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A more equitable monetary policy welcomed by PEC

Phil Goff's decision to seek a more equitable monetary policy is welcomed by the Productive Economy Council

It's good to finally see a politician stand up and say we have got it wrong with our monetary policy and it's time to fix it, says Selwyn Pellett the spokesperson for the Productive Economy Council.

But Labour's shift in position is only the first step in what promises to be a bitter fight about the future of our economy. The business community is clearly divided into two camps; those that make their money from exports, creating jobs and earning the country's foreign exchange and who are thus heavily penalized by our volatile dollar and tax regime, and those who profit from the current system, exploiting the tax system and shifting exchange rate to their advantage and the county's detriment.

"While exporters and farmers will welcome Labour's new focus on getting the fundamentals of our economy right, those in favour of the status quo represent a powerful lobby group both numerically and in terms of funding ability," says Pellett.

"They have benefited from our dysfunctional economy for so long, that they appear to have mistaken what is good for them as being what is good for the country as a whole, even when there is a mountain of solid evidence to the contrary," he says.

"You only have to look at the comments from people like Phil O'Reilly of Business New Zealand, who has said: "The decision to ditch the consensus is based on a fallacy - that our monetary policy is the root cause of our often high and volatile currency. In fact the root cause of the problem is our unproductive economy which is failing to attract investment inflows and is instead attracting speculative inflows." And: "It undermines international trust in the stability of the New Zealand's economic environment which has been painstakingly built up over the last two decades."

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"The stability of our economy? Mr O'Reilly, an ex Westpac employee and now CEO of Business New Zealand, might like to quote figures around how much debt our economy has taken on in the last two decades or how our exports have been in decline for the last six years. He might want to tell the New Zealand public that four Australian banks in 2008 made $3.6 billion in profit from New Zealand activities while the top 46 NZX companies only managed to make a total of $2.8 billion. He could go on to say that our dollar was traded 118 times our Gross Domestic Product, but he doesn't. At a 118 times GPD that figure is almost double Australia and ten times that of South Korea. He could then go on and say what foreign exchange traders mean when they say "high yielding currencies like the Kiwi and Australian dollar" but that might actually explain what's been going on under our current monetary policy and how FX traders make so much money," says Pellett.

"The stability of our economy is an illusion. What Phil O'Reilly is really talking about is the "stability" of a system that allows one part of the business sector - the banks, foreign exchange traders and property speculators - to reap rewards at the expense of the rest of the economy. There is no balance, and until we achieve a balance that enables our export businesses to flourish, our economy will continue to be on a downward spiral. That downward spiral will eventually hit even those who think there is no need to change. There is only so much money you can generate from an economy that has limited production, and to try and separate the issue of our low productivity from our monetary policy shows a lack of understanding about what is actually going on," says Pellett.

"Then we have John Key's comments this morning about New Zealand having the world's "best practice in monetary policy". That is clearly untrue. The facts don't support Mr Key's position and as an ex-foreign currency trader himself he must surely know that. Singapore is currently No 9 in GDP per capita in the world and we are no 46. Mr Key needs to explain how, if we do have best practice, why so many countries that don't have our monetary policy rank in the top twenty in Global GDP per capita. In 1965 Singapore was No 42 in GDP/capita and New Zealand was No 11. If we have best practice where are the results?" NZMEA have today released an article on the policies Singapore implemented that lead to this massive turnaround: http://www.interest.co.nz/ratesblog/index.php/2009/11/20/opinion-what-new-zealand-can-learn-from-singapores-monetary-policy/

"Singapore's monetary policy has served them well for decades. In the last six months, their economy has grown by 8.6% in non-annualized terms, making up all but 2% of the output lost during the recession. When you have such a successful model of an economy that balances the needs of all sectors within it, to achieve prosperity even when it has little natural resources, you'd be a fool not to take a hard look at whether that model could have benefits here," he says.

"The Prime Minister criticises Labour for making an about face on this issue when they stuck to the status quo through nine years of government. He's right, they did stick to the status quo. But I'd rather have politicians admit that they got it wrong eventually and look for better solutions, than stick slavishly to an entrenched position because they believe it is the politically astute thing to do. The Productive Economy Council welcomes Labour's reassessment of its policies and can only hope that National will eventually also find the will to set politics aside and put the future of the country first."

"We are a problem solving nation and yet we limit so many of our options because of political positioning. It's time we reminded all politicians that they are here to serve the best interests of the people, not the other way around," says Pellett.

About PEC The Productive Economy Council represents a growing community of people that wish to see New Zealand return to the upper end of the OECD in terms of GDP per capita. It was founded by four of the former Trustees of the Hi Growth Project including current President of the Hi Tech Association Wayne Norrie, former executive of the Hi Growth Project, Garth Biggs, Former Chairman of the Hi Tech Association and entrepreneur Selwyn Pellett.


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