1998 is like 1983

Keith Rankin, 27 June 1998


I am appalled at the way so many people have been talking down the national economy this month; today has been the worst. Given the very real crisis in Asia, the massive drought, and the Mercury Energy fiasco (which itself was expected to take a whole percentage point off GDP), the GDP figure for the March quarter was surprisingly good.

In particular, the investment data is very good; almost certainly it was even better in the June quarter. Enough was there to indicate that a major recovery will take place next year. Certainly, I am willing to predict that the GDP increase for the year to March 2000 will be around seven percent. The only thing that I can see getting in the way of such a result is the potentially self-fulfilling nature of today's gloom.

For reasons that make no rational sense, our very moderate Treasurer is seen as the Devil by 80% of New Zealanders, thanks in the main to his historical relationship with the media, but also thanks to his moderation in a world in which far too many of us are looking for extreme instant solutions to all our problems, real and imagined.

Fifty percent of New Zealanders think that Peters has sold out to the Right. Another forty percent of New Zealanders think that Peters has sold out to the Left. Thus ninety percent of us, it seems, want him out because he has gently guided the economy along the very central path that we thought we wanted a few years ago.

OK, Peters has a fad or two, such as his obsession with compulsory superannuation. But which politician hasn't had a hobby horse?

The whole situation is eerily analogous to that of 1983. The world economy was just emerging from its worst crisis since 1930. We didn't know that the recovery was under way then, though. Sir Robert Muldoon protected New Zealand from the worst of that crisis; unemployment in New Zealand was about one-third of what it was in Britain, Canada, USA and Australia. GDP was down sharply in the year to March 1983, but a year later it was rocketing ahead. (See chart.) But by 1984, everyone had become so cynical about Muldoon - in a society even more polarised than today's, he was hated for entirely different reasons by both the left and the right - that bad economic news was magnified and the predominant good news was ignored.

The analogy between the 1983 rise of Bob Jones' New Zealand Party and the 1998 emergence of Act as a serious political force is very close.

New Zealand's economic performance in 1981-1984 was miraculous by the standards of the rest of the OECD. (Japan, Turkey and Norway were the other three strongly-growing OECD economies in those years of deep pessimism.) The result of our cynicism - of our refusal to give credit where credit was due - was Roger Douglas.

Since 1984, NZ has had a chronic balance of payments problem through a whole era in which demand for our products has been strong (unlike the Muldoon era when the world demand for our products was very weak). New Zealand does have one very special problem at the moment: an accumulated balance of payments deficit that has created a foreign indebtedness equal to our annual GDP, plus a tenant society in which most of our public capital stock and most of our name private companies were transferred into foreign ownership. That is the main legacy of the wanton living beyond our means (while destroying or leaving idle much of our productive capacity) that was the real story of the liberalisation period.

Now, all of the indicators suggest that the recovery out of the Rogernomic mess has already started. The dollar is at its correct level, and appears to have stabilised. Investment in the tradeable sectors is well up. El Niño is just about over. And the Reserve Bank has come to the party.

I have been very critical of Don Brash (Governor of the Reserve Bank) in the past. Today I fault him for a good speech that was open for misinterpretation and was therefore misinterpreted. Brash has noted that the danger signs in 1998 have been and continue to be external to New Zealand. He has noted that the NZ domestic economy has many positive signs, unlike the more intransigent problems in Asia's domestic economies. And Brash has made it clear that he's not going to strangle the economy as he helped to do in 1988 and did in 1995. His focus is now to reflate the national economy, making sure that inflation stays above zero percent.

Muldoon and now Peters are very similar as Ministers of Finance: calm, cautious, moderate, centrist. Each has been blighted by the misplaced expectations and antagonisms, arising from their unique personalities, and created during their ascents to power. (A similar earlier figure was Gordon Coates, Minister of Finance from 1933-35, the unsung facilitator of the recovery of the Great Depression, the founder of the Reserve Bank.)

Let's not psyche ourselves into inflicting misery on ourselves in 1999, as we did in 1984. The external problems are serious, but resolvable. The problem of growing inequality remains unresolved, but is resolvable. The non-real problems festering in our reefish imaginations are much more difficult. Problems that don't exist cannot be fixed.

The more stubbornly centrist the Treasurer remains, the more 90% of us get annoyed with him; and, the more sinister Tuku's underpants become. A madcap ideological lurch by Winston would, on the other hand, only annoy 50% of us.


© 1998

Rankin File | 1998 titles