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Economic Growth and Social Equity - Maharey Speech

Hon. Steve Maharey
23 January 2001 Speech Notes

The state we're in:
Economic Growth and Social Equity

Inaugural State of the Nation address to the Takaro Rotary Club. RSA, Palmerston North.

Introduction

Thank you for doing me the honour of inviting me to meet with you this evening.

This is my first speech of the year. I was very keen to be able to give a speech here in my hometown, the city I grew up in, continue to be educated in, the city that I have had the honour to represent in the NZ Parliament since 1990.

When we were discussing the topic to be addressed this evening I was attracted to the idea of using this opportunity to set out the challenges presented by the year in prospect, and to reflect on the year past.

In other times we would perhaps have referred to a speech of this kind as a state of the nation speech – and indeed I think that we may have billed it as such on this occasion.

The tradition of the State of the Nation speech

There is a tradition of state of the nation speeches involving Rotary in this country – perhaps the most notable of these were those given by the late Sir Robert Muldoon to the Orewa Rotary Club. They were speeches that were keenly awaited by many – in a symbolic sense they represented the end of the summer – an annual end to the golden weather perhaps.

The Orewa speech represented the point of transition from holiday back to work. Summer photos would typically feature the late Sir Robert adorned in a tropical shirt – he was ahead of his times in fashion terms - walking along Cooks Beach.

And then it was all over – Orewa marked the start of the serious business – the gravitas of policy and politics, as the tropical shirt came off and the grey suit was taken out of the wardrobe. Moreover I sense that the dimple deepened as the time for the Orewa State of the Nation speech approached.

It was a different time in a number of respects.

Prior to 1984 the New Zealand economy was subject to much more in the way of economic control and regulation. The State was a much more dominant force in the economy – prices could be controlled and were; wages could be regulated, and were; interest rates could be set by the government and were … Government owned much more in the way of state trading enterprises than it does today – a railway system, two banks, an insurance company, an airline, a telecommunications company ...

The combination of a first past the post electoral system which produced single party majority governments – and the absence of an upper house or any other effective means of the holding the political executive to account – gave to incumbent governments immense power.

The import of all of this is that when it came to the Orewa Rotary State of the Nation speech there was very good reason to sit up and take notice. The person giving it not only had, but regularly exercised the power to control what was happening in the economy – everything from the price of credit to the price of a bottle of milk.

Things changed after 1984.

I said in my Maiden speech in the Parliament on the 13 December 1990 that the decade of the 1980s saw a decisive shift in the direction of this country:

"In simple terms, that shift has been marked by a move away from the State and the collective towards the market and the individual."

I went on to say:

"Some would say that the shift has been both necessary and beneficial and, in part, I agree"

I will come back to the "in part" qualification in a moment.

So far as State of the Nation speeches are concerned the changes on the 1980s meant that no longer was the power to regulate and direct the economy vested in one person. No longer would there be that capacity to surprise.

In terms of economic policy the environment is now much more predictable – there is no longer that capacity to surprise, and most would agree that this is a very good thing.

It does however raise the whole question of the relevance of politics and indeed of the place of State of the Nation type speeches.


The relevance of the political

This month will have seen the end of the Clinton Presidency, a Presidency that will be remembered for a number of things.

One of Clinton's more colourful advisers was a man by the names of James Carville - the person who enjoined us to remember that, "it’s the economy stupid" - more on that later.

Carville also came out with some other rather interesting observations on economics and politics – here is one that I particularly enjoy:

"I used to think that, if there was reincarnation, I wanted to come back as the president, or the pope. But now I want to be the bond market; you can intimidate everybody"

This observation has much in common with a remark by David Lange. David, when questioned whether he would enter politics again if he had it all to do over again, replied that he would not. He had entered politics, he observed to change things – and, because politicians no longer possessed that power, given a second chance he would seek to occupy a position of real power and influence. He would seek to be the Governor of the Reserve Bank.

Perhaps there is only one class of person who can intimidate the bond market – and that person is a central banker.

That being the case perhaps state of the nation speeches should more properly be given by central bankers?

I have a great personal fondness for David Lange, and indeed a great deal of sympathy for the argument that many of the changes of the 1980s shifted the balance too far from the state to the market – or to put it another way, took politics out of government and governance.

That is why, in my maiden speech just over a decade ago I said that I only partly agreed with the changes of the 1980s. At that time I developed my argument with reference to this community and city. This is what I said:

"I grew up in a city the economy of which was focused on servicing the agricultural sector. That is still an important function because Palmerston North is surrounded by rich Manawatu farmland. Today its economy also relies on warehousing, conventions, education, research, manufacture, retailing, sports venues, cultural facilities, and many public services. We are justifiably proud of a successful mix of public and private industry in our city, but we face the future with as much concern as any other regional centre. We need to adjust our economy, and we know that such an adjustment cannot be left to the market alone"

I don't resile from anything that I said then. In essence I was saying that the future for this community would rest in a partnership between the private and the public sectors. This means, not a withdrawal of government, but a new role – an entrepreneurial or developmental role.

So as we take off our tropical shirts, as we hunt down those grains of sand that have secreted themselves about our person, as we pause longer than we should in front of the bathroom mirror to admire the tan, as we make the transition back to the real world, there is still a place for those 'state of the nation' speeches.

The business of politics may have changed, but politics and government, while different, is as relevant as it ever was.

Measuring the economic and social state of the nation

I will be in politics for as long as I can make a difference, and for as long as the community of Palmerston North sends me to Wellington to represent the interests of this community.

Ten years ago I was a fresh-faced 37-year-old, dark haired, clear skinned newcomer. And I arrived in Wellington to be one in a relatively small Labour Party Caucus recovering from one of the heaviest defeats in the history of the Party.

Ten years later I still have the privilege to serve the Palmerston North community, but I do so as a Minister in the first really successful coalition government this country has seen since the advent of the new electoral system.

It is a government of ideas, and it is a government of vision.

It is a government that is led by someone who is already exhibiting all of the hallmarks that will mark her out as one of the great Labour Prime Ministers.

It is a government that has a very solid and united leadership team – it is a government in which the junior coalition partner has made a significant contribution. I take considerable pride from being a member of the party that has produced a Prime Minister of the calibre of Helen Clark. I take considerable pride in being part of a Government that has someone of the calibre of Jim Anderton as her deputy.

We are a government that intends being around for some time - clearly for as long as the electorate will provide us with a mandate and electoral support. And because we are a government with a clear sense of mission and of our project, we know that we will need at least two terms to develop the kind of policy momentum that will be required if we are to realise our potential as a nation.

In our first year in Government that nature of our contract with the electorate was a very clear and simple one. Labour made a number of pledges prior to the 1999 election – those pledges were reflected in our programme last year. They were honoured to the letter.

This year will be a year of consolidation. Some have confused consolidation with a kind of conservatism. They will be very quickly disabused of this. The essence of an approach predicated on consolidation is two-fold – people know exactly where the government is heading; there are no surprises – and people have a sense of ownership of and participation in the process of change. And there will be change – far reaching changes in many respects, but they will be changes underpinned by a mandate.

That is why I see this evening's event as being so important – it is one element in the on-going renewal of the contract that the Government has with the community.

I would very much like this to be an annual event.

This evening is an opportunity to outline what I hope to achieve, as one actor in the process of collective government, in the areas of social services and employment, tertiary education, vocational education and training, and the community and voluntary sector.

Taking the 'state of the nation' approach, I want you to hold me, and the government of which I am a member, accountable for the state of our nation.

If we are to undertake an assessment of the state of the nation – viewed through the portfolios that I hold – on what basis do we make that assessment?

When I come back next year, on what basis will you assess the performance of the government. What kind of template will we use to look back, and to look forward?

As I said, I want to focus on my portfolio responsibilities.

But I want to start with some brief comments on the economy, and for two reasons.

It’s the economy stupid…

Firstly, because James Carville was right – it is the economy. You and I both know that.

A strong, vibrant, growing economy is a necessary precondition for everything else we hope to achieve as a government.

How do we measure up?

Unemployment is at its lowest level in 12 years – it may be subject to some ups and downs over the short term, but the medium term outlook is positive

The Government's fiscal position is sound – the Budget Policy Statement released on the 19 December confirms that this Government will live within its proposed spending track – there will be no return to tax and spend.

Inflation is projected to quickly come back within the Reserve Bank's target range of 0-3%.

The current account deficit is tracking down, and projected to be 3.8% of GDP by 2002.

What about at the regional level?

The National Bank's December 2000 Regional Trends report had tis to say about our regional economy:

"Manawatu-Wanganui has the second largest quarterly increase in economic activity in September. Rises in accommodation guest nights, employment and the number of dwelling approvals were all within the top three fastest growth rates across the regions…"

A report prepared for me, as Minister of Employment, by the Department of Labour's Labour Market Policy Group had this to say about the outlook for the Central Region:

"Over the next six months the Central economy is expected to see economic growth strengthen by more than for the New Zealand economy as a whole. This is because the Central economy is more dependent on exporting industries than many other regions and there is a positive outlook for firms in these industries. The positive outlook is driven from the low level of the New Zealand dollar, good growing conditions for farmers and solid (albeit slowing) global growth."

We are part of the global economy – when the global economy grows, we are advantaged by that, and the converse applies. The United States economy has tended to be the engine-room for the global economy, and we know that the US economy is 'coming in for a landing'. The issue is whether that will be a hard or a soft landing, and all the signs are that it will be the latter.

Clearly the Chairman of the US Federal Reserve Alan Greenspan is concerned to ensure that the US economy does enjoy a soft landing and has cut US interest rates accordingly. I note that Australian commentators are picking a rate cut by the Reserve Bank of Australia, and that most New Zealand commentators are of the view that there will be no need for the New Zealand central bank to tighten.

We will always be subject to the vagaries of the international economy. But we are not simply an economic cork bobbing about in the international economy. This government is about ensuring that we have the economic strength to moderate the vagaries of the international economy – in large part we will do that by improving the basis of our comparative advantage.

This government's vision for the New Zealand economy and society is that we should be part of the global economy – applying knowledge and technology to those natural endowments that have always given us our comparative advantage.

What I said about the Palmerston North community ten years ago could be said about the New Zealand economy today – we may compete in some niche markets in information technology – Tait Electronics in Christchurch is a case in point – but in the main others will tend to dominate these markets. Our comparative advantage will rest in land-based industries, and in the quality of our human capital. In Palmerston North we will 'export' primary products – having added value to them – and we will export education, by attracting overseas students to quality centres of research and teaching.

I said that there were two reasons to make some comments on the economy –the first because sustainable economic growth is a necessary condition for achieving the balance of the government's programme.

But the second reason relates to those measures that we use to assess the economic and social state of our nation.

It is a reasonably straightforward task to provide targets or measures for economic growth, for inflation and for the state of the labour market.

But I want to suggest that we need a wider range of measures if we are going to get an accurate sense of the state of our nation. And I want to suggest that key measures of our economic performance tend to provide intermediate, not ultimate objectives. Knowing that the economy is growing tells you something very important – and, let me clear, I will take growth any day of the week over the alternative – but it doesn't tell us about the quality of the social and economic outcomes that the growth produces.

In part the story of the 15 years prior to the election of the Labour/Alliance Government was a story of structural adjustment that produced only patchy bursts of economic growth. But that economic growth that did occur was not reflected in on-going social and community development. Too many people missed out.

We are a Government that stands for growth, but growth with equity – economic growth that is sustainable, that is equitable, and that is democratic.

We need growth that produces development.

This Government vision is reflected in an economic and social development strategy that has the following features:

 It is about generating economic growth that is measured not only in increased GDP per capita – but also in increased living standards.

 It is targeted at the reduction of poverty.

 It is about environmental sustainability.

 It is about a strong, competitive, stable and efficient private sector.

 And, where appropriate, it is about developing a partnership between the private and the public sector. As Joseph Stiglitz has noted:

"the relevant question [is] not whether a particular activity belongs in the public or private sector, but how the two sectors can complement each other in the development effort"

 It is about ensuring that we efficient and effective delivery of the fundamentals of a welfare state – health, education, housing and social assistance. And it is about reaffirming the idea of a welfare state – not as a constraining influence on the economy, but as an integral component of a growing economy. It is about seeing the provision of assistance to those in need as one of the hallmarks of a good society, and it is about seeing welfare as an investment in the good society, and the growing economy.

 It is about ensuring that people do not miss out – that they do not miss out on the opportunity to participate in a growing economy, and to contribute to that growth; that they do not miss out on the opportunity to realise their potential as individuals and as members of a community; that they do not miss out on the opportunity to exercise the rights and responsibilities of citizenship.

 And it is about rebuilding the institutions of what some refer to as, 'civil society'. Civil society has been defined as the space between the government and the market – it is the bowling club, the school board of trustees, the service organisation. This evening's meeting is a very clear expression of the values and the practice of civil society.

These elements of the government's vision – the project – suggest a more encompassing set of measures that link the economic to the social.

Let me restate my central point – we need economic growth; but economic growth, while necessary is not sufficient. This Government's project is about growth with equity, economic growth linked to social development. It is about the economics and the politics of inclusion.

Linking the economic and the social – measuring the state of the nation

So how might we fully assess the economic and social state of the nation?

Apart from the key measures of economic performance – growth, stable prices, and employment, what other items should be included in assessing the economic and social state of the nation?

Let me make three suggestions – poverty and deprivation, educational under-achievement and adult illiteracy, and social isolation.

There is a one-liner that is used in social service circles – denial, it is said, is not just a river in Egypt.

For too long in this country we have had a denial of the social deficit. The 'p' word – poverty – was not mentioned. We told ourselves that we were one of the most educated societies in the world, and yet we continued to suffer under an incredible burden of adult illiteracy.

 Poverty and deprivation

Access to an adequate standard of living is a fundamental precondition for individuals to be able to participate and feel like they belong to their community and the wider society. Poverty and deprivation provide means of measuring the extent to which this occurs.

There are currently no official measures of poverty or deprivation in New Zealand. However the Ministry of Social Policy is currently conducting research that aims to identify an index of living standards that will provide a means by which the Government may be able to determine various income or expenditure based measures of poverty and deprivation.

While there are no official measures of poverty, there has been considerable work undertaken by researchers to identify and monitor different measures of poverty and deprivation.

What does this research tell us?

That between almost 5% and 15% of individuals are living in circumstances that have been characterised as income poverty by different researchers

That roughly 13% of individuals aged over 15 years indicate that they can afford to eat properly only some time

That 3.4% of all individuals and 5% children are living in over-crowded housing

An important issue is whether individuals experience poverty only briefly, or for prolonged periods of time. The international evidence indicates that:

Many people have a brief experience of poverty at some point in their lives

A small proportion of the population remain poor for long periods of time or experience recurrent bouts of poverty

In many countries, individuals experiencing persistent poverty are often different from those experiencing shorter spells. The former group include women, lone parents, the elderly, the sick, and the disabled.

In New Zealand we know that a large proportion of our people require the income protection that the social welfare system provides. For example, 1.1 million different adults received a working age benefit at least once over the six years from 1993. This is estimated to be 4 in every 10 people in the working age population over that period.

While for many the amount of time spent on the benefit was relatively brief, many experienced chronic and often repeated benefit receipt. There were 350,000 people whose total time on benefits over that period added up to three or more years, and 190,000 people whose time on benefits was five or more years.

I am not going to suggest this evening what our specific target for poverty reduction should be. The setting of a poverty target is a matter for public involvement, not just for technical discussion. There are problems in setting a target, but they are not insurmountable. This year I will be releasing a discussion document on social exclusion, which will specifically address the issues around setting poverty targets.

Next year when I meet with you to give my economic and social state of the nation assessment, poverty will be one of the measures that I will report on.

 Educational failure and adult illiteracy

Educational failure and adult illiteracy provide an important measure of the extent of social and economic exclusion in our society.

Individuals without sufficient literacy skills may be unable to participate fully, both in the wider community and society.

Ministry of Education data records that in 1998 roughly one third of all school leavers had less than 6th form qualifications. This indicates a sizeable number of young people entering the workforce and wider society without a reasonable standard of schooling.

The International Adult Literacy Survey for New Zealand shows that almost half of adult New Zealanders (over 1 million people) are below the minimum level of literacy required to effectively meet the demands of everyday life and work. Two hundred thousand adults function at the lowest level of literacy. At this level people could be expected to experience considerable difficult in using many of the printed materials that may be encountered in daily life, such as reading a newspaper, or understanding a bus timetable.

Next year the economic and social state of the nation assessment will report on the progress we have made, and intend making, in addressing educational failure and adult illiteracy.

 Social isolation

Individuals who are isolated or estranged from their friends, family and community are social excluded in a real and tangible sense. Moreover individuals who are not connected to wider society through sports clubs or voluntary groups may also face isolation.

One measurable aspect of social isolation are those individuals who face barriers to communication with other individuals – for example living in a household with no access to a telephone puts people at risk of social isolation as it reduces their capacity to maintain contact with family and friends and to seek employment. The 1996 Census showed that 5% of all households had no access to a telephone.

Lack of access to the internet is an emerging dimension of this element of social exclusion. Increasingly such access is important for full participation in a modern society. Recent research indicates that roughly 68% of the New Zealand population do not have access to the internet.

There is a further dimension to social isolation that is particularly relevant to this audience, and indeed which I believe underlies much of the social and economic dislocation that we see – and that is a withering of the institutions of community.

What we have here this evening is a meeting of one of the key institutions of the community.

While I am not aware of any New Zealand research – time-budget studies – indicating how much time New Zealanders devote to what has been referred to as civic engagement – participation in clubs and organisations – intuitively I sense that it may have been reducing over time.

I would very much like to be able to include a measure of our social capital or community engagement in an annual economic and social state of the nation assessment.

For example the 1996 census estimated that in the month prior to Census night some 1.1 million New Zealanders had undertaken some form of voluntary unpaid work.

We know from comparative studies that New Zealanders are more likely to work as volunteers, more likely to take part in fund raising activities, and more likely to chat to lonely people.

That is a significant commitment to the notion of community. I want to ensure that it the kind of commitment that, at the very least, is maintained over time.

As an aside and as Minister for the Community and Voluntary sector, let me note that this year we celebrate the International Year of the Volunteer

The Minister of Internal Affairs, Mark Burton, announced last year a $455,000 package to assist the voluntary sector with plans to celebrate the year. This is in addition to $500,000 in Lotteries funding for the year.

Clearly, we do not want to simply celebrate the work of current volunteers; we want to encourage more New Zealanders to get involved.

I want to make this a great year - a celebration of the huge contribution of volunteers and a chance to reaffirm our pride in New Zealand as a generous and inclusive society.

On all three of these issues there is much to be done. But that should not detract from what we have already achieved – as social service agencies noted, the return to income related rents was the single biggest contribution that any government could make to attacking poverty. Trevor Mallard, Lianne Dalziel and I spent much of last year working on an adult literacy strategy. Initiatives like Modern Apprenticeships are designed to create pathways of success, not failure for our young people.

Conclusion – challenges for 2001

It is going to be an exciting year.

I have tried to keep the general tone of this speech positive.

And I must say that I have done so in the face of a significant provocation from the leader of the ACT Party who, in his own self-styled state of the nation speech took the opportunity to attack the government on a number of fronts. I didn't enjoy the nine years in Opposition – others appear much better suited to it.

The Government has a vision and a clear sense of direction.

It is a vision that is informed by those values that we associate with Labour Government's of the past – equality of opportunity, the centrality of paid work both for individual self respect, and the economic health of the community, a sense of belonging to a community. It is a vision and a project that applies those values to the challenge of competing within, not standing apart from the global economy.

In a personal sense I am excited by the prospect of what will be a very creative year. In closing let me outline two parts of the project within my own portfolios – rebuilding our tertiary education system, and renewing our concept of welfare and social assistance.

Tertiary education – towards the knowledge economy and society

It will be a year in which we continue the rebuilding of our tertiary education and our vocational education and training systems.

In tertiary education this Government and this nation have been left with a state of affairs which cannot be allowed to continue.

We do not yet have a tertiary education system that can prepare New Zealand for the challenges of the 21st century. In a globalised knowledge society, a strong and well-focussed tertiary education system is a key strategic asset. Economically, socially and culturally, tertiary education has a strong 'nation-building' role which is only going to become more important in the years to come.

However our tertiary education system is fragmented and characterised by unnecessary duplication. Universities and polytechnics have succumbed to pressure to homogenise rather than develop specific individual missions.

Tertiary education institutions are not as well-aligned as they need to be with needs of their region. The system needs to be able to adapt quickly to the evolving requirements of industry. And universities in particular need to integrate their efforts with those of other research organisations, particularly Crown Research Institutes, to foster a strong and cohesive 'nation innovation system' for New Zealand.

We intend to change that, and this year will see important progress towards that goal.

Next month I will be releasing the Tertiary Education Advisory Commission's report on the shape of the tertiary education system. That will set in motion a process of establishing a system that is strategically-focussed while leaving room for innovation, with institutions that are responsive while still being true to themselves.

We want to ensure a strong and vibrant network of regional provision to meet the needs of the regions. For too long, regional polytechnics have be been left to falter faced with serious competitive pressures with adequate support.

We also intend to develop coherent national strategies for export education and open learning. Export education is a booming industry international and already in New Zealand it is bigger than our successful wine industry. With effective development, the sector could double its earnings to over $1 billion annually within four years. Open learning, with the all the new opportunities that spring from innovations in information and communications technology, is another related area of growth. With effort, imagination and a coordinated approach New Zealand can reap great benefits from both export education and open learning. But if we don't act decisively, we risk be left behind.

A new approach to welfare – making work pay

It will be a year in which we renew our commitment to a new form of social welfare and assistance that is about making working pay.

On entering Government we were faced with a social security system in crisis.

Rather than helping people into jobs – 'work for the dole' type schemes make it less likely that an unemployed person will get a real job.

Why? Because they do not focus on addressing skill deficits and it did not give people the tools they needed to compete in the real labour market.

So the challenge that faces us is to ensure that long term beneficiaries gain skills for sustainable employment. For some this will have to begin at the most basic level -–the old fashioned three R's. For others it will mean assisting them to update or consolidate current skills.

And the social security system itself has to be reshaped to support movement into employment.

We don't want to passively pay benefits to people who should be in the workforce. But we must acknowledge that for many people the step from a benefit to a wage is a hazardous and frightening journey.

Too many of the assistance provisions work against employment. From abatement regimes that effectively discourage people from extending their part time work. To yawning poverty traps that greet people moving from the DPB into low paid employment.

We need to make sure work pays. That means assisting people to enter and stay in a job, even if at first the job provides little more than the benefit. Because it is only if we can sustain people in the workforce that we can start them climbing up the skill and pay ladder. If you can help someone hold onto a job for three, six, twelve months you are guaranteed of a better outcome. You are much less likely to see them coming back onto a benefit. They have got used to the world of work, gained skills, had a chance to see opportunities for advancement, and got used to having a pay packet at the end of the week.

So we will be focusing on skills.

And we will rebuild an active social assistance model that makes work pay.

We have already taken the first steps on this road, and there is no better time than now. Unemployment stands at a twelve year low. Our job is to make sure that the long-term unemployed are ready and able to step up and meet the demands of a modern labour market.

It will be a year of challenge – a year in which a government that draws the best from the values of the past – values of partnership, community, and trust – will apply those values to the challenges of the present and the immediate future.

With your help we will measure up. In 12 months time let's meet again to assess the economic and social state of the nation.


ENDS

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