by Russel Norman
It’s interesting to compare yesterday’s speech by Reserve Bank Governor Graeme Wheeler with Sir Paul Callaghan’s vision for a prosperous New Zealand.
Wheeler describes New Zealand’s manufacturing sector as a sunset industry, in terminal decline due to globalisation, competition from low wage countries, and a shift to a service intensive economy. It’s the kind of bleak outlook that sets up the rest of his speech justifying why he’s not going to fight to save our manufacturing sector.
Contrast this to the late Sir Paul Callaghan’s vision for New Zealand where he directly addressed the myth that we can no longer manufacture competitively in New Zealand. Not only can we manufacture competitively, we have to manufacture if we want to produce high value-added exports to pay our way in the world.
The export of elaborately transformed manufactured products is one of the key ways we can sell our specialist knowledge and skills to the world. This export strategy can’t be undercut by low wages elsewhere. And for most of this last decade, manufactured exports have remained our biggest export earner, higher than dairy exports, and higher than tourism. This high-earning potential is reflected in the fact that manufacturers make up 17 of the top 20 technology companies in the Tin100 list.
Graeme Wheeler understands that we’re living with an over-valued dollar and an unsustainably high current account deficit, but fails to understand how his policy settings are actively contributing to the on-going hollowing out of our productive economy. His sole focus on one outcome – inflation – has passed its use by date.
Russel
Published in Economy, Work, & Welfare | Environment & Resource Management | Parliament | THE ISSUES by Russel Norman on Thu, February 21st, 2013
Tags: current account deficit, elaborately transformed, Governor, Graeme Wheeler, manufacturing, Reserve Bank, Sir Paul Callaghan, Tin100
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on the trolls and those who are unable to keep on topic
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Wheeler’s comments are typical of those who don’t look at the big picture but take a narrow, short term view – as do most business ‘leaders’, politicians and financiers. Cheapest counts even if it’s from, say, child labour, or killing work conditions (China has a ‘Pike River’ almost daily but who cares so long as we get cheap goodies).
Wheeler’s, and his mate’s, is a self-fulfilling prophecy – if you don’t support manufacturing of course it will go down the gurgler and innovation’s a non-starter as it typically doesn’t pay off for decades so forget it.
Last October The Economist ran a debate on “Will manufacturing return to the West”. 59% voting said Yes. In the 41% who would have voted “No” will be the likes of Wheeler, Key and (probably) Shearer so if they are in charge NZ will continue to sink towards Third World status, though we’ll produce a nice pint of milk and cup of coffee. We might even make a dollar or two out of new service industries like sex tourism if we play our cards right (don’t get upset – money trumps morality as our leaders demonstrate daily).
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Russel – time to wake up to the facts.
- World-wide, manufacturing has nearly halved as percentage of world gdp in recent decades
- No developed country anywhere in the world has increased manufacturing as % of gdp over recent decades.
- Nearly 90% of our economy is now based on industries other than manufacturing.
- Many of the examples in your top technology list (like Methven and the one in #1 position – Fisher and Paykel) would be insolvent if they hadn’t shifted their factories overseas.
Our disadvantages are many
- we can’t compete on wages,
- we are most remote country in the world from markets,
- our shipping costs alone make us uncompetitive
- we lack the scale of our own market
None of these things can be changed (unless you want $1 an hour wages).
The only major disadvantage that we can change, is breaking down tariffs and trade barriers.
And the Greens always oppose free trade agreements.
So when you continually oppose the main thing the govt can do to help manufacturing, it’s a bit rich to say the govt isn’t doing enough.
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Vying with Key for the top honours in who can betray the interests of New Zealanders most thoroughly contest.
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We have to manufacture things that WE consume though. In that we recognize those disadvantages that keep us from exporting so much. Manufacturing the things WE consume keeps us from importing so much and borrowing so much from overseas. It gives New Zealanders an alternative to the housing and hamburger economy.
Exporting is possible for those who have a tight focus on a reasonably small niche… but it is only economic if the NZ dollar is kept at sane levels. That in turn is only reasonable if we make more of the things we consume here.
We’ve heard your rants far too often Photonz. Keep the imports cheap no matter what the cost to the rest of the economy.
The rubbish you dump here is familiar.
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This Government is destroying our education system and discouraging higher learning by not supporting post graduate study. It underinvests in R&D and is ignoring and refusing to publish reports on our declining environmental standards.
This Government’s answer to solving our economic woes is to drill, mine and frack, sell off our assets and fill the country with cows. Simplistic and stupid!
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BJ – If I could set up a manufacturing business in any country in the world, few countries anywhere would have as many disadvantages as NZ.
From a financial point of view, it would be one of the last places on the planet to set up factories.
Our balance of trade has improved significantly in the last four years compared to the early and mid 2000s.
In December we exported half a billion dollars more than we imported (the largest December trade surplus in 22 years).
The low dollar you want would vastly increase the cost of all our imports and put us into deficit and more debt.
We’d have to sell significantly MORE exports just to get pay for the SAME goods we currently import.
We should always try to make as much as we can here, but your idea of protectionism and subsidies to do it, is a one way road to unaffordable lower quality products, and a bankrupt country.
We know. It’s already been tried. And it failed badly.
If you and Russel were in NZ at the time you would have seen it for yourself…..a massive failure BECAUSE of all the same policies you want today.
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yeah right – lots of words (the same as every other country is saying), but who will invest in it? All the rich folk at Pure Advantage haven’t come up with much of their own money.
Look at our listed green tech companies – pretty much all are doing dreadfully.
- Rakon – one of the world largest manufacturers of GPS chips. Shares were up around $5 dropped 95% to 25c
- Energy Mad (efficient light bulbs) listed recently at $1.05 – now 40c
- NZ Windfarms dropped 90% from over $1.00 to 10c
- Wellington Drive Technology (efficient motors) was $6.00, now 15c
- and a host of biotech companies who lose money year after year and can be bought for a few cents per share.
We’ve got at least as many disadvantages with green tech as we have with every other form of manufacturing.
We’re competing against international green tech companies who have been going a century and have tens of thousand of workers.
It’s one thing saying “we should do green tech”.
It’s another getting the investment money for it.
Another getting an idea that hasn’t been done.
And another trying to sell it to the world when there’s often competition that comes out with better and cheaper products.
Don’t get me wrong. We should do as much green tech, IT etc, as we can.
To reiterate, we should do as much as we can.
But if you think it will be mean some economic boom, then you’ll be very disappointed – just like all the other people saying the exactly the same thing in every developed country in the world.
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No, we do not. If those things we import are relatively cheap compared to what we export, we’d be absolutely bonkers to divert our resources and labour into areas of low value.
This obsession with manufacturing is locked in an industrial revolution model of two hundred years ago. With 3D printers, we’ll be niche manufacturing alright, but the jobs won’t be in manufacturing, at least not in the sense we understand it today – they’ll be in design, technology, IP and other support services.
Here’s a 3D printer printing a building.
http://www.youtube.com/watch?v=EfbhdZKPHro
We do have an advantage in terms of education. We need to get a lot more educated. The future for the low/no skilled is the service industry, not a factory job.
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I’ll listen to Gareth on why we should be in “clean Green technology” when he personally puts his house and all his savings into the shares of those companies.
If he, or any other Green, hesitates – for one moment – then that tells us all we need to know. And if you won’t put your own money in, Greens, then why demand everyone else does so?
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New Zealand has and is going backwards in the world because we still export primary unprocessed products like animal carcasses, logs and milk.
We have not evolved or adapted and Nationals plan of more cows, cow shit and pollution will keep us going backwards while a few get rich.
National seem to think Casino’s are a good way forward as well ….
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Arana – good point. According to parliamentary records, not a single Green MP has a single share in any publicly listed green tech company.
In fact they don’t have a single share any ANY publicly listed company (that’s REALLY supporting NZ business).
They do seem to have quite a lot of properties though. Many have two properties. One has FOUR properties.
So we’re told to support Green tech, support NZ manufacturing, support NZ business, and we must stop investing in property and invest in the productive sector.
But they do exactly the opposite of what they tell us to do.
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The world wants food, Daddy0. Our wages are too high, and our scale too small to be competitive in processing, other than niche areas.
Pick your industry. Create a competitive array. See if New Zealand comes out looking good.
The airhead pontification from some politicians shows that wouldn’t even know what a competitive array was. Just because an industry is growing, and has X value, does not therefore mean we have any ability to compete successfully in that industry.
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Lordy! Who’s the landlord, then?
Where are these records, Photo?
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Arana – Kevin Hague has several properties. However with salaries of over $140,000 for the lowest paid MPs, and a couple of hundred thousand for a party leader, you’d expect them to have a few assets.
In fact, if they didn’t you’d have to question their ability to make basic financial decisions.
You can download the list of MPs assets here –
http://www.parliament.nz/en-NZ/MPP/MPs/FinInterests/e/f/1/00CLOOCMPPFinInterests20121-Register-of-Pecuniary-and-Other-Specified.htm
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Thanks Photo.
Russel, Callaghan is correct: “we are poor because we choose to be poor”
Look at the productivity per job in tech in that presentation. Why aren’t we doing well in tech? We aren’t producing many engineers and developers. We lack depth in our capital markets. We’re over-taxing small/med business and burying them with admin, regulation and overhead. Politicians just keep applying the handbrake.
Note his assassination of “clean tech”. Callahan agrees with me and Photonz, not you.
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The real reason the ‘Greens’ want manufacturing jobs is so they can send their union buddies in the put everyone on strike. Ditto public transport, public education etc.
Sharia Law for New Zealand!
Allahu Akbar
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A note for land rationing: It’s not just houses. It drives up the cost of the workshops, making NZ less attractive for a manufacturing exporter to establish itself in. Also it drives up the cost of living which also makes any new exporter see NZ as a less attractive foundation to establish itself in.
Nobody wants to make massive [and otherwise unnecessary] donations to the landlords and/or banks before they have even developed a revenue stream. Especially if they’re innovative and taking a risk with something new.
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Improve “sprawl” – Don’t suppress it!
…why not lead the way on the solutions that work best for both the environment and the economy?
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We can do manufacturing here, but not mass market manufacturing for export.
The closest to mass market we can get is stuff like F&P healthcare, and Tait radio, but even these guys struggle.
Stuff we manufacture has to be realatively price insensitive, so that the current dollar value, paying $50+/hr people and distance to anywhere are not impediments to sales. By definition this is low volume, specialist stuff, maybe even what some call “niche”.
To make an economy of this you need lots and lots of small companies.
The other place we do have a decent answer is in film production, of which we have 1% of the world market, but you know the story there…
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Callaghan is dead-on about another aspect – we only need around 100 smart entrepreneurs to make a significant difference.
There is a culture in this country, perpetuated by the left, that personal ambition and wealth is a shameful thing. Not something that has ever bothered Peter Jackson, but in such a toxic “egalitarian” environment it’s no wonder many of these people buy a ticket on the first plane out.
Entrepreneurialism and business are two subjects we need in schools and to promote them as valuable endeavour. Reward and promote excellence. The Greens do seem to be skirting around the edges of this notion, in terms of business development, which is good, but you’re going to need to acknowledge some people are more special than others, and this is a good thing. They carry the rest.
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Arana:
The childish attitude with the extreme-left seems to be that the private sector is “all in it for themselves” as though they only care about money and personal gain. While that is an accurate profile for many people, and often [an unfortunate] structural necessity in a competitive game, it is also often a totally false “character assassination”, and certainly so related to the individual-person level…
There are many private sector people, especially innovative people, for whom it is essential to feel like they’re more than a mere parasite on their society (er, like much of the public sector is). And those private-sector people are often responsible for founding and driving forward our best private-sector industries. ‘Best’ as defined by positive social value.
..And, they’re also the people who stress the importance of proper-functioning competitive markets, with transparency and appropriate regulations, so as to ensure the “good guys” win. They do not push corporatism of the type which so often tries to get cozy with government so as to skew the game to their advantage.
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Inappropriate for the person that is responsible for key economic drivers to hold views like this. Our economy is becoming too specialised as a result of globalisation and this obsesssion with “backing winners” only.
Our manufacturing base is being undermined for a number of reasons, most notably because our local businesses must comply with regulatory and wage requirements that imports do not. This is not a level playing field
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There is a myth in this country, perpetuated by the right, that
There are is nothing wrong with personal ambition or wealth – honestly come by. People who work for and earn their daily crust, no matter how large it is, get no stick from us on that account. The difficulty you see has to do with the word “honestly”. See, in the real world the opportunities to honestly EARN a heap of dosh are really pretty rare. Much more rare than the people who GET a heap of it. The far more common methods of accumulating a pile involve harm to others and damage to the environment… a measure of dishonesty even if the methods are legal. The legality may be a matter of laws made for the benefit of some and not others. This was common in the USA, less I think, here.
some people are more special than others, and this is a good thing
That’s fine Arana, and even true, but it isn’t all there is. That inequality of abilities and skills leads to inequality of paychecks is perfectly well understood. Greens are perfectly happy if the quality of a person’s production is in some manner coupled with their remuneration. That’s fine. Instead of that however, we have a complete DECOUPLING of those two things. Ownership, not productivity, is important here, and the skills differential would be no problem. It is however, overshadowed by the ownership and theft differential that is an order of magnitude larger.
You come back when you’ve recognized THAT problem.
Greens aren’t about making everyone the same. That’s YOUR particular impression and its origin on the right is a matter of conjecture, but it is just another lie that righties tell about Greens. Greens want everyone TREATED the same, but that’s a different standard. Certainly different from what we see from this government.
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Fascinating. It is “childish” in your eyes to accurately assess people? That IS what you just said… and it may be, though I am willing to be mistaken, that you have inferred that the Green party is the “extreme-left”.
The private sector is made of a wide variety of people who have a wide range of personal motivations and ethical values. People don’t get judged by whether they are in private of public sector jobs here.
However, there IS a generalization that applies to the private sector, and it is a result of the way the market works, something you acknowledge as
The market takes no prisoners, and it is ALL about money. Fair means or foul is irrelevant as long as you do not get caught. Individuals may differ but a corporation is a sociopath by definition. The only restraints on it are the moral values of the people on the board of directors, and the regulation and supervision provided by the state.
The idealization of “some members” of the private sector is sort of quaint. There are some paragons of virtue out there. Not many. I see you building a Randian image of these folks and wonder how young you are.
Rand, and Libertarians in general, have this notion about the nobility of the entrepreneur. The philosophy doesn’t actually work when attempted with real people, a trait it shares with Communism.
The folks you admire (and I admire them and wish them well too) are NOT running the show here. They aren’t in control of government. They aren’t the dominant force in the market. Most of them are working like dogs trying to keep their companies solvent in spite of the high dollar and a government that quite obviously has no understanding of the need to actually support the existence of industry here and is in the pockets of the “corporatists”… and more than ever, the banking sector.
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You only have to look at Metiria Turei’s recent speech to know what I’m talking about.
btw: The only real solution to the most destructive competition, in my view, is aggressive political/economic decentralisation.
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Our wages are too high, and our scale too small to be competitive in processing, other than niche areas.
This does not justify our non-production of anything. All it justifies is the notion that we can’t EXPORT much of what we produce. If we produce and displace imports our balance of trade doesn’t have to be balanced on the backs of a few.
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