TURNING GAIN INTO PAIN NEW ZEALAND BUSINESS ROUNDTABLE MAY 1999 The New Zealand Business Roundtable is an organisation of chief executives of major New Zealand businesses. The purpose of the organisation is to contribute to the development of sound public policies that reflect overall New Zealand interests. First published in 1999 by New Zealand Business Roundtable, PO Box 10–147, The Terrace, Wellington, New Zealand http://www.nzbr.org.nz ISBN 1–877148–47–4 ã 1999 edition: New Zealand Business Roundtable ã Text: as acknowledged Production by Daphne Brasell Associates Ltd, Wellington Printed by Astra Print Ltd, Wellington FOREWORD This collection of speeches, submissions and articles is the fourteenth in a series produced by the New Zealand Business Roundtable (NZBR). The previous volumes in the series were Economic and Social Policy (1989), Sustaining Economic Reform (1990), Building a Competitive Economy (1991), From Recession to Recovery (1992), Towards an Enterprise Culture (1993), The Old New Zealand and the New (1994), The Next Decade of Change (1994), Growing Pains (1995), Why Not Simply the Best? (1996), MMP Must Mean Much More Progress (1996), Credibility Promises (1997), The Trouble with Teabreaks, (1998) and Excellence Isn't Optional (1998). The material in this volume is organised in six sections: economic directions; the public sector; industry policy and regulation; education and the labour market; social policy; and miscellaneous. It includes a paper by Bryce Wilkinson, consultant to the NZBR. A full list of NZBR publications is also included. R L Kerr EXECUTIVE DIRECTOR CONTENTS ECONOMIC DIRECTIONS 1 1 TURNING GAIN INTO PAIN 3 Speech by Douglas Myers to the Wellington Regional Chamber of Commerce, November 1998 2 GLOBALISATION, ASIA AND IMPLICATIONS FOR NEW ZEALAND 11 Speech by Roger Kerr to a Greenwich Financial Services Client Function, December 1998. 3 THERE'S SOMETHING (WRONG) ABOUT TINA 21 Speech by Roger Kerr to the Otago Chamber of Commerce and Industry, November 1998. 4 IS NEW ZEALAND DOOMED TO BE A LOW-GROWTH ECONOMY? 29 Speech by Roger Kerr to the New Zealand Institute of Management Canterbury Division CEO Breakfast, October 1998. THE PUBLIC SECTOR 41 5 SUBMISSION ON THE 1999 BUDGET POLICY STATEMENT 43 Submission by the New Zealand Business Roundtable, February 1999. 6 SUBMISSION ON COST RECOVERY OF PASSENGER AND CRAFT BORDER CLEARANCE SERVICES 53 Submission by the New Zealand Business Roundtable, November 1998. 7 HOW BIG SHOULD GOVERNMENT BE? 69 Speech by Roger Kerr to a Deloitte Touche Tohmatsu Business Lunch, October 1998. 8 GETTING A CORE GOVERNMENT FUNCTION RIGHT 77 Speech by Douglas Myers to the New Zealand Police Association 63rd Annual Conference, October 1998. 9 THE VALUATION OF ROADS 85 Paper by Bryce Wilkinson to the AIC 1998 New Zealand Road Reform Conference, September 1998. 10 SUBMISSION ON THE DRAFT AUCKLAND REGIONAL LAND TRANSPORT STRATEGY 99 Submission by the New Zealand Business Roundtable, September 1998 11 THE ARST FIASCO: FULL CIRCLE TO NOWHERE 115 Paper by Roger Kerr to the IIR Conference on Ownership, Management and Funding of Infrastructure Assets, August 1998. 12 THE PROBLEM WITH PEOPLES' REPUBLICS 125 Speech by Roger Kerr to the NZ Financial Planning Company, August 1998. INDUSTRY POLICY AND REGULATION 133 13 AGRICULTURAL MARKETING AND STRUCTURES: MULDOONISM LIVES ON 135 Speech by Roger Kerr to the Farming for the Future Forum, February 1999. 14 SUBMISSION ON THE DISCUSSION PAPER ON THE OPERATION OF THE SPECIFIC THRESHOLDS FOR PRICE CONTROL FOR ELECTICITY LINE BUSINESSES 143 Submission by the New Zealand Business Roundtable, February 1999. 15 SUBMISSION ON THE MINISTRY OF COMMERCE'S TELECOMMUNICATIONS INFORMATION DISCLOSURE DISCUSSION PAPER 149 Submission by the New Zealand Business Roundtable, December 1998. 16 WHY NOT NORMALISE RACING? 161 Speech by Roger Kerr to the New Zealand Racing Managers Conference, August 1998. EDUCATION AND THE LABOUR MARKET 171 17 SUBMISSION ON THE PAID PARENTAL LEAVE BILL 173 Submission by the New Zealand Business Roundtable, December 1998. 18 IS THERE A VIABLE ALTERNATIVE TO STATE FUNDING, REGULATION AND OWNERSHIP OF NEW ZEALAND'S UNIVERSITIES IN THE 21st CENTURY? 181 Speech by Roger Kerr to the Sir John Logan Campbell Executive- in-Residence Dinner Lecture Series, University of Auckland Business School, October 1998. 19 SUBMISSION ON THE 1998 REVIEW OF THE STATUTORY MINIMUM WAGE 191 Submission by the New Zealand Business Roundtable, October 1998. 20 RESTORING SANITY TO EDUCATION 207 Speech by Roger Kerr to the Association of Bulk Funded Schools, September 1998. 21 A BUSINESS PERSPECTIVE ON THE PRIVATE TERTIARY EDUCATION SECTOR 217 Speech by Roger Kerr to the New Zealand Association of Private Education Providers, September 1998. 22 ACADEMIC FREEDOM AND UNIVERSITY ACCOUNTABILITY 227 Speech by Roger Kerr to the University of Auckland Winter Lecture Series 'The University in the 21st Century', August 1998. SOCIAL POLICY 237 23 SUBMISSION ON THE ACCIDENT INSURANCE BILL 239 Submission by the New Zealand Business Roundtable, October 1998. 24 RECONNECTING COMPARISON AND CHARITY 253 Speech by Roger Kerr to an ACT New Zealand North Shore Electorates Dinner, August 1998. 25 FROM ENTITLEMENT TO NEEDS: ABANDONING NEW ZEALAND'S LAST THINK BIG SCHEME 263 Speech by Roger Kerr to the Association of Superannuation Funds of New Zealand 1998 Conference, August 1998. MISCELLANEOUS 271 26 THE CHANGING FACE OF BUSINESS 273 Speech by Roger Kerr to the University of the Third Age (U3A) International Conference, February 1999. 27 BUSINESS ETHICS AND THE MARKET ECONOMY 283 Speech by Roger Kerr to the Chartered Institute of Corporate Management, October 1998. 28 THE ROLE OF BUSINESS IN PUBLIC AFFAIRS: SOME NEW ZEALAND PERSPECTIVES 291 Speech by Roger Kerr to the Institute of Economic Affairs, September 1998. 29 List of New Zealand Business Roundtable Publications 303 ECONOMIC DIRECTIONS WELLINGTON REGIONAL CHAMBER OF COMMERCE TURNING GAIN INTO PAIN DOUGLAS MYERS CHAIRMAN LION NATHAN LIMITED MEMBER WELLINGTON NEW ZEALAND BUSINESS ROUNDTABLE 25 NOVEMBER 1998 TURNING GAIN INTO PAIN Remember 1994? That was the year that marked a decade of economic reforms in New Zealand. Pain had been turned into gain. The economy grew that year by 6 percent, having grown by 5 percent the previous year. Unemployment was dropping like a stone, inflation was down and out, the current account deficit was 1 percent of gross domestic product (GDP) and the budget was in surplus. New Zealand's achievements were getting due recognition around the world. As an editorial in The Wall Street Journal put it: Under finance minister Roger Douglas, this tiny, faraway democracy began its break from limp socialism. It was the most ambitious assault of any Western nation on the system of entrenched privileges that had made an elite rich and resulted in reduced opportunities for everyone else. But New Zealand's socialistic past casts a long shadow, as Michael Bassett's recent excellent book, The State in New Zealand 1840–1984, reminds us. Nineteen ninety-four was a turning point. That year I received a letter from a major investment fund manager after a visit here. He too was enormously impressed by New Zealand's economic renaissance after what he described as "decades of socialism which [had] left the country bankrupt and desperate in the 1980s". Like any prudent investor, however, his concerns were forward- looking. "Now that most of the damage has been repaired and things are going well", he said, the country appeared to be lapsing back into its old habits. "For that reason … we are reducing our exposure to New Zealand." By 1994 Ruth Richardson had been dumped from office. Like David Lange before him, Jim Bolger had decided that staying in the competitive race was too hard. He stopped rowing and opted for the job of helmsman, but sadly his steering skills were no better. New Zealand has been drifting ever since and is now dangerously close to the rocks again. In 1994, both economic growth and business confidence peaked. Soon after the public sensed that things were on the wrong track. In the regular Insight poll those who believed New Zealand was heading in the right direction peaked at 57 percent in August 1995. The number has fallen steadily to 25 percent today. It's not hard to see why New Zealand is again in deep trouble. Key failures of Sir Robert Muldoon – the Great Spendthrift and Timid Gradualist – were repeated by his National Party successor. The massive blow-out in government spending began in 1994 and was exacerbated by the coalition agreement. Policy paralysis set in that year and was made worse by MMP (Mixed Member Proportional electoral system). Even our near neighbour, Australia – second only to New Zealand as an economic under-performer – has moved ahead with deregulation, privatisation, tax reform, central bank independence and government spending restraint, which has yielded a budget surplus. The consequences for New Zealand of four years of economic mismanagement, combined with a difficult external environment, are an economy in recession, unemployment on a rising trend, a weak external account, a credit rating downgrade, a steep fall in the currency, a budget that is back in deficit again and, most telling of all, a big outflow from the country of talented people. What is extraordinary is that many New Zealanders have not figured out that the story of our economic life since 1984 has been one of two waves of reform, followed respectively by a teabreak and a long lunch. Jim Anderton, for example, thinks it's a story of "15 years of failed policies" and would take us back to the pre-1984 era. What this view completely overlooks is Jim Bolger's departure from a disciplined economic framework, partly in response to the Alliance Party's success in the 1993 election, and the further departure under the coalition with Winston Peters, whose explicit goal was to 'moderate' what he maintained were 'harsh', 'uncaring' policies.