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Gareth Morgan - Tale of Two Countries |
Imagine a country that was fortunate to have two real world beaters in terms of natural resources – oil and hydro electricity. These were in so much abundance that the country could earn as much as it wanted in world markets and while these industries alone couldn’t employ everybody, there was plenty of money to go around and so generous welfare benefits were set at a level to the average wage. Full paid maternity leave for males and females was available and 12 weeks a year annual leave was common. Further, in our country of abundance there’s a commitment to extensive free health and education system for everyone.
Now our country of abundance isn’t without its challenges – the topography for one is difficult it has a small population – about the same as New Zealand, spread out across a country of similar size. So the costs of financing a First World transport infrastructure are no means trivial, but again a hallmark of this country’s success is its extensive network of tunnels and bridges that link the numerous fjords, ravines and valleys where the people.
Secondly in our country of abundance there is a strong historical and sentimental attachment to traditional farming, even though these small plots of a few livestock housed inside during the long dark winters, are hopelessly unviable in any international competitiveness sense. This challenge is overcome however in our country of abundance, by using some of the international income earned from the endowments of oil and electricity to subsidise an indulgence with farming.
And at the end of it, all our country of abundance still has money to burn, its currency is one of the strongest in the world as a result of earning so much more than it spends, and despite the generous welfare system its unemployment rate is only 2 per cent.
Now consider a second quite comparable country, one we’ll call our country of profligacy. In our second case the country is still very rich in natural advantages, in this case it produces oodles of protein – meat and dairy products, for which the burgeoning populations of the developing world have an insatiable demand for. Indeed the world prices of such commodities, like that of oil and energy, have been on a tear ever since globalisation took hold.
But life in our country of profligacy is not quite so stable nor prospects so comfortable looking ahead, as in our country of abundance. Despite record export prices the balance of payments is in record deficit, the currency too is strong but because of a history bad inflation control and high indebtedness, the interest rates are amongst the highest in the world. And its these high rates that have over recent years, attracted the savings of the spendthrift economies to our country of profligacy.
The key question of course is what has been done that foreign capital. Alas – we find that in our country of profligacy, the households spend more than they earn, love borrowing other people’s money and when interest costs exceed their cash flow, they borrow again to pay the interest. What is it that the citizens of the country of profligacy so covet, that they will endure being in permanent hock to secure it?
It appears it’s their neighbour’s house, and after that, their next-door-but¬-one neighbour’s house and so on. There has developed in our country of profligacy an insatiable appetite for housing and all money trails lead to that. Indeed in both countries the cost of housing is the same, despite the citizens of our country of abundance being so much more well off. The health and education systems and transport infrastructure in our country of profligacy are a shadow of the other, and the economy is more vulnerable to global turbulence thanks to the large debt burden it has saddled itself with.
Butt the most marked differences is simply in what is considered normal behaviour for households. One country’s citizens spend less than they earn, and the other doesn’t. In one country the average house price is 3 times the graduate’s salary, in the other it is 8 times. Just looking at the housing gives you the message – modest housing in one, Flash Harry show-off housing in the other.
So it is not so much what you earn as a country it seems, it’s what you choose to do with it and whether you can prevent yourself going in to hock as well, that matters. Our country of profligacy – with all the problems it has – earns no less on the international stage, so it could have opportunities in abundance. But it chooses to spend its income plus some, on indulgences that ultimately weaken its financial strength. This country has an atrocious record of return on investment. Its key protein-selling sectors even stand to be undermined by the profligate waste to which national earnings have been put.
Yet the rulers of our country of profligacy still try to fund a champagne welfare system on the beer budget that results from the endemic imbalance between national income and spending.
There are many more similarities between New Zealand and Norway – and differences –but this will do for starters.
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