The New Zealand economy has just got a big tick from an international survey of competitiveness.
The survey, published by the World Economic Forum, the hosts of the annual Davos Forum, shows that though New Zealand has slipped one place down the rankings, it has topped them for some key economic indicators:
- Social capital
- Corporate governance
- Macroeconomic stability
Singapore topped the overall survey; Australia also slipped down (by two places) but still came in at 16 – three places ahead of New Zealand.
New Zealand was ahead of countries often thought of as highly competitive; Israel, Ireland and it was also ahead of China but behind the US.
Finance Minister Grant Robertson had not been briefed on the survey when his office was contacted by POLITIK last night.
But he should have every reason to be happy with it since it validates many of the themes he emphasises when he addresses economic policy.
In his introduction to the survey, the founder of the Forum, Klaus Schwab, warns that the world is on the brink of another recession.
“While the predicted slowdown is unlikely to be nearly as severe as the Great Recession of 2008–2009, policy-makers generally have fewer policy option today than they did back then to stimulate aggregate demand,” he says.
“Monetary policy may have run out steam, and some countries are facing a liquidity trap.
“Furthermore, the geopolitical context is more challenging than in 2007, with gridlock in the international governance system, and escalating trade and geopolitical tensions fuelling uncertainty.”
Schwab says policy-makers must look beyond monetary policy to other policies, investments and incentives for reviving productivity growth.
“In this context, the investment-led stimulus appears as an appropriate action to re-start growth in stagnating advanced economies,” he says.
“More specifically, fiscal policy that prioritises stimulating productivity-enhancing investments in infrastructure, human capital and R&D can indeed help the economy to return to a higher growth trajectory, complemented by structural reforms that make it easier to innovate and enable responsible and inclusive businesses to thrive.
“In addition, a revived fiscal policy that incentivises green investments could offer an opportunity to ‘de-carbonise’ the economy. Similarly, greater investment in social protection measures could support the shift towards greater shared prosperity.”
There is a growing bandwagon in New Zealand pressuring the Government to spend more on infrastructure investment, particularly in the light of yesterday’s $7.5 billion surplus announcement.
Commenting on the competitiveness survey, BusinessNZ Chief Executive Kirk Hope said the Index highlighted many of the strengths of the New Zealand economy and business environment, but also underlined the requirement for more infrastructure investment, less unnecessary regulation and a better skills framework in order to maintain high competitiveness rankings.
And Green Party co-leader James Shaw yesterday called for the Government to start spending not only on infrastructure but also on social services.
“This government has clearly established its economic credentials. Now we can seriously take on the task of eliminating poverty and inequality, strengthen our public services and infrastructure which were so severely run down by the previous government, and take the strong climate action which is so crucial to all of our wellbeing.
Obviously sensitive to these calls, Finance Minister Grant Robertson says the Government’s strong position “gives us the space for further opportunities to strengthen our economy as is necessary.”
Speaking on the release on Tuesday of the surplus data he defended the Government’s infrastructure track record.
“The accounts show the Coalition Government continues to increase investment in areas that were neglected by the previous Government,” he said.
“Capital investment, including in new hospital buildings, classrooms, roads and rail and the Super Fund was up 13.7% over the year.
“New Zealand is well-positioned for this point in the economic cycle and any global shocks that may come our way.
“Fiscal policy has a part to play alongside monetary policy as we manage these challenging global economic conditions.”
But if Robertson is in synch with Schwab over the role of fiscal policy, he will also find himself agreeing with the WEF executive director over the need for a sustainable economy.
“Decades of focus on economic growth without an equal focus on making growth inclusive and environmentally sustainable are having dire consequences for the planet and humankind, “Schwab said in the survey report.
“Accelerating climate change is already affecting hundreds of millions around the world, and it is likely that people under 60 will witness its radical destabilising effects on Earth.
“In parallel, rising inequality, precarity and lack of social mobility are undermining social cohesion with a growing sense of unfairness, perceived loss of identity and dignity, weakening social fabric, eroding trust in institutions, disenchantment with political processes and an erosion of the social contract.
“It has become clear that environmental, social and economic agendas can no longer be pursued separately and in parallel: they must be merged into a single sustainable and inclusive growth agenda. In this approach, the perceived trade-offs between economic, social and environmental factors can be mitigated by adopting a holistic and longer-term approach to growth.”
This will be music to Robertson’s ears since it echoes the fundamental goals of his Wellbeing approach to the Budget.
And he will find that not only does New Zealand top the 141 countries in the survey for human capital but also budget transparency.
What the survey shows is that fundamental institutional and legislative forces underpinning the New Zealand economy stand up well to international scrutiny. But as Schwab points out, the real test may be about to come.