area shortly.
Labour also believes that government should try to buy Kiwi-made products where possible and appropriate, and ensure that Kiwi companies have a fair chance to sell to their own government. Taking a hard look at government procurement is also a part of Labour’s policy mix.
The government should also have a strong policy of avoiding products that cause significant environmental harm and those that rely on the cynical exploitation of workers, especially women and children.
Rebuilding manufacturing, sectors and regions
Good farmers have a plan for every paddock on the farm. We need a sustainable growth strategy for every industry sector and region.
Sadly, however, since National took over many regions have slipped backwards, and this is no accident. The East Coast and Northland have skyrocketing youth unemployment. Wasting a generation of young Kiwis in our regions is not good enough. Take forestry for example. We don’t build enough quality products with our own wood. Instead we cut down the trees and ship the logs to ‘sweatshops’ overseas. Under the current New Zealand government policy, there’s simply no incentive to do otherwise.
A similar thing happens in dairy. Our milk is mainly shipped overseas as commodity products like milk powder, while too often those that develop these ingredients into branded products get most of the benefit.
It’s even worse with our seafood. Did you know that for the next four years it is legal for New Zealand companies to catch fish in our waters using Korean boats manned by Filipino sailors who are treated like slaves?[x] This fish, in some cases, is then sent to Asia for processing, then shipped back to New Zealand for sale in our supermarkets. This is madness.
Both the International Monetary Fund and the credit rating agencies have said New Zealand’s biggest weakness is that too great a share of our total exports is selling raw commodities like milk and logs at low prices. Instead, we need to be making something more valuable out of our milk and timber before we export them[xi]. That’s the Scandinavian way.
In case anyone has missed the headlines of the last few weeks about massive layoffs at Tiwai Point, Norske Skog’s Kawerau mill, Solid Energy’s Huntly and Spring Creek mines, Nuplex and APN in Auckland, and many, many others – manufacturing is in crisis in New Zealand.
40,000 manufacturing jobs have been lost since 2008 when National came to government and there are more layoffs to come[xii]. Some 65,000 more New Zealanders are unemployed[xiii] and that’s not counting what Bill English now calls the “safety valve”[xiv] of 54,000 other New Zealanders giving up and moving permanently to Australia in the last year alone – an all-time record.
So we desperately need a high-value manufacturing strategy in this country. Gone are the days when manufacturing was just some unskilled worker bolting two parts together. That style of manufacturing is now inevitably done in low-wage countries. In most cases, we simply can’t compete with Asia when it comes to large-scale, low-cost manufacturing.
However, we’re not out of the race, by any means. According to Statistics New Zealand, there are about 22,700 manufacturing businesses in New Zealand[xv], which together produce about $20 billion of sales[xvi]. $20 billion.
I believe we could triple that, not by lowering our environmental standards or paying our workers less, but doing what we do so well.
New Zealand is very good at thinking small and thinking smart. We can do small production runs of specialist items. We can process raw materials that were gathered nearby. We can produce products on demand for our local market or international markets.
Above all, we can think smart. We can take an idea from concept to manufacture, often on a budget that wouldn’t pay for lunch in America or Germany.
Should the government be backing the manufacturing sector? Absolutely. Just look to the Scandinavian example.
Prof Göran Roos, a leading Scandinavian industrial economist, points out that every dollar in manufacturing business leads directly to $1.74 in turnover elsewhere in the economy[xvii]. And he and others point out that with increasing linkage between manufacturing and high value services in global trade, you can’t win without manufacturing capability. Buy a new car, get a regular servicing package.
The Scandinavians understand that a successful manufacturing strategy provides high-value jobs, good incomes, and helps reduce our overseas debt.
Labour will work with unions and businesses to enhance skills training to help support a strong manufacturing heart. The heart of a high-performance manufacturing sector is highly-productive workplaces with excellent training and decent living wages.
Like in the Scandinavian countries, we want workers to have the training and support to adapt to changing jobs with ‘flexicurity’ throughout their lives. Flexicurity: it means ‘flexible security’[xviii].
This is important. Look at what’s happening with the West Coast coal miners. After a lifetime of hard work in the coalmines, these miners are now facing the economic scrapheap[xix] thanks to National’s plans to railroad the sale of Solid Energy. The miners must now adapt to a changing world. Can they do this overnight? Of course not.
That’s where the government can help, not with a handout, and not by lowering environmental standards or strip-mining national parks, but with an investment in the future of those workers and an investment in the future of our entire country. It’s time to recognise that our most valuable resource is not just our land, but our people.
Clean and green
Another crucial sector is clean-tech. Labour leader David Shearer has called for a clean, green and clever economy for good reason – there are almost seven billion people on the planet[xx].
It’s obvious now to most governments, including not only the Scandinavians but also most of Europe, China, Korea and Japan, that we simply can’t keep living the wasteful and destructive ways of the past. As government regulations around the world get tougher, there’s a huge global market for clean technology. That is, technology that makes more effective use of our precious resources while reducing pollution and wastage.
You may rest assured; our competitors are investing heavily in clean technology. Why is New Zealand not doing more to win in the global green race – the $6 trillion export market for clean-tech[xxi]?
There are already some great ideas being developed, but building a strong clean-tech sector will only happen if the government sends the right signals. For example, the more we require our power generators to act responsibly, the more we are encouraging the development of alternative ways of generating electricity.
But the National government is going the other way – scrapping Labour’s biofuels obligations and effectively wiping out the infant biofuels industry. Now they have the gall to say biofuels will save Kawerau[xxii]. Shameful.
Labour believes there is no inherent conflict between positive business and the environment.
Labour is not opposed to environmentally responsible mineral and energy exploration. However, Labour never forgets that most of New Zealand’s export dollars come from living things. A wise government, like a good farmer, needs to protect and nurture the source of our wealth.
We are interested in investments that have a win-win outcome. Investments that create jobs and exports, balanced with appropriate responsibilities to our communities and the environment.
Nobody in Parliament, and nobody in this room, will still be here in 100 years. However, those who follow us will enjoy the gifts we give and will endure the mistakes we make. That thought alone should make us pause.
GROWING JOBS AND HOPE
We need better from our government. We need a comprehensive strategy that includes planning, research, financial incentives and assistance with helping local companies sell their products overseas.
It’s not rocket science; it’s common sense.
Kiwis are very decent people. They know they’ve been conned by Neo-liberalism and its National-Act acolytes. They want to do something about it. They want to reclaim that wonderful sense of fairness, safety and honesty that used to be the hallmark of this country.
In my remarks today I have stressed three key things:
First, contrary to the failed Neo-liberal policies that got the world into this mess, it’s really clear to you, to me and to the incoming Labour government, that we all do better together when we all win together. Think Scandinavia. Think symbiosis.
Second, it’s in Kiwi DNA to understand farming – the role of government in helping to create an innovative, job rich economy should be like a good farmer.
- Tending the soil to get the fundamentals right. Irrigating it with capital and fertilizing it with skills and technology.
- Planting the seeds of future success through a step change in innovation.
- Having a plan for each paddock – our industry sectors and regions – so we can be the best we can be. Understanding that it is crucial to have high value manufacturing and clean technology developed alongside making the best sustainable use from our resources.
- And never forgetting that our most valuable asset is always our people. Investing in education, skills and lifelong learning; building decent high performance workplaces, and using the power of government to reward good business practices.
Third, we need a government that listens, that works in partnership, then takes action. We can rebuild this economy. We can make this country the envy of the world again. But we need a government that acts, like a good farmer, not one that just sits on the fence, watching the weeds grow, and letting the farm go to ruin.
REFERENCES AND READINGS
[i] Internet Movie Database, Gordon Gekko quotes, available at http://www.imdb.com/character/ch0012282/quotes
[ii] Keay, D. (1987, September 23), Margaret Thatcher interview, Women’s Own.
[iii] Schwab, K. (ed.), ‘The Global Competitiveness Report 2008–2009’, World Economic Forum, available at: http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf
[vi] Organisation for Economic Co-operation and Development (2012, June 7). Household saving rates – forecasts: Percentage of disposable household income, DOI: 10.1787/2074384x-table7.
[viii] Ministry of Economy, Trade and Industry of Japan. Briefing note.
[ix] Wishart, S. (2012, September 24), ‘Kiwi high tech for sale’, New Zealand Herald, available at http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10836029
[x] Ministry for Primary Industries (2012, February), Ministerial Inquiry into Foreign Charter Vessels, available at http://www.fish.govt.nz/en-nz/Consultations/Ministerial+Inquiry+into+Foreign+Charter+Vessels/default.htm
[xiii] Statistics New Zealand (2012), Quarterly Employment Survey: June 2012 quarter, available at http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/QuarterlyEmploymentSurvey_HOTPJun12qtr/Definitions.aspx
[xiv] Cited by Tarrant, A. (2012, September 21), ‘Record loss of migrants to Australia in year to August, Stats NZ says; Nearly net 40,000 cross Tasman to the ‘lucky country’’, interest.co.nz, available at http://www.interest.co.nz/news/61231/record-loss-migrants-australia-year-august-stats-nz-says-nearly-net-40000-cross-tasman-lu
[xv] Statistics New Zealand (2012, September 10), Survey and methods section, ‘Quarterly economic survey of manufacturing’, available at http://www.stats.govt.nz/surveys_and_methods/completing-a-survey/faqs-about-our-surveys/quarterly-economic-survey-of-manufacturing.aspx
[xvi] Statistics New Zealand (2012, September 10), Table 1: All Manufacturing section, ‘Economic Survey of Manufacturing: June 2012 quarter’, available from http://www.stats.govt.nz/~/media/Statistics/Browse%20for%20stats/EconomicSurveyofManufacturing/HOTPJun12qtr/esm-jun12-qtr-tables.xls
[xvii] Roos, G., (2012, June 29), Is Manufacturing in Decline?, special presentation.
[xviii] One European interpretation of ‘Flexicurity’ is detailed at European Commission – Employment, Social Affairs and Inclusion section (n.d.), Flexicurity, available at: http://ec.europa.eu/social/main.jsp?catId=102&langId=en
[xix] Sabin, B. (2012, September 25), ‘Spring Creek miner’s 5th redundancy’, 3news, available at http://www.3news.co.nz/Spring-Creek-miners-5th-redundancy/tabid/421/articleID/270538/Default.aspx
[xx] World Bank estimate cited in Google Public Data set. Granular global population analysis is available from the WolframAlpha knowledgebase (2012), available at http://www.wolframalpha.com/input/?i=world+population&lk=4
[xxi] Innovas, cited in Pure Advantage (2012, May), New Zealand’s Position in the Green Race, p. 2.
[xxii] Hon Steven Joyce, National Party MP and Economic Development Minister, cited by Radio New Zealand (2012, September 11).
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