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Oram: Be bold to thrive in a changing world

In a world undergoing structural change, tweaks to "business as usual" will not be enough, writes Rod Oram. We need to be bold in resolving the big looming debates.

The year Richie McCaw was born, 4.5 billion people lived on this planet. He's now 38 and we number 7.5 billion people, a two-thirds increase.

As it happened, 1980 was also the year we Kiwis began to realise our tried and true economic orthodoxies were failing us. So, we made radical changes in that decade, which helped us prosper in the following two.

This year we must make even bigger decisions about our economy, society, environment and international relations. But the orthodoxies we learnt in the 1980s and 90s continue to largely define our debates today. Thus, we believe some tweaks to business as usual will keep us going.

Yet evidence from around the world shows us the present, let alone the future, is no approximate continuation of the past. Economies are stagnating, politics are polarising, societies are shattering and environments are degrading. Only fundamental changes will turn those around. Any nation failing to respond constructively will be far worse off.

Here are some illustrations of how much New Zealand has changed since 1980:

- our population has grown 58 percent from 3.1 million to 4.9m people;

- we’ve swung from net 27,000 Kiwis leaving the country to net 64,000 new Kiwis arriving;

- international visitors have soared 10-fold from 400,000 to 4m;

- our national herd’s grown 2.5 times from 2 million cows to 5m;

- our GDP’s flourished from $23b to $265b, almost a four-fold increase when adjusted for inflation;

- inflation’s fallen from 17 percent to 2 percent;

- registrations of new cars and used imports have risen 230 percent from 78,731 a year to 255,847;

- milk processed has more than doubled to 21b litres a year, while the land used for dairying has increased by 75 percent; and

- our economy and exports have become more diversified, driven in many ways by extraordinary technology change and burgeoning opportunities in the global economy.

Social change has been pronounced too. We’re less conservative and more ambitious; we’re more ethnically diverse, yet more confident in our ethnicities and our Treaty relationships; and MMP has made our politics more representative and our governments and policies broader-based, and in some ways more effective.

We’ve considerably degraded our ecosystems, as Environment Aotearoa 2015, the Government’s first comprehensive report across land, fresh water, air and marine domains showed us. Many measures continue to deteriorate, subsequent updates confirm.

The rise of a dominant China

Global change has been even more remarkable than ours, with China being the biggest driver and beneficiary. Since 1980, its population has grown by 45 percent to 1.42b people; and its share of the global economy has increased eight-fold to 15 percent. One guide to this phenomenal economic development was a 2011 speech by Justin Yifu Lin, then the chief economist of the World Bank.

The US was the dominant nation in the 20th century; China will be in this century.

As a tiny country trying to navigate through this tsunami of global change we must be:

- Realistic about the profound transformations underway

- Optimistic about the opportunities those create for us

- True to our values of openness and integrity

Resolving the big debates

Setting us on the right course will take innumerable initiatives by individuals and myriad strategies by organisations, with the help of many key policies by Government. In turn, effective policies are best shaped by rigorous, broad and informed debate involving all the people affected by them.

We need urgent resolution of many of those debates. Here are snapshots of six of them:

Capital gains tax:

Any economy is distorted if one source of wealth generation is favoured over others. In our case, the lack of tax on most capital gains feeds the housing market, starves business investment and disadvantages wage earners.

We are one of the very few developed countries lacking a CGT. That’s an historic hangover fiercely defended and exploited by our neo-liberal reformers in the 1980s and 90s.

Today, the distortions are evermore obvious yet the two main arguments against a CGT are it is far too complex; and it wouldn’t raise much money. Good design knocks down the first; time answers the second – revenues will increase steadily.

Both arguments are second, or even third order issues. They are an excuse to avoid addressing the fundamental problem. That sadly is all too common in our debates.

Fair pay agreements:

A flexible and open labour market enables efficient use of people and their skills. But that can cause a pay race to the bottom, particularly for low skilled workers, exacerbating the disincentive to train them. Productivity and adoption of new technologies suffer. A minimum wage is only the ultimate pay floor not a broader solution.

Our businesses and their employees need to become far more sophisticated and flexible so they can keep up with, or better, exploit warp-speed changes of business skills, technology and markets. A fair pay agreement is a bottom line in a sector which encourages employers and employees to be ambitious.

The main argument used against such agreements by some employers is it would be a return to the 1970s style of union negotiations and strife that caused inflexibility and hostility. But businesses today need strong collaboration between employers and employees so together they can maximise their potential. Good companies and their people will far excel the low bottom line of a fair pay agreement.

Wellbeing budget:

GDP is a partial and imperfect measure of a country’s performance. It is entirely focused on financial capital and ignores social, cultural and natural (environmental) capital. Measuring on all four would help us understand what genuine progress we’re making, and help us avoid the damage to people, society and the environment which a narrow financial focus causes. Such impacts are creating many of the escalating conflicts in societies around the world.

In May our government will announce its first cut at a Wellbeing Budget, based on the Living Standards Framework Treasury has been developing since 2011. There’s a fair measure of support for this from some business leaders.

No doubt, though, this partial and rather simplistic first version will be criticised as being far too complicated, a distraction from pure economic measures, and an unrealistic attempt to measure the unmeasurable.

All good progress is hard. But with intelligence, creativity and practice it gets easier and greater.

Zero Carbon Act:

To tackle our monumental challenges of climate change and related aspects of unsustainability we need a very long-term goal for drastically cutting greenhouse gasses, a system for setting interim targets and a way to measure our progress towards them.

My column last week described the unassailable logic of this and the great benefits other countries are reaping from it.

Yet there is great resistance to it here from some political parties and some in business. Two main arguments are used against it: we’re such a small country nothing we can do will make a difference; and if there is progress elsewhere, we can keep up via incremental changes to business as usual.

On the first, we can have an impact by leading in some of our traditional strengths such as agriculture and by working collaboratively with many other countries; on the second technology, economics and societal values are changing so fast and fundamentally on climate issues, business as usual is rapidly becoming obsolete.

Resource management reforms:

When we passed our Resource Management Act in 1991 it was world-leading for its twin goals of promoting economic development while protecting the environment. Many amendments since have improved it in some respects and hindered it in others. Overall, though, it has failed to adequately deliver on either ambition.

Given our vastly increased economic activity and the resulting escalation of demands we’ve put on our environment in the past almost 30 years, further attempts to modify the RMA simply won’t work. The conclusion of 18 months’ work by the Environmental Defence Society, the New Zealand Law Foundation, the Employers & Manufacturers Association, Property Council New Zealand, and Infrastructure New Zealand is that we need a fundamental redesign.

Their report just released explores these issues, says Raewyn Peart, EDS’s Policy Director and co-author of the report.

“But we have deliberately stopped short of rushing to a single preferred model in the synthesis report," Peart says. "We want to encourage people to use our report and think carefully about options rather than jump prematurely to a particular solution. That’s been part of the problem – too many ad hoc changes that have produced muddled and incoherent legislation.

“That said, the next and final phase of EDS’s work, which has just commenced, will build on the analysis and options in the synthesis report and select and flesh out what a preferred model should look like. We will also chart a practical pathway for reform for Parliamentarians and the public to consider. That work will be the subject of the final report due end 2019.”

Relations with China:

In the 10 years since we signed a free trade agreement with China, it has shot from a minor customer for our exports to our largest with a 25 percent share. Similarly, it has rocketed from a negligible source of tourists to number two. On their current growth rate, the Chinese would displace Australians as our top visitors within a decade. Meanwhile, Chinese investment in New Zealand is also growing apace.

More importantly, China has changed hugely over the past decade. Its economic scale and technological prowess, and its global influence and sense of power have grown dramatically. Yet, it has become more authoritarian in political and social terms, while reasserting the clout of state-owned or influenced corporates over private enterprises.

Consequently, economic and political tensions between China and the US, EU and many other countries are escalating fast. Trump is wrong about some aspects of US-China relations and is deploying damagingly wrong strategies to try to change them. But he is right on some issues such as the Chinese approach to the intellectual property of foreign companies and some of its trade strategies; and quite what security threats Huawei may or may not pose remains largely a mystery.

Along with many other countries large and small, we’re feeling those increasing tensions. The simplistic response here is we need to stop picking sides, be as neutral as possible and just try to get on with China. If we don’t, such people argue, we will suffer economic losses or at least a slowdown in our expanding ties with China.

That’s a naïve view based on our relationship with the China that was a decade or so ago. Now and for evermore we need to be very clear what our values are and who we share them with; if that causes some slowdown in our growing ties with China that will help us from becoming too dependent on China; that in turn will make us less vulnerable to adverse pressures from it and will help preserve our options and resilience.

Rising to all of the challenges above, and many more, is utterly daunting. If we are so timid as to believe tweaking business as usual will get us there, we’ll fail. But if we boldly embrace the wonderful opportunities for us in this fast-changing world, we’ll succeed.

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