John Shewan reflects on the contrasting styles of successive governments in addressing fiscal challenges over the 34 years he has been commenting on budgets

John Shewan reflects on the contrasting styles of successive governments in addressing fiscal challenges over the 34 years he has been commenting on budgets
Rob Muldoon

By John Shewan*

A helicopter view of key Budget policies introduced over the period 1978 to 2012 shows the sharply contrasting approaches successive Ministers of Finance and Governments have used to address the challenges New Zealand has faced over this period.

The key indicators set out below show how the economy has responded.

Sitting in the departure lounge of professional practice has provided me with a unique opportunity to reflect on past Budgets. Which policies have worked? Which have not?

My initial enthusiasm in the late 1970s for tax incentives and government subsidies such as Supplementary Minimum Prices to guide behaviour and steer the economy quickly dissipated.

A turning point was when a client proclaimed they could not believe their good fortune at receiving a $5 million subsidy for a new plant that they would have built anyway.

Reforms such as the 66% personal tax rate and the wage and price freeze coupled with government accounts plunging into the red demonstrated the need for fundamental change.

Lessons learned

I’ve drawn several key lessons from Budgets delivered over the past three and a half decades:

Incentives matter
Whether at work or play, the average Kiwi behaves in an entirely logical way. As Sir Robert Muldoon discovered, when Governments introduce poorly designed incentives and subsidies, bad behaviour and high waste are inevitable.

Focus on the big picture
The key things that matter most for economic performance are a stable and predictable macroeconomic environment, openness to trade and investment, effective labour and capital markets, relatively low taxes and regulatory burdens, and sound public finances. Policies designed to offset weaknesses in the basic framework, like export incentives and investment allowances, or a focus on one or two sectors are no substitute.

Don’t stop reforming
Policy needs to be adjusted to reflect changing circumstances. Radical reform programmes, such as those of the Douglas era, can be avoided if regular policy housekeeping is undertaken. We are not good at this.

Don’t take our eyes off the ball
A seemingly sound fiscal position can dissipate quickly as the past decade has shown. Maintaining competitiveness is crucial. Once lost, it’s a long way back.

The best time to tackle structural reforms is when the economy is strong
History shows that in New Zealand it takes a financial crisis to trigger major structural reforms. That’s unfortunate.

Politicians need to resist the temptation simply to be seen to do something about a problem rather than doing the right thing
As Economist Walter Williams recently wrote in relation to the US, “The track record of doing nothing is pretty good compared with doing something.”

Consultation improves policy
Proposals announced in the Budget and passed into law that night often result in bad legislation. Fortunately, there is much less of that now than in the 1970s. Consultative processes such as the generic tax policy process have improved policy making.

Competitiveness of the export and import sectors is more important than inadequate savings in examining our balance of payments problem

There is huge pressure on all governments to placate interest groups, to respond to focus groups and media campaigns
The standard of economic debate is often superficial. It is difficult for governments to withstand the tide. The private sector needs to play its part in engaging in debate and contributing to policy.

Be sceptical of demands for a paradigm shift from government
These typically amount to requests for large government handouts to fund risky experiments where losses are socialised but profits revert to the promoters.

• The reforms (structural labour market reform, subsidy reduction and the significant opening up of the economy) of the 1980s and early 1990s imposed a lot of pain that Europe and some other parts of the OECD are going through right now. The pressures other countries are experiencing provide the opportunity for New Zealand to improve its relative ranking. In this year’s Budget lock-up Finance Minister Bill English noted that New Zealand’s growth outlook over the next four years exceeds that of most of the developed world.

The ‘failed policies of the ‘90s’ claim

It is commonly asserted that the economic policies adopted in the 1980s and early 1990s failed. Little or no evidence is usually offered in support of that claim. I have a vivid memory of ‘old New Zealand’ and I find it an astonishing view.

The evidence that the reforms of that era were successful is persuasive.

New Zealand’s economic performance improved significantly following the reforms.

In the 16 years from 1991/1992, New Zealand enjoyed one of its longest uninterrupted economic expansions since World War II. Real GDP grew by over 70 percent at an average rate of 3.5 per cent a year. Real GDP per capita grew by an average of over 2 per cent a year.

Productivity grew more strongly in the ten years from 1991 than in either the decade Budget 2012 to 1991 or after 2001. Unemployment fell to levels not experienced in the 1980s.

Inflation, a perennial problem before the reforms, has been low and stable.

The Government’s Budget surplus and debt positions were in much better shape following the reforms than they had been before them.

While it took some time for the benefits of the reforms to become apparent, it is unrealistic to have expected the economy to move rapidly into high gear from its parlous state in 1984. There were longstanding and deep-seated problems to be addressed.

Inflation had to be quelled. The Government’s budget position needed to be put on a sound footing. Resources had to shift from inefficient industries to more productive activities. All this takes time and can have a depressing effect on economic activity in the near term.

It is true that the reform process was not ‘textbook perfect’. Public policy rarely is. There are tradeoffs to be made by policy makers. Political considerations necessarily loom large in a democracy.

Despite that, New Zealand undertook one of the most comprehensive reform programmes ever undertaken and it did it very well.

Another argument might be that the recent economic difficulties show that the reforms failed.

On the contrary, I think they show what happens when old habits re-emerge.

The quality of economic policy making has fallen. The reform effort slowed to no more than a crawl after about 1993. The focus on growth was replaced by an emphasis on social policies following the 1999 election. A too lax approach was taken to Government spending, particularly from 2005, which pushed up the exchange rate.

The competitiveness of the export and import competing sectors was eroded, productivity growth slowed and economic growth suffered as a consequence. Developments such as these rather than the post-1984 reforms account for the current situation.

----------------------------------------

John Shewan is the retiring chairman of the PwC in New Zealand. The full document is here » which includes "a gallop through the major reform budgets 1978-2012", a useful summary.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

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Parallel importing / monopoly still applies.....Ive said it before if a powertool is <$600US and $1800NZD there is something seriously wrong...especially when you consider NZers earnings / wages v US.
Also look at so called "2012 model" TV's the likes of Noel lemon is selling....really 2010 models that the US wont buy.........
 
regards

steven,
yesterday in Sydney Morning Herald saw an article about yet another company that has set up a freight forwarding operation from the US to where ever.

 
"New Zealand’s economic performance improved significantly following the reforms.". Pity the people didn't.

 

Completely agree - Our relative GDP per Capita compared to the OECD average as fallen off a cliff.
http://www.policyprogress.org.nz/tag/oecd-rankings/

Yes.......the top ppl got more $, no wonder he likes what happened.....he benefitted.....
Maybe if we had a counter point written by some of those of his age and of low pay.
regards

Nice to see a decent historical perspective on what has gone on in this country backed up by a few facts.
The comment about the track record of doing nothing versus doing something is on the money. Winston Peters was responsible for the best period of recent Government in this country after the first MMP election when he took months to make up his mind who to support. The resultant interregnum was bliss.

very few facts cherry picked.
regards

90's Policy was a failure - The effect of many countries addopting similar "popular" policy settings, lead to rempant global growth. We hit the wall in 2007 as labour, despite all its left leaning agendas, never quite had the nous to correct the imballances.
This all goes bad for us as a nation, when we adopt policy settings for the sake of trade equity. We no longer punch above our weight, we simply fight for the crumbs on a global stage.

Great article!!! All the hardship of the 80's has been wasted. 
"Another argument might be that the recent economic difficulties show that the reforms failed. On the contrary, I think they show what happens when old habits re-emerge".
 This statement really sums it all up. It is extremely disheartening to have watched the old habits re-emerging it's like the idiots never learnt in the first place. 
Perhaps every Political Party and Bureaucrat should be held accountable for their decisions by having to personally pay for the muck-ups they make instead of running back to the taxpayer.  Everytime they introduce policy that fails they should pay!

..... it's only since 2005 that we've been seriously overspending ..... well , the government has ... OK , OK ... since 1999 the government's been sucking up way too much of the economy ..... 1993 then . We've wrecked the hard won reforms of the 1980's since 1993 ..
 
That's a mere 19 consecutive years of the governments  demolition our pursuit of life , liberty & happiness ...
 
.... anyone can make a mistake !

Dont let anything get in the way of libertarian dogma eh!
NZ govn spend compared to OECD is actually small....so seriously overspending doesnt compute with facts/data.
If the reforms of the 1980s were anything to go by we should have seen NZ catching OZ, for some years until in your opinion we went off the rails, ive seen no evidence we were actually doing that....got some pls?
regards

Be careful comparing spending benchmarks with OECD averages - 23 of those 34 are European nations who have clearly been spending unsustainably. It is probably better that we have been below them.

Also note that the figures are for 2007. Some of the positions may have changed or are about to change.

Very true....and its not probably not probable, but a must but the data clearly doesnt support GBH's position that we have spent like mad.
Trying to find a graph I posted showing NZ is significantly lower than anybody else.....
Here it is,
http://krugman.blogs.nytimes.com/2012/05/03/big-government-and-the-crisis/
NZ is even smaller than the Swiss which ppl seem to go on about.....
Meanwhile if you take how well America hasnt done in the last few decades as a comparison to the claim that NZ has lost its way....so lets follow the thread a bit we can see that they have also had a poorer trend line....
http://krugman.blogs.nytimes.com/2012/05/23/was-greed-good/
Hence I asked about some data to prove NZ has in fact lost its way....
regards

Steven - you might want to go back and read through the article, paying particular attention to real GDP growth and unemployment comments that John made.
 
Unnecessary Government spending in any area cannot be justified as it is a waste of good money that the spenders never earned.
"Overspending doesn't compute with facts/data" -  What facts/data are you viewing?
Fear and Greed drive markets so interferance by the Politicians regardless of their political agenda is going to have economic impacts.  Politicians need to pare back their influence and leave the markets to be free. People can and will take care of themselves if left to do this unimpeded. Give a man a fish you feed him for a day - Teach him how to fish he feeds himself for a life.
If I make an error in business - I foot the bill for my error and knock that up to experience. If the Government or the Bureaucrats make an error they just find other inventive ways to tax. The lesson is completely wasted.  Government spending has to be trimmed to the bone to give the cream back to the people and everyone benefits.
The same individual rights for everyone is maybe a philosophy that you don't believe in judging by your libertarian dogma comment. However the problem of Government spending is it never treats people fairly and equal. e.g. same flat tax rate across the board.

Re-read, yep OK....maybe I mis-read...
Edit - re-read, yep neo-classical drivel.....
"facts/data"  here it is,
http://krugman.blogs.nytimes.com/2012/05/03/big-government-and-the-crisis/
Sorry everything I see says markets have too much freedom....
"Give a man a fish you feed him for a day - Teach him how to fish he feeds himself for a life."
An inadequate statement, and doesnt add up actually...once you do this he then has copious children who then you have to feed....
As above graph tends to indicate NZ is actually pretty trimmed back and in terms of everyone benefits that simply isnt true....the data on incomes shows that.
Flat tax doesnt treat ppl equally....the unskillable lack the ability others are lucky enough to have and benefit from so we chose as a society to re-distribute some of it...so you are correct, while I am anti-big govn I am equally anti-no govn/liberatarian.
regards

Austrian School of Economics - praxeology sometimes spelt praxiology.  Tells me more about the market or more precisely the people in the market and that is what determines every outcome.
 
"The unskillable lack the ability others are lucky enough to have and benefit from" - so we reward those who choose to be unskillable at the expense of those who make their own way in the world.  Redistribution of someone's efforts is a socially inept practice designed to keep the unskilled, unskilled and broke.

Actually, he feeds himself until the fish are fished out. Then he doesn't.

or he and his wife then breed like rabbits and their children starve as the food production is in-adequate.....
regards

Mist42NZ: Education that is fit for the 21st Century would be a good place to start. The current system is old and out dated and not delivering the goods.
Economics should be compulsory in all schools and so should psychology. People think all the worlds problems are out there and never take responsibility for themselves and their actions and EMOTIONS!!! Dealing with this latter ingredient has to be a priority. NZ is a high maintenance society. Most blame everything out there and never deal with what's in them.
 
For those bemoaning the state of the economy, has it ever occurred to them that they contributed to the state of the economy - if not why not? No one forces people to go to banks and get mortgages on houses. Many taking out mortgages don't know how to value the biggest expenditure item they will in incurr in life and then use the rest of their working life paying for it.  Emotion doesn't value a house!!!  Did the RBNZ, IRD, Politicians etc ever take action when they knew all this emotion was fueling the housing bubble NO. So the ones in charge are unconsciously incompetent. Yeah Right!
When the GFC reared it's head and someone had to explain, WHY because all of sudden the economic activity that they had been encouraging was about to back fire. Oh god we can't have the people knowing about this bogus economy we created. Find someone to blame. Look out Property investors the slingshot is loaded and fired at you. Oh you naughty people and all your legal tax breaks will have to be dealt with. How convenient - the Politicians and the Bureaucrats had a known target in the scope and it was time to take fire. Diverting the childrens (oops people's) attention to that of the property investors (old strategy that every parent uses) takes the heat off the culprits. And maybe you should ask yourself "Would people have continued to vote for the Labour led coalition if they had foresight? It is their Greed and FEAR that determines the voting pattern.
 It seems to me that far too many people want a free ride, they want Government services and controls everywhere so that if they fail at something there will be a system to prop them up.
No-one has ever been able to show me any evidence/proof/scholarly article that an individual is better off (not just financially) with non-essential controls in place. In other words we spend billions of dollars in NZ without knowing if it is good for the individual. The word INSANITY comes to mind.
 
And just in case you think we need all these services - I can tell you having lived in Chch and being here throughout the duration of these earthquakes that people here just knuckled down, looked after each other, drove around without traffic lights, shared any resources they each had, kept an eye out for each other, ran business from where ever they could. The buildings got knocked down but the people tried to get on with it. Things went wrong when the Bureaucrats stepped in and it is a standing joke around some parts of the city that it is better when the bureaucrats are scared in the quakes because you can get more done.
 
I was 24 years old in 1987, with a new farm mortgage, when everything crashed. I cringe at the thought of those interest rates we had to pay. And believe me farm income was horrendous. Thankfully we had no-one to squeal too because NZ couldn't afford it. We had family rip us off, the Government introduced livestock tax, 3 years of drought, and I could go on and on. The point is determination, stamina, education (not in the common sense of the word) and a plethora of other internal resources are what gets you through, no one else. 
 
Did I contribute to the economic problems of 1987? Hardly I was only gaining some momentum in life but I was paying the price for the ignorance that had preceeded. 
The situation is no different now, it's just a different lot of ignorant and incompetent people who have caused the problem. I can't control the world and what happens but I can control what/how I think about things and what actions I can take. This is what led me to monitor the behaviour of the market and it's participants (Austrian School of Economic theory).  When the people are insatiable it's time to step back from what they are lusting after. When the people are in despair it's time to have a look. FEAR and GREED they are just emotions but there impacts are everywhere. Until people realise they are in the driving seat of these two emotions there will not be any changes to the cycle and I've only got one life to live so don't have time to sit back and wait for people who probably will never wake-up.
 
The workable alternatives are in the people's hand.
 
 
 

Ecomomics is taught in schools now - that's the problem.
 
There is always a substitute at a certain price, is what they're taught.
 
On a finite wee tennis-ball spinning in space, that's clearly going to be a lie at some point.
 
 

Powderdownkiwi: yes you are correct, economics is taught but it is an optional subject. The subject matter taught is also very limited. 
Maybe the economic teachers should remind the teachers within their school about the "substitute at a certain price".
 
In regards to the finite wee tennis-ball spinning in space http://www.youtube.com/watch?v=oJfBSc6e7QQ  If earth is expanding the finite theory may be disproved.
 
 
 
 
 

It is school....not a tertiary institution so the level isnt going to be very high.
You cannot be serious about that video.....I mean......nutty...on a fundimental level......infinite as in the planet would some day encomapss the whole universe.....just how does the mass of the universe get inside it so it can uh expand out again? kooky.....
NB even if it were true the comment on finite refers to the amount of resources available...and for oil only so much was made by the method it was made......so the planet even if its surface area doubled there is no more oil....its now harder to find as there is more area to search...
try some real science and maths,
http://www.youtube.com/watch?v=O7h4VjZhe_w&feature=related
regards

It is school....not a tertiary institution so the level isnt going to be very high.
 
Well that's encouraging then, Steven, as it may be something that you could cope with? But, well, on second thoughts, probably not.

I’m sure David you can find a forum on the net, where you can express your feelings of inferiority far better then here -zh, zh.

Kowabunga , Walter ...... does that mean you've finally added a blogging component to your web-site ? ...... well done , excellent ...

Tell you what, try going to primary school for maths and pass and I'll think on more economics.........
regards

We had Economics as an elective subject at High School in 1978 ....
 
.... even so , the thought of unleashing more " Bernard Hickey " types upon an unsuspecting public ....... well , it does send a shiver down one's spine ...

Income streams are either virtual/parasitic, or real. Only goods/services are real - and perhaps in the end-game, only goods.
Parasitic, is all financial transaction 'gain', which then expects to buy goods. This site, for instance, probably depends on houses being built, if you look for the real underwrite. Financial transaction which expect to spend their 'profit', out-number real transactions severalfold.
To increase income streams in real terms, you have to increase your use of real things - resources.

I'd have suggested that it's bloody impossible to get into the heads of ex-currency traders too. And free-market ideologues.
 
You are correct in that only consumption and production are real.
 
Underwriting exponential growth in same, is what is physically impossible.

The only reason we have not been catching up with Australia is that they have been digging up their country as fast as they can and shipping it to China in the biggest ships they can find.  Comparing ourselves to Australia is a bit like comparing yourself to Arnold Swarzenegger of 30 years ago. If we wanted to put our economy on mining fueled steroids we might have big muscles too.

I note from the full report, New Zealand's path through the maze, that mixed ownership is in a dead end section that has no escape.

This is from the section on Christchurch:
 
The key driver in the rebuilding of Canterbury is confidence. Confidence that progress is being made, and will continue to be made. Establishment of the Christchurch Central Development Unit (CCDU) by the Government in April 2012 seeks to deliver that confidence. CCDU is responsible for the implementation of the central city plan that was prepared by the Christchurch City Council. $29.9 million has been allocated to allow the operation of CCDU over the next four years.
 
The challenge for the redevelopment of the city is to build demand for commercial, residential and retail space while planning for that redevelopment to occur in a co-ordinated manner. The key to creating demand, and for a co- ordinated redevelopment of central Christchurch, is providing clarity and certainty about anchor projects. Those anchor projects will define the precincts described in the central city plan, and, if undertaken appropriately, they will stimulate demand and increase investor confidence in the rebuild.

Lots on confidence and 'building' demand.
 
Would someone from Christchurch like to comment?

What is needed is the removal of our hierarchy of incompetence.
 
Neither confidence nor cash make an effective substitute for competence.
 
New Zealand has its fair share of competent people - it is just that they aren't yet welcomed into (especially governance) leadership roles.

Your question concerns me. I am not sure if you have led a very sheltered life or are displaying a militant ignorance.
 
You are from the dairy industry. As far as I am aware that industry has no shortage of competent people, but do the most competent end up in the key governance roles? You have just had Simon Couper, chair of Fonterra's shareholders council resign. It is not so long since both the chair and deputy chair of that body also resigned.
http://www.interest.co.nz/opinion/59494/opinion-parliaments-primary-prod...
 
So yes, competent people do sometimes come forward but their competence is so threatening to the status quo that they get beaten back. But more normally they simply don't get employed/engaged/elected. Look at how controlled the selection process is for Fonterra directors. 
 
The NZ dairy industry  is an excellent example of why the competent don't often come forward. Now move your thinking from the NZ dairy industry to MAF, Treasury, and then Christchurch.
 
Are the dots starting to paint a picture?
 
Don't worry, more of the competent will come forward as our culture becomes increasingly intolerant of incompetent leadership. The pressure is coming on - watch the growing number of rats jumping ship (sorry - I meant taking early departure to enable them to devote more time to their families).

Mist: Colin is right: it's not about "governance" or good people "stepping forward"
 
A characteristic in business (or any other endeavour) .. is good management or bad management .. a characteristic of good management is surrounding yourself with good quality people who can push you from below .. and succession planning .. a characteristic of bad management is surrounding yourself with people who are not a threat .. (you get rid of anyone who is a threat) which in turn leads to poor succession planning .. and leads to what is called "the gang of one" .. when you pass on there is no-one capable of filling your shoes .. the accolytes are not up to it .. they are chosen for their weakness .. an example from recent history was R D Muldoon who stabbed Derek Quigley in the back (leaving the National party leaderless) .. a man who had the potential to become one of NZ's great leaders .. but was no match for the psychopath .. so .. consider very carefully your expectations of any organisation displaying those manifestations .. it doesn't end well ..

You just described the situation in my last job as a manager of an Australian charity, which I quickly discovered was at the end of its useful life. I put it into voluntary liquidation, as it was failing to live up to its charter. I could possibly have kept it on life support for a while for my own  personal benefit, but that was not the right thing to do. The rent seekers are still squealing.

The world got to where it is partly as the result of what you describe. If you believe that defines success and we should be working within it then you ought to have been well rewarded in the period 1980-2007.
 
I though disagree that you have defined success - rather systemic failure. And from here on the unquestioningly compliant and/or incompetent behaviours that were once well rewarded are going to lose their attractiveness.    
 
The transition will be an interesting time. The sooner the better.

Gummy Success : 1 : to not get banned from blogging , here .
 
2 : to not get depressed from all the gloomsterising & " peak oil / EROI " nonsense , here .
 
3 : to be alert to good things being announced around the world , such as the Swedish scientists who've successfully repaired a paraplegic ra'ts spine ........ using a cocktail of chemicals , plus some electric shock therapy on the damaged spinal zone , and re-hab ..... we now have a fully recovered rat .......
 
..... for all the rats in the world , this is indeed amazing news .....
 
If the scientists and medical researchers can link it to human spinal damage & repair , this is monumentally sensational !

It's not enough to be a genius; unrewarded genius is almost a cliche.
It's not enough to be right; the true and correct get walked over every moment of the day.
It's not enough to be good or popular. etc.
 
Your right, iF we live in a world that is totally corrupted..............and guess what?
Sometimes the genius is the one who stands back,lets the crowd make an absolute fool of themselves and then.....only steps up when some/most of that dumbass crowd has learned a lesson. This has yet to happen.  Change only occurs when those that recognize their own failings and mistakes become self aware. Promoting self awareness doesn't sell mortgages and loans

Glad you brought the POWER factor into your conversation.....Not everyone seeks POWER.....Most competent people I know actually don't rate POWER over others or systems as a high motivator. Most competent people became competent from DOING!!!  Competent people don't have to fake it till they make it like incompetent people do. 
 
 
 

It's a complex problem.  Certainty and stability are important because even the best picnic in the world is no good if it gets rained out.

  • What land will be able to be built on?
  • When will insurance resets end?
  • How much will it cost me to fight council?
  • Will CERA turn up tomorrow and turf out my current tenants with 30 minutes notice?
  • Why would I rush to fix things when earthquakes continue?
  • How will business move to a CBD when they are already locked into 7+7 leases?

How do these neoliberal zombies explain fonterra?
its a co-op, monopsony, monopoly, brought up on government subsidies and protected by tariffs for over 100 years AND it's our biggest company.
Maybe some of these tools actually work ...?
The accounting companies have very little of substance to say about the economy. They trade off their brands and usually produce tripe. Just stop repeating them ans they will hopefully go back to their tax returns. 
 

How do these neoliberal zombies explain fonterra?
 
I would guess at a cost of $6-8 million per annum - audit plus accountancy fees.

 

They don't. They try to pull it apart and feed it to their dogs over a period of time, after which they will refuse to acknowledge its previous existence or any sort of success.
The idea that mere farmers can be successful in business is anthema to all teachings.

 

maybe they could also explain why in one sentence they say there is no value left in the NZX so the SOE's etc would bring in something of value....and the other say they need to be managed privately as a "real" business.   and btw not see them gutted as they have managed to do the rest of the listed companies.
regards
 

Great article, the man is dead right. NZ is going to end up revisting an Rogernomics type restucture all over again as the current level of expenditure is unsustainable. Buisiness is not globally competitive, henec reliance on devaluing dollar, the constantly negative balance of trade is evidence.
I hope this article gets some debate going as NZ really needs some change. Fast

The dairy industry as a whole, not just fonterra. Tariffs were eliminated in the 80s, but only after the industry was strong enough to compete internationally. Toyota, Hyundai, Acer, Nestlé, all similar companies to benefit from this sort of policy. 
Can we pick a winner, protect them for a generation or more, let them form a monopoly, then let them compete internationally? or will we stay as SMEville.

Gr8 2 c u bak, PDK.
 
I'd so missed your Daily Jeremiad.

Wonderful article, thanks for your efforts.

France is the most well know for subsidies to its farmers and their frequent protestations for protection. America continues to subsidise its farmers. How long has NZ worked to break into protectionist countries - a very long time, and the job is not yet over.
Legislation is in place that means every time a new milk player comes on to the NZ market, Fonterra has to give 5% of its business away to help the new player start up. How many other businesses are compelled in such a way. Can't see McD's, Mainfreight or K&S doing the same without complaint.
As noted by another commenter, most milk processers were going under and by working together - producers (farmers/share owners) and processor (Fonterra) a crucial business was rebuilt. When there are high returns, the businesses that support farmers increase certain item costs and lower again then when the milk payout is low. Not all farms are equal, neither is the time, effort or returns. I paid $32 for a particular lamb cut bought from a private run butcher supplied by AFFCO next door. In the supermarket that same cut and amount of lamb would have cost $100. The supermarkets, I would suggest is where profits are being made on all products

Coles and Woolworths have been locked in running battles with food manufacturers and suppliers for more than a year over a litany of issues.
http://www.smh.com.au/business/coles-defends-rise-in-private-labels-2012...
http://www.smh.com.au/business/revitalised-heinz-cans-war-with-coles-woo...
 
Spierings said the improved valuation was mostly due to a significantly higher value for Fonterra’s Asia-Africa/Middle East consumer business reflecting continued earnings growth. This was partially offset by a lower enterprise value for the Australia-New Zealand consumer business due to a continuation of challenging market conditions.
http://www.interest.co.nz/rural-news/59411/fonterra-cuts-201112-payout-f...
 
Tough trading conditions continued in the Australia-New Zealand consumer business, marked by intense competition in both markets and retailer price wars in Australia. Our goal remains to command the number one position across all key products with selective price promotions and brand investment to drive market share. Consequently,
although earnings were down on the same period last year, we outperformed other comparable consumer businesses in the region and maintained strong positions in key product categories.
http://www.fonterra.com/wps/wcm/connect/d221d1804aacb4df8f7fff0dab865bd9...
 

That's morse-code for saying we are getting slaughtered by the Supermarkets, but the really good news is we are getting less slaughtered than our competitors.

i am interested that so many people rated the article so highly. To me it was the mainly ravings of a fantasist.His comment on inflation.
inflation, a perennial problem before the reforms, has been low and stable.
This comment alone suggets that he is away with the fairies. Domestic Inflation in New Zealand has ramped up to levels never seen before. House prices are a reflection of a money supplied allowed to go out of control. Our money supply- therefore inflation has been removed from our hands. Imported products have come down mainly as a resuly of the China effect- this was taken as what inflation targeting was all about. Meanwhile domestic inflation has been allowed to run riot. Just why people like the writer seem incapable of including housing prices in inflation amazes me.
 
 

It's a matter of ideology being clung to, much like religious clinging of a generation ago and on back.
 
There must just be a type who do that. Who don't/can't question from first principles, sans emotion.
 
Super-confidence often goes with a lack of questioning too - for obvious reasons. Obvious to those who question, of course......

Ask the RBNZ why they fiddle the CPI? and purposely exclude HPI
 
Yes, the only stuff that comes down in price is the s*** we don't actually need. ironic? No not really, just all part of the con that people everyday of their lives accept as normal. I had a guy the other day ask me '" so why does everything always go up in price but never come down?".
Took a long time to explain the system to him  which he still failed to really get so I got him a copy of ' The Creature from Jekyll Island" by G. Edward Griffin

HPI? = house price inflation?
In a way you can simply do your own numbers if you want. so take CPI and add HPI, be my guest.  CPI is a known measure so you can trend....and trends are the important thing.  CPI isnt much use as a planning tool anyway as its volitile and seasonal....core is the one to watch. HPI would be of no value in looking for real inflation trend.
Prices dropping, well Im looking for a TV, in mid March the Sony I like was $2699 its now $1999....so $700 off in 9weeks...
Internet Broadband, Im now paying $1.04 a GB....15 years ago its was something like $12 a MB....and thats not even inflation adjusted......lets see 15 years at 2% = 30% (roughly) more....so $16 a MB....thats some deflation.
Lots of examples of prices that are dropping if you can be bothered looking at it in a balanced way.
regards
 
 
 
 
 

I think its total cr*p....but then Im not a brain dead neo-con.
regards

....  steven , no one will ever accuse you of being a " neo-con " .......
regards

No, you are right, one insult Ive missed out on...
regards

The trick with this kind of article is to convince the reader that this kind of politics is less political than their kind of politics. (A saying of Har Joon Chang). The trick is to convince people that what economists do is good and encourages development (its not, what most economics theory does is good for profits, especially in the financial sector). But its not less political, its political like everybody elses politics its just that the main concern of the author is profits. Also, as is obvious the financial sector already takes to large a portion of the NZ economy.