Comment

We need more global co-operation, not less

Rod Oram picks apart the argument that the lesson of Covid-19 is that we should become more self-sufficient and less reliant on the global economy

There’s a view going around that the Covid-19 pandemic is showing us some of the failures of our interconnected global economy. Thus, goes the argument, New Zealand should become more self-sufficient in order to become more resilient.

One of the prime proponents is Winston Peters, leader of NZ First and Deputy Prime Minister. He made his case in his speech to Parliament on April 28. He began by quoting Mahatma Gandhi’s definition of The Seven Sins before moving straight on to the eight things he said we knew when the lockdown began.

Making no attempt in the entire speech to connect the two lists, he left Gandhi dangling. But he did lay out the failures of globalisation as he sees them.

“The fragility and the vulnerability inherent in the highly interconnected and networked global economy has been revealed,” he said. “Far greater autonomy for the New Zealand economy” was the solution.

“In short if we can grow it and make it at near competitive prices then we will grow it and make it, use it and export it, before we waste valuable offshore funds importing it. The pitfalls of globalism have been laid out dramatically before us. And some of us have known that for a long, long time.”

Bringing back manufacturing from abroad is far harder than Peters seems to think. Even Donald Trump, that master of bluff and bluster, is failing abysmally through his trade wars, tariffs, tax breaks and other measures. As the New York Times reported last August:

“In Mr. Trump’s first two years in office, companies announced plans to relocate just under 145,000 factory jobs to the United States, according to data and modelling by the Reshoring Initiative, a non-profit group. That is a record high in the group’s data, which dates back to the late 1980s, but it adds up to less than one month of average job gains in the United States in its decade-long expansion. More than half of those jobs — about 82,000 — were announced in 2017, before Mr. Trump’s tax cuts took effect.

“Researchers at A. T. Kearney said last month that Mr. Trump’s trade policies, including tariffs, had pushed factory activity not to the United States but to low-cost Asian countries other than China, like Vietnam.”

In other words, there are great economic benefits for countries by engaging in the global economy and specialising in what they do best.

Peters also argued for a second form of disengagement by New Zealand. “We need to put up the shutters to offshore ownership of the New Zealand economy and go back to owning as much of it as we possibly can.” He did allow, though, that foreign investment is useful if it allowed us to do some things we couldn’t do on our own.

Two days later, the New Zealand Manufacturing Alliance released its major study on how to improve the fortunes of its sector.

“The pandemic has highlighted the weaknesses of globalisation, the frailties of international supply chains and the vulnerability of relying on income from tourism and international education as major sources of export revenue,” it said in its press release

Actually, global supply chains are continuing to work well, by and large. They are bringing us the imports we need to keep society and the economy functioning; and they are taking our exports to our customers overseas.

Yes, the pandemic is massively disrupting our economy, notably in the sudden shutdown of tourism and aviation and in the 40 percent or so reduction in economic activity during the Level 4 lockdown. But over the next five years or so we will substantially recover from those traumas.

The best way to do so is to strengthen and deepen our global economic ties, not to reduce them. We need to become more sophisticated in our goods and services; more capable of finding high value customers abroad; and more adept at building overseas the best relationships, sources of technology, investment and all the other inputs we need to succeed.

In doing so, we must never chase illusory goals. It makes no sense, for example, to try to compete in any sector defined by mass markets, fast growth, rapid innovation, huge manufacturing scale, high investment in technology, a handful of dominant players or low wages. For example, we would never succeed as mainstream players in electronics, computers, pharmaceuticals, aircraft, cars or similar fields.

Nor should we try to foster local production to substitute for such imports, other than in some very particular instances where we can bring genuine benefits to workers, consumers and the economy.

Instead, we have to play to our strengths as a creative, agile and niche player in some global sectors. Even our largest exporter, the dairy sector, accounts for barely 3 percent of global milk supplies. Given our export profile, it’s no surprise that food and beverage is our largest manufacturing sector followed by the makers of specialist machinery and equipment, as this chart from the Manufacturing Alliance’s report shows:

Continuing to develop our manufacturing sector is absolutely essential. But the challenge of keeping up with global trends is enormous given the rapid development of new technologies such as 3D printing and the application of artificial intelligence in what is described as the “fourth industrial revolution”.

The Alliance’s report lists six main themes in manufacturing and describes their evolution from their current state to their future expression.

But in laying out a series of policies it urges our Government to pursue, it is essentially only repeating recommendations made in many other countries in recent years. For example, the UK government produced in 2013 its report The Future of Manufacturing: A new era of opportunity and challenge for the UK.

The Alliance’s report is also disappointing in its emphasis on incremental change by, for example, reducing the adverse environmental impact of existing technologies. The real future, though, lies in radical reinvention of how we make and use things.

Rather than the traditional linear system of produce, consume and discard we have to shift to a circular system. This requires us to rethink and redesign our products and change our consumption habits. Then we can drastically reduce the resources we use and the pollution we generate. Then we can recycle, recover, repair, remanufacture and repurpose products.

The UK’s Ellen MacArthur Foundation, one of the world’s leading exponents of the Circular Economy, offers this global guide to it; and here, our Ministry for the Environment offers this guide and the Sustainable Business Network this one.

Becoming a global leader of the Circular Economy movement, in manufacturing and all other sectors, makes great sense for us. After all, we have the largest stock of natural resources per capita, excluding oil and gas countries, and our economy depends more on those resources for generating its economy activity and wealth than any other country.

Through this symbiotic relationship with the planet and the global economy, we will earn true wealth and resilience. Above all, we need such global co-operation to solve humankind’s many and intense problems.

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