New Zealand’s right continues to remain statist
The combination of this article from Fran O’Sullivan, where she treats the NZ economy like a business, and the frankly poor Taskforce 2025 report has flustered me. [We have seen these actions before mind you]
I aim to do a full post discussing the Taskforce 2025 report another time, when I have a moment, but the two main issues were:
- It abused the data to make ideological claims rather than honestly looking at it (it is like they didn’t actually talk to anyone who analysed NZ historic data),
- It ignored the fundamental trade-off between efficiency and equity – this can be forgiven as long as it is mentioned as a policy relevant factor to be looked at before setting policy itself.
In a similar vein, O’Sullivan seems to think that government needs to pick winners (how they can judge business conditions better than the people actually trading I do not know) and subsidise exports – because for some reason giving other people our produce is a good thing because it makes the GDP stat look bigger.
She bemoans “purists” – a camp I guess I am in – because we care about the efficient allocation of resources, and the welfare of society, rather than using a bunch of business jargon and pretending we can centrally run an economy.
I believe that in both cases, the Taskforce report and O’Sullivan’s article, the authors believe they are suggesting what is best for everyone – what is best for society. But this just tells me that they are confusing what a firm is and what a country is when making recommendations – it is not governments role to centrally determine society, and anyone that thinks government can pick winners, or that cutting the fiscal deficit right now will make magical things happen, is mistaken.
I think many people, while enamored with the opportunities in Asia, also mistakenly are enamored with the way they run their governments. We have discussed this before – I am generally a hands off person in my own society but am more sanguine when it comes to developing countries – but I think the mistake many of these people make is in not realising that when you have developing economies the government “picking winners” is almost like shooting fish in a barrel – any increase in efficiency at all through superior labour and capital utilization, and in terms of economies of scale are going to make the government look competent – and when the efficient allocation of resources is not much above zero, as is the case in many societies who have not developed the necessary political and economic structures to support a free market and to encourage people to conduct business safely, it is by no means an impressive feat.
Of course, the challenge for these governments is political – the need to balance economic growth with social development – this requires much more skill and courage in some ways.
I am not totally against our government intervening – but it needs to know exactly why it is doing so, and more importantly, have a rational evaluation of its own capabilities towards being able to achieve such an outcome – for example if there are barriers – say between universities and private firms in terms of the flow of information/research findings due to the different institutional cultures of universities and the private sector – it can provide incentives to bridge the gap. It can provide forums for the discussion of business opportunities and do various other things that help increase the flow of information. Beyond that I am much more skeptical.
I’m worried that 2025 sets folks up to hate market reforms. The payoff curve seems likely to be pretty flat with policy changes. We could do better, but we’re not going to get rich out of it. Promising catching Australia but underdelivering seems worse than saying a set of reforms (which I’d probably deem desirable though I’ve not looked much at the full list) would yield modest improvements but are worth doing in their own right.
@sigma1
Good comment, agreed.
@Eric Crampton
Agreed. There are policy recommendations that I agree with in the report – for example, I think the efficiency costs stemming from taxation in for additional government spending needs to be taken into account, and I think the barrier for additional spending should probably be higher than it is.
But the report was a definite disappointment. Instead of looking at distortions from government spending it seemed focused on the fiscal deficit, instead of describing the underlying causes of imbalances in the economy it attributed them to a “high” real exchange rate – which was blamed on the current fiscal deficit. Not the high terms of trade, or the distortionary impact of changes in tax policy over the last decade. Sigh.
However, discussing that report is another post during a quieter time of the year 😉
Um, nothing of substance to add, sorry. I just wanted to say Nolan’s been in damn fine form this week.
@BK Drinkwater
Thank you fine sir. I simultaneously finished forecasts, preparation of forecast presentations, and a course I was doing – so suddenly I had some time to write things. Add to this the fact that stuff happened around the place and posts appeared.
while the market chooses the true winners, if the government chooses these winners instead it can reduce the transaction costs of picking winners (or increase transaction costs if implemented poorly).
Of course a better policy might be removing as many transaction costs as possible in the first place and still letting the market pick the winner.