Can New Zealand Afford to Replay the Economic Past? ª NEW ZEALAND BUSINESS ROUNDTABLE DECEMBER 2000 The New Zealand Business Roundtable is an organisation comprising primarily 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 2000 by New Zealand Business Roundtable, PO Box 10–147, The Terrace, Wellington, New Zealand http://www.nzbr.org.nz ISBN 1–877148–65–2 © 2000 edition: New Zealand Business Roundtable © 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 sixteenth 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), Excellence Isn't Optional (1998), Turning Gain into Pain (1999) and Wake Up New Zealand (1999). 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 two papers by Bryce Wilkinson, consultant to the NZBR, and an article by Cathy Buchanan and Peter Hartley, authors of the book Equity as a Social Goal published by the NZBR. A full list of NZBR publications is also included. R L Kerr EXECUTIVE DIRECTOR CONTRIBUTORS Michael Irwin Policy Analyst New Zealand Business Roundtable Wellington Roger Kerr Executive Director New Zealand Business Roundtable Wellington Ralph Norris Chairman New Zealand Business Roundtable Wellington Douglas Myers Member New Zealand Business Roundtable Auckland Sir Ronald Trotter Member New Zealand Business Roundtable Wellington Bryce Wilkinson Director Capital Economics Cathy Buchanan and Peter Hartley Rice University United States of America CONTENTS ECONOMIC DIRECTIONS 1 1 CAN NEW ZEALAND AFFORD TO REPLAY THE ECONOMIC PAST? 3 Speech by Ralph Norris to the New Zealand Society of Corporate Treasurers, February 2000. 2 NEW ZEALAND AT THE EDGE 11 Speech by Roger Kerr to the Resource Management Law Association Conference, October 2000. 3 A STRANGE SORT OF CHARM OFFENSIVE 19 Article by Ralph Norris for the New Zealand Herald, 16 August 2000. 4 PROMOTING SMALLER AND BETTER GOVERNMENT 23 Speech by Roger Kerr to the ACT New Zealand Wellington Division, August 2000. 5 NEW ZEALAND WOULD NOT WIN THE BLEDISLOE CUP FOR ECONOMIC MANAGEMENT 31 Article by Roger Kerr for The Dominion, 25 July 2000. 6 THE CHEQUERED PATH OF ECONOMIC REFORM IN AUSTRALIA AND NEW ZEALAND 35 Speech by Roger Kerr to the Society of Modest Members, Canberra, June 2000. 7 A POSITIVE AGENDA FOR THE BUSINESS SECTOR 43 Speech by Ralph Norris to the Employers and Manufacturers Association Business Environment 2000: 'The Vision', March 2000. 8 MYTHS ABOUT ECONOMIC REFORM 51 Speech by Roger Kerr to the Rotary Club of Palmerston North, September 1999. FISCAL POLICY AND THE PUBLIC SECTOR 59 9 SUBMISSION ON AUCKLAND CITY COUNCIL'S DRAFT 2000/2001 ANNUAL PLAN 61 Submission by the Local Government Forum, May 2000. 10 SUBMISSION ON THE 2000 BUDGET POLICY STATEMENT 71 Submission by the New Zealand Business Roundtable, March 2000. INDUSTRY POLICY AND REGULATION 83 11 THE QUAGMIRE OF REGULATION 85 Speech by Roger Kerr to the Otaki Rotary Club, October 2000. 12 SUBMISSION ON THE INSIDER TRADING DISCUSSION DOCUMENT 93 Submission by the New Zealand Business Roundtable. 13 'THINK SMALL' IS NO BETTER THAN 'THINK BIG' 101 Speech by Roger Kerr to the Importers Institute Conference, September 2000. 14 ENERGY EFFICIENCY 107 Paper by Roger Kerr to the Gas Association of New Zealand Energy Symposium 2000, August 2000. 15 FREE TRADE OR FAIR TRADE: WHAT'S BEST FOR NEW ZEALAND? 113 Speech by Roger Kerr to the University of Waikato Management School Public Seminar Series, August 2000. 16 COOPERATIVES VERSUS CORPORATES 125 Speech by Roger Kerr to the 1999 New Zealand Agribusiness and Food Congress, November 1999. 17 ELECTRICITY PRICING: COMPETITION AND REGULATION 135 Paper by Roger Kerr to the AIC Worldwide New Zealand National Power Conference 1999, October 1999. 18 HANDS-ON, HANDS-OFF OR HAND-OUTS? 143 Speech by Roger Kerr to the Auckland Regional Chamber of Commerce and Industry World Trade Club Breakfast, September 1999. EDUCATION AND THE LABOUR MARKET 151 19 SUBMISSION ON THE 2000 REVIEW OF THE MINIMUM WAGE 153 Submission by the New Zealand Business Roundtable, October 2000. 20 SUBMISSION ON THE EDUCATION AMENDMENT BILL 2000 163 Submission by the Education Forum, May 2000. 21 LABOUR LAW FOUNDED ON A FALLACY 185 Article by Roger Kerr for the New Zealand Herald, 20 April 2000. 22 CHALLENGES FROM BUSINESS 189 Speech by Bryce Wilkinson, Director, Capital Economics, to the Auckland University of Technology Conference Seizing Our Future February 2000. 23 HARMONY AND CONFLICT IN WORKPLACE RELATIONS 199 Speech by Bryce Wilkinson, Director, Capital Economics, to the Work Relations New Zealand Industrial Relations Conference for 2000, February 2000. 24 SUCCESSES AND FAILURES OF LABOUR MARKET REFORM IN NEW ZEALAND 209 Paper by Roger Kerr to the Dublin Economic Workshop, October 1999. SOCIAL POLICY 221 25 EQUITY AS A SOCIAL GOAL 223 Article by Cathy Buchanan and Peter Hartley for the New Zealand Herald, 6 June 2000 26 SOCIAL COHESION: LESSONS FROM THE PAST 227 Speech by Sir Ronald Trotter to the Rotary District 9970 Conference 2000, March 2000. 27 FAIRNESS 235 Speech by Douglas Myers to the ACT New Zealand Annual Conference, March 2000 28 NEW ZEALAND'S HEALTH SYSTEM: STILL OPERATING BEHIND THE BERLIN WALL? 245 Paper by Roger Kerr to the New Zealand Institute of Health Management 1999 Conference, September 1999. MISCELLANEOUS 253 29 SUBMISSION TO THE MMP REVIEW COMMITTEE 255 Submission by the New Zealand Business Roundtable, July 2000. 30 SUBMISSION TO THE FOREIGN AFFAIRS, DEFENCE AND TRADE COMMITTEE INQUIRY INTO NEW ZEALAND'S ECONOMIC AND TRADE RELATIONSHIP WITH AUSTRALIA, June 2000. 269 31 OPTIMISM FOR THE NEW MILLENNIUM 279 Speech by Roger Kerr to the Rotary Club of Wellington North, December 1999. 32 DOES THE VISIBLE OR THE INVISIBLE HAND EXPLAIN IRELAND'S ECONOMIC SUCCESS? 287 Article by Roger Kerr for The Independent, 3 November 1999. 33 List of New Zealand Business Roundtable Publications 291 ECONOMIC DIRECTIONS NEW ZEALAND SOCIETY OF CORPORATE TREASURERS CAN NEW ZEALAND AFFORD TO REPLAY THE ECONOMIC PAST? RALPH NORRIS CHAIRMAN AUCKLAND NEW ZEALAND BUSINESS ROUNDTABLE 3 FEBRUARY 2000 CAN NEW ZEALAND AFFORD TO REPLAY THE ECONOMIC PAST? Businesses up and down the country will have started the new year reflecting on the new millennium, the implications of the change of government, and the forces that are shaping the international environment in which New Zealand firms are increasingly operating. The world economy looks to be set for a good year. The US economy is continuing to grow strongly, Europe is in better economic shape, and many Asian countries have bounced back from the economic traumas of 1998. The improvements of recent years have been driven by the efforts of many governments over the past two decades to free up their economies, the more stable environment for investment created by central banks, and the wave of technological innovations that are transforming business processes worldwide. By and large, the 1990s were a better decade in terms of economic performance than the previous two, and the next 10 years could be better again. The economic environment in parts of the world, led by the United States, is starting to look more like that of the 1950s and 1960s with low inflation, higher rates of productivity growth and improvements in many social indicators. In the next 10 years unemployment rates could come down a lot further, particularly if more governments free up their labour markets and reform welfare systems. The short-term outlook for the New Zealand economy is also favourable. Our export industries, including agriculture, are now generally enjoying the benefits of a lower exchange rate and stronger demand in world markets. The cyclical upturn could well deliver annual growth of 3 percent or more over the next year or two. However, we should not allow the cyclical economic improvement to mask a number of underlying risks and concerns. Three, in particular, stand out. First, there are always surprises in economic life, often nasty ones. We have not seen the last of such things as droughts, falls in world sharemarkets and regional economic crises. The previous government was far too complacent about New Zealand's economic position and was caught off guard by the Asian downturn. Secondly, New Zealand's economic framework has become a lot weaker since the early 1990s, and economic performance has suffered accordingly. Large increases in government spending that have crowded out private spending and pre-empted tax cuts, the slow down in asset sales and the debilitating growth of regulations have all taken their toll on the private sector, and international competitiveness has been eroded. Whereas New Zealand had a low balance of payments deficit and falling external debt by the mid-1990s despite strong economic growth, it has since had a large external deficit despite much weaker economic growth. In addition, since the early 1990s successive governments failed to maintain efforts to make the economy more competitive and robust, as well as to deal with outstanding problems in areas such as health, education and welfare. Many commentators were sounding warning bells but they were ignored.