18 Feb 2024
Kia ora koutou. Good afternoon everyone and greetings from New Zealand.
Thank you for having me at the Policy Exchange.
What a good name: “Policy Exchange”. No-one has a monopoly on good ideas, lest of all those who think they do. All of us have a great deal to learn about making good policy, especially on behalf of the most disadvantaged people in our societies.
I’m delighted to share with you today my thoughts, as Leader of New Zealand’s largest Opposition party in Parliament, the New Zealand National Party.
I want to talk about the importance of not using current economic upheaval, or the war in Ukraine, as reasons to start putting up barriers that took so long to dismantle.
When we know that globalisation has given so many countries of the world economic growth that has lifted a billion people out of poverty, and enabled higher living standards, there’s too much to lose by becoming insular.
It’s particularly important to small countries, like New Zealand, which may throw its weight around in an All Blacks front row, but works alongside others in multilateral forums to find heft.
And I also want to talk about what we should do with that wealth, once we’ve earned it, to support those at the tough end of inequality measures.
The capacity of the State to make interventions is vast, yet its results are often poor. A government that I lead will care about those at the bottom and by caring I don’t mean saying “we spent $X billion on welfare”. We need to be better than that - kindness is not just about spending. Kindness is about getting better outcomes and results.
New Zealand is roughly similar to the United Kingdom in area, but has a population of just over 5 million people.
We’re a modern, multicultural country with a small but advanced economy.
Auckland, where I live, is home to people from around 30 different Pacific communities. It’s the biggest Polynesian city in the world and some of the smaller Pacific nations, like say, Niue Island, have far more of their population living in New Zealand than they do in Niue.
As always, the generalisations about a place don’t tell the full story. New Zealand is generally considered to have better race relations than some other countries and while that is true, I hope New Zealanders would be the first to admit that, as a nation, we still have a way to go.
Likewise, New Zealand is considered “clean and green”, however, we also have a very long list of native bird species that are considered nationally critical, nationally endangered, or nationally vulnerable. Our native flora and fauna succumb to introduced pests. The situation is not helped by a design fault in some of our native birds, like the Kiwi itself, which is unable to fly.
We’re also a well-off country by international standards, but our productivity is relatively poor, and our levels of poverty are simply too high.
New Zealand was the first country in the world to give women the vote, but there’s still a significant gender pay gap.
So it’s a great little country, but it could be even better. We need to work on raising wealth and incomes, and we need to understand more about why, in a time of acute labour shortages, we still have so many people on long-term welfare.
What’s unarguable, is that New Zealand is geographically remote.
It’s a three-hour flight from New Zealand to the east coast of Australia where New Zealanders take advantage of the close relationship with our nearest neighbour, to live and work there. Kiwi birds may not be able to fly but Kiwi people certainly can and do. While there are 5 million of us living back at home, there are a million or more New Zealanders living overseas.
I was, for 16 years, one of them, as an expatriate working for Unilever, until I went home in 2011 to become chief executive of Air New Zealand, so I know first-hand about the great Kiwi diaspora.
The importance of breaking down barriers can be seen in New Zealand’s recent past.
For much of New Zealand’s post-colonial history, its primary export focus was being “Britain’s farm”.
For a time, that worked well for New Zealand, and for Britain. Britain had unfettered supplies of New Zealand’s high-quality wool and meat, and New Zealand had a guaranteed customer.
Then Britain joined the EEC and we were cut off. It was like throwing a teenager out of home and, overnight, New Zealand had to learn to fend for itself.
Over time, we did, and very successfully, but our economic ousting felt unjust.
New Zealand eventually figured out how to recover and in the 1980s we went further than any other country and completely deregulated swathes of our economy. We got rid of agricultural subsidies and still tend to speak with derision about the subsidies that an EU cow attracts.
Our agricultural sector became arguably the most efficient in the world. Even with the costs imposed by our distance from our main markets, our efficient production meant we could compete, even with tariffs imposed on our exports.
As a result, New Zealanders now have a strong sense of the importance of free markets. Even our farmers don’t like subsidies anymore, because it makes them vulnerable to political lobbying.
And so New Zealand is almost a free trade purist, asking only for the protection provided by rules, but not for the protection provided by subsidies. We ask only for a level playing field, created by regulatory environments that allow businesses to get on with what they do best. On a level playing field, we can compete.
Right now, the world is experiencing a period of significant disruption to global economic relationships that, I think, risks a return to more protectionism.
In particular, since early 2020 there has been a huge disruption to trade caused by the COVID-19 pandemic. For a country as dependent on trade as New Zealand, this obviously is a significant problem, but one that we have little ability to influence.
On top of the pandemic, the horror of Russia’s invasion of Ukraine and the blockading of its ports, alongside sanctions on Russia itself, have created fear in Europe and around the world, and wreaked havoc on global food supplies.
Here in the UK, all this is happening as you continue to extricate yourself from the European Union, although it must be remembered that the remaining barriers to trade with Europe are political and Europe has chosen them: they are not natural or unavoidable.
There is a growing sense from many, especially from those who never liked globalisation in the first place, that it has run its course.
Sure it’s bumpy right now – but a pandemic is, touch wood, a one-in-a-100-year event and most of the world is coming through it remarkably well, considering how drastic various countries’ lockdowns were.
Globalisation has delivered, and it’s not been winner takes all.
Apart from lifting a billion people out of poverty, in the past 20 years the child mortality rate in both the less-developed and least-developed countries has halved.
Globally, the share of people living in extreme poverty has been declining for two centuries and in the last 20 years this trend has been faster than ever before, regardless of which poverty measure is used.
Are some of these gains now at risk? I’d argue that the world can overcome the ill-effects of the pandemic, so long as, once it’s over, countries don’t throw out the economic reforms and openness that made the gains possible.
New Zealand, like the UK and others, has some significant economic issues with inflation and interest rates both rising quickly, and the housing market falling.
But by and large, the world has been able to weather the headwinds precisely because countries have the flexibility to shift supply chains, to find new markets, to adjust and to trade with one another.
There’s a real risk right now that we learn the wrong lessons from the recent dislocation. Even if geopolitical alliances change as a result of Covid or of the war in Ukraine, the principle of the benefits of openness will remain. Countries like the UK and New Zealand need to champion the benefits of globalisation.
The promise of Brexit was that the UK, once freed from the shackles of a naturally protectionist EU, would reclaim its mantle as the champion of free trade, of open markets, and of global cooperation.
If National wins next year’s general election in New Zealand, a government I lead would be pleased to support the UK if it chooses to take on that role.
I think all countries have felt that instinct to batten down in the face of adversity. We certainly did it in New Zealand during Covid. The Government shut the country’s borders, even to many New Zealand citizens who were locked out while elderly parents died, siblings got married, or visas expired in whichever country Kiwis happened to be when the borders shut.
You could come in to New Zealand only if you had a booking in a government-run quarantine centre. But the system could not cope with demand and so a virtual lottery, literally a lottery, began to get a place in quarantine. Without that place, you could not book a ticket home.
There’s a Robert Frost poem with the line, “Home is the place where, when you have to go there, they have to take you in.”
Robert Frost didn’t know the New Zealand Government.
New Zealand didn’t take people in, even if they needed to go home. It was as graphic an example of shutting the shop as I can think of.
It was done in the name of protecting New Zealanders, by allowing time for the population to get vaccinated after a slow vaccine rollout.
The problem was, the compulsory quarantine system continued well after Covid was circulating in New Zealand, at which point quarantine was simply absurd. Cruel, even.
It interested me because public opinion indicated that for quite some time, many New Zealanders did not mind their fellow New Zealanders being shut out. It was only as individual stories of hardship and emotional distress were aired nightly on TV, and well after the policy could no longer be justified, that public pressure really grew, and the Government gradually dismantled the system.
So, in the face of me having said to you earlier that New Zealanders support free trade and openness, we had a graphic illustration of how quickly the mood can change and become defensive. When people think it’s in their own interest to keep the world out, and politicians can see political advantage in doing so, then mind you don’t get your fingers caught as the shutters slam down.
However, I also think that now, most New Zealanders would acknowledge that it is openness, mutually beneficial trade, cooperation and, yes, a bit of old fashioned competition – that are needed. They worked before. They will work again.
New Zealand is suffering from a productivity disease. And we’re going backwards relative to other countries.
In the 1950s, New Zealand’s GDP per capita was 125% of the OECD average. Today, New Zealand per-capita income is less than the OECD average.
Between 1970 and 2020, New Zealand’s GDP per hour worked fell from 89% of Australia’s to 76%; from 101% of the UK’s to 69%; and from 71% of the United States’ to 58%.
Today, the average Kiwi earns in one hour what an Australian earns in 45 minutes.
To grow the economy, New Zealand has had to rely on increasing population and employment and by working longer hours.
The average Kiwi works 370 hours a year more than someone in the UK – the equivalent of more than nine extra weeks – and still our incomes lag.
We have low capital per worker, low public and private spending on R&D, and close to the lowest trade intensity among comparably-sized countries. Our sclerotic productivity is also unusually persistent.
Another aspect of the New Zealand story is the gap between the most- and least productive businesses. Firms in the top decile are around seven times more productive than those in the lowest decile, a wider gap than in most other countries.
In short, we’re under-capitalised, over-regulated, and isolated in more ways than the geographical.
Productivity comes from governments being absolutely clear about their role and executing that role well via:
- Prudent fiscal policy
- Public services that work
- Infrastructure where and when it’s needed
- Being willing to cut red tape
- Abolishing wasteful spending
Productivity also requires competition. Competition is crucial, especially for small countries which can only access the benefits of deep markets via trade and investment.
Let me take you through National’s five-point plan to lift productivity.
First, we need an education system that works. The Government is spending $5 billion a year more on education only to have a staggering 40% of kids not regularly attending school. That is not just a social failure – it is a moral failure and an economic crisis in the making.
We need kids at school and schools that teach every child to read and write.
Second, we’re going to solve New Zealand’s persistent under-investment in infrastructure by fixing the funding and governance bottlenecks and getting capital to where it can add value.
Third, we need to up our game on technology to lift productivity. New Zealand firms are measurably far from the technology frontier relative to other countries.
We need to remove the barriers preventing our businesses accessing capital and ideas so that more of our small businesses achieve a global scale.
Fourth, we’ll give businesses a predictable and consistent regulatory environment. We’re going to take a rules-based approach because we know that supports investment and New Zealand must compete for its capital.
And finally, we will rebuild our connections with the world stronger than they were before. More trade, more investment both ways, and greater immigration to help build our workforce.
Doing these things well will lift our economic performance, but that is not an end in itself. A strong economy is an enabler and a government that I lead wants to see wealth and incomes increase.
A government has a moral, social and financial imperative to lift up its most disadvantaged citizens and I absolutely believe we can do that in New Zealand.
New Zealand has the complexity of countries like the United States and United Kingdom, but on a much smaller scale. We are small enough to identify our problems, name them and wrestle with them until we conquer them. We have, I believe, the potential to find solutions that have eluded other countries as they grapple with entrenched disadvantage.
As I said, New Zealand is a great little country, and a progressive one. We have achieved many things to be proud of, but like every other Western country, we have a strata of society who, despite universal access to health care and education, sees no way of making social or economic traction. Theirs is often an inter-generational malaise.
It does not have to be.
Using data to pinpoint when and where and with whom to intervene to try to change the otherwise poor course of someone’s life is a process that has become known in New Zealand as “social investment”.
It was introduced by a previous National Government which used the example of five year olds in state care. In 2015, there were 1,500 children in state care and the Government knew from drilling in to data that by the time those kids were 35, their prison and welfare costs would be around $550 million.
When you can see how the trajectories of lives will unfold, as a Government you must try to alter that course on behalf of the people themselves, and their families and communities.
Similarly, data showed that without intervention, a teenager on a sole parent benefit would likely be on a benefit for around 20 years.
That provoked significant changes so that teen parents were no longer handed cash and ignored. Instead, their rent and utilities were paid and the Government helped looked after their children so they could train, as part of a plan for their lives that was not welfare dependency.
We saw results but unfortunately, the Labour Government back home has turned away from social investment.
A National government I lead will bring it back.
Social investment is not about the Government having all the answers. The Government, businesses and the community have to work together. But Government is the biggest actor in the scene. It holds the purse strings and, in my view, it has the moral responsibility to produce better long-term outcomes. Not just to spend money, because how much you spend is regularly used as a proxy for caring, but to change people’s lives and prospects by helping them do more for themselves.
As I said at the start, no-one has a monopoly on good ideas - but Governments, working alone or alongside other community providers, can achieve more.
I sincerely believe that, and it motivates me.
Covid showed the world that when we put our minds to it, each country can come up with bold actions to solve problems. In particular, centre-right parties that believe in an “equality of opportunity” must do more to strengthen the rungs on the ladder of social mobility so people regardless of their circumstances get a shot at what we call the Kiwi Dream.
Ladies and gentlemen,
It would be easy to look at the world right now, be scared, and retreat.
That will solve nothing. The lesson of Covid is that when the public can see that drastic measures are required to solve a real-life problem, they will accept those measures.
I hope, as do we all, that the threat of Covid is passing. But plenty of other problems remain and we can tackle them, and we can succeed.
As nations, we need to preserve the open, rules-based system that has stimulated and supported economic growth, and that provides fairness to small countries.
As societies, we need to have the courage and conviction to tackle our hardest problems. There are solutions. Governments can use innovation and data, and should use their power and influence to provide hope and demonstrable progress for those at the hard end of inequality.
What, in the end, could be more uplifting and satisfying in government than that?
Thank you to the Policy Exchange for allowing me to share my views. All of us are living in unsettled times and navigating this period requires real leadership to hold firm to a course that will aid recovery and prosperity.
I hope the UK will continue to champion the policies and principles of openness. Under a National government, we will do the same in New Zealand so that Kiwis can continue to fly.