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The New Not Normal: An Economy On Life Support; How Can We Rebound?

On Monday we were pleased our daughter was able to “get outta Dodge” (well London) unscathed, we hope. We arrived to the new not normal at the airport to find that parking was free for two hours! (Thank you AKL Airport could we make this the new normal please?). She arrived to the announcement that Emirates will cease flights to NZ forthwith (Air NZ gave up on Kiwi Londoners days ago and now we hear kiwis can’t get out of the UK), Covid19 Level Three, Level 4 two days later. She is now in self-isolation. As I write this, she is out to it; sleeping (12 hours and counting after 2 hours in the previous two days). We were ready. We had to be, my wife is a doctor and simply must stay on the frontline, and by the looks of it will also have to self-isolate. I’m working from home as key isolationist. Adjustments all round. Not Normal.

The economy is also in uncharted territory, as is our management of it. Paul Stocks Deputy CEO of MBIE, that hopefully will not become the Ministry for Business Isolation and Euthanasia, said last night: “Only the businesses absolutely essential to ensure the necessities of life, like supermarkets and pharmacies, can stay open. If in doubt, the business premises should be closed.”

Ok, back to rescuing the economy. Last week I wrote two pieces asking for some things to happen ‘Now’ rather than ‘Later’. They were:

  • lower the Official Cash Rate into negative territory
  • support cheaper mortgages and mortgage holidays for distressed customers
  • give banks the opportunity to help businesses extend, restructure or consolidate debt at lower rates.
  • Provide a Business Acceleration and Continuation fund to help all, including larger, businesses with cashflow or working capital issues but with good prospects plan for the medium term.

I am pleased to say that Government has moved quickly and addressed all the above, except for the OCR, in the intervening 4 days. Well done NZ Inc. However, details matter. I sincerely hope that mortgage holidays, for example, mean just that and interest doesn’t pile up.

Now we are entering lockdown. This is not normal for an economy. Show me in history when the government deliberately put the economy into hibernation. It’s not that I disagree with the greater good, I’m married to a doctor, there’s no escape, it’s just that the economy is welfare.

I want to make three suggestions for Government and the new Covid19 National Response Team (NRT) to consider. One, lowering the OCR is still a good idea. Two, get some economic and business expertise on your National Response Team. Three, plan to very quickly expand logistics and digital support to ramp up domestic online-to-offline sales and support our exporters.

The reason I am still plugging for a negative OCR is that it, across the board, lowers interest costs. A retail target would be 0%. For banks to offer this kind of interest rate they need to be buying cheaper than zero. The good thing about this move would be that if your debt costs you nothing you can sit tight, even plan for a recovery. If you’re closing your business down, as many will, you get a bit of a breather to plan your next move. With zero interest you may even be able to hang on. The other good thing about the Reserve Bank doing this is it is the biggest tool in their kit and they can reverse it just as easily. Banks will interpret these moves and adjust their lending packages accordingly. So, for example, a 1-year fixed rate mortgage at 0% (even 0.25%) would be very tempting for entrepreneurs and investors alongside homeowners. They would also need to come to the party for people that need to break current fixed-term mortgages.

Quantitative easing, injecting cash into the system, printing money, buying government bonds are targeted at specific parts of the market. None of these tools will necessarily induce investment, substantially reduce interest costs, or even increase demand. Demand for what? Who will spend in this kind of uncertainty using more debt? The government guarantee loans to businesses will be good for those businesses already pivoting to online, product and service innovation. Most others will be figuring out how to survive.

My second suggestion is easy. Complex problems (note irony) require teams of coordinated multidisciplinary experts working together. I am thankful the NRT has been set up, and I know it is early days. They are working with unknowns, limited information, covering all sorts of issues, scenarios and contingencies, working up and across government departments and learning as they go. Complexity, adaptive and systems management all needed. But there is a glaring lack of business and economic expertise on the team. And, please, I don’t mean more public sector employees. Good governance is fit for purpose; shoring up our economy and rebounding asap are crucial, right now.

Three, ramp up logistics and digital support for essential services and food exporters, yes, but also plan to support all exporters where they can carry on business in a ‘Corona virus free’ (CV Free) way and online-to-offline trade for our domestic economy. Online shopping, while seemingly out of the question right now, could be ramped up very quickly given the right framework and criteria, working with enlightened private sector business owners. For example, all wholesalers and retailers go completely online and deliver offline (to your door). As delivery agents and couriers are already essential services that simply requires more workers. Food is sorted, you can go out for that, delivery would be better, but general merchandise is a no-go currently under the lockdown. Why? Food is just as, if not more, problematic than general merchandise delivered to your door with no physical contact. The Warehouse group have seen the possibility. It could be thought through as an interim step back to normality and it would make working from home somewhat more tenable. So, short term hibernation it is, but let’s come out fit and ready to rebound, domestically and internationally. Ahh here’s NZ Post right now, delivering pet food, oh, and a dog frisbee. CV Free.

Dr David Wilson has been researching, teaching, consulting, advising and doing economic development for over 20 years. He is currently the founder of Cities and Regions Ltd, an independent research consultancy, immediate past chair and director of Economic Development NZ, a member of the Independent Advisory Panel for the Provincial Growth Fund, chair of the Inclusive Growth Network Aotearoa and director of Be.Lab a passionate and successful social enterprise dedicated to moving people from disability to possibility. He was CEO of Northland Inc, Northlands Regional Development Agency, from 2013 to March 2019 and prior to that Director of the Institute of Public Policy at AUT. He holds a BA in psychology and social policy, a Masters in Public Policy (with 1st class Hons) and a PhD in Regional Economic Development. He is a fellow of Economic Development NZ (EDNZ) and in 2018 received the EDNZ Distinguished Service Award.

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