Book Sale 2009

Ever wondered about the impact political correctness has on our society or when children rights' became more about treating them like mini-adults than protecting them? Until the end of March, a number of our publications will be available at half price or less. To take advantage of this special offer, simply download the Book Sale 2009 order form.

• Download the Book Sale 2009 order form

Maxim Institute invites you to a lecture by Baroness Cox

Baroness Caroline Cox, a crossbencher peer from the British House of Lords, will be delivering a lecture hosted by Maxim Institute at the end of March. The lecture, "What is at stake? Why we need to value the foundations of Western civilisation," will be given in Christchurch on Wednesday, 25 March 2009 from 6:00 pm7:30 pm at The Christchurch Club and in Auckland on Thursday, 26 March 2009 from 6:00 pm7:30 pm at Maxim Institute. Places are limited, so RSVP is essential.

Baroness Cox is known for her active involvement in humanitarian aid and human rights, as well as for her interest and work in slavery and education. Her work has taken her on many assignments to conflict zones, including Sudan, Burma, Nigeria and North Korea. She will be speaking about what she has seen around the world and the implications of these observations for those of us who live in the West.

• Download an invitation to the lecture, "What is at stake? Why we need to value the foundations of Western civilisation"

From recession to recovery

As the recession takes hold and unemployment forecasts grab headlines, we face a difficult balancing act. As the Minister of Finance said this week, "The Government has been attempting to strike a balance between the short-term need to cushion people from the sharper edges of recession, and the long-term need to lift our growth prospects."

Last week's "Job Summit" was part of the Government's balancing exercise. The 200 participants, mainly from business, were given a simple but challenging brief: come up with ways to prevent people losing their jobs and create more jobs. The Summit produced an interesting list of 20 key proposals. Among them were:

*giving employees a nine day working fortnight and a tenth day of training in order to retain and up-skill them;
*providing better access to education and training;
*reducing compliance costs for business and communities; and
*banks providing capital to New Zealand firms.

When we assess these and other proposals, we have to ask whether they will result in long-term increases in economic growth and productivity. While some short-term solutions would ease the pain of the current economic climate, if our vision is not also long-term, those solutions will not be lasting. We need to ask how we can increase the value of what we do by working in more effective or efficient ways, while not overlooking the importance of providing some relief to those hit hardest by the recession. Reducing barriers which impede work, savings, entrepreneurialism and investment are all vital for improving economic growth and productivity in the long term. Economic growth and productivity ultimately generate wealth and allow better living standards for everyone. Removing barriers to productivity gives our economy a better chance of greater recovery.

One proposal made at the Job Summit, was to build a cycleway the length of New Zealand. This would apparently employ 4,000 workers at a cost of $50 million. While it would be nice to give some people work laying down the asphalt, its contribution to our long-term productivity and growth is very limited. Some more adventurous tourists might be lured by it, and some fit Kiwis would probably enjoy the chance to experience their backyard this way. But the jobs created could only ever be temporary. A cycleway would not help its builders or New Zealand industry overall to become more productive, in the way that investing in road, rail or coastal shipping could.

The temptation for politicians is to spend our money on public works and job creation schemes that make it look like they are doing something in a situation where people want reassurance. But spending large amounts of public money on unnecessary public works or bailing out businesses will not be terribly effective in the long run. Proponents of increasing public spending in a recession base their arguments on a branch of economics called Keynesianism, named after John Maynard Keynes a British economist.

A basic premise of Keynesianism is that if unemployment is rising, government should aim to reduce it by spending money and going into debt to bolster businesses and save jobsthis keeps the economy churning and grows overall demand in the economy. Unfortunately, the lessons of history tell us that this doesn't work. The cost of this strategy is higher inflation. There is a limit to how much government spending can stimulate real economic growth over time. We know what this looks like. Just remember the "stagflation" of the 1970s, where growth faltered, interest rates clambered up and high unemployment returned.

The hard truth is that leveraging growth off the government's balance sheet is not the best way to recover from a recession. For example, a multi-country study by the IMF published in October 2008 evaluated whether spending public money makes a difference to an economy. The best they could say about it was that "the effects of fiscal stimulus can be positive, albeit modest." It can have some small impact, but not enough to turn a major corner. One reason for this is that there is always a lag between when government spends money and when its effects are felt in the economy often well after the immediate downturn in the case of big infrastructure projects like building roads or dams. At best, Keynesian public spending will only be a sedative in the midst of harsh economic times.

What should New Zealand do then? The Treasury identified a few areas that are important to the goal of increased productivity and economic growth: improving access to education and training; reducing regulation and compliance for business; and lowering taxes and broadening the government's revenue base.

The idea that the Government could fund training for one day each fortnight for people who are working reduced hours is one way New Zealand could both protect jobs and improve productivity growth by increasing access to education. Employees' "down time" could be used wisely by giving them the opportunity to train towards jobs which will lift productivity or where there are skills shortages, such as IT, teaching and engineering.

For this scheme to be effective as a strategy for growing the economy, tight eligibility criteria would be essential to ensure results were worth the cost, and there would need to be some way of guaranteeing that workers attended the subsidised training. It would be crucial that the areas that received subsidies for further training were those areas that add value to the economy. It would be more effective, for example, to subsidise training in software engineering than in hairdressing.

The Summit's proposal to reduce regulatory compliance costs makes sense, too. Compliance costs, created by government, hurt the small and medium sized businesses that employ so many Kiwis. They also are a major disincentive to entrepreneurs who might like to start a business.

When businesses grow, it also helps to create jobs, so New Zealand should do whatever it can to make it easier to start or expand a business. This is why it is reasonable to expect the banks to continue to lend money to entrepreneurs since our banks are well-capitalised, unlike some in Britain and the US. They should not stop the flow of credit just because times are harder for some businesses, since their backing of reasonable business propositions will be crucial for improving our recovery.

While they were not a focus of the Job Summit, tax cuts can help to improve productivity and economic growth because they encourage people to work and earn more by giving them greater reward for their efforts. We should think about dropping corporate taxes further to encourage more foreign investment and help New Zealand companies to become more productive and competitive, as corporate taxes are the form of tax that most restricts growth.

A number of the ideas proposed at the Job Summit warrant serious consideration by the Government, businesses and local communities as we look to how the impact of the recession can be cushioned. Balancing concern for those most affected now, along with a clear focus on policies which help the economy to grow more quickly in the medium to long term is challenging but vital. Some policies can tick both those boxes, but others cannot. Forgetting the long term and accelerating public spending might save some jobs right now, but long term its only effect is to reshuffle public money and create the illusion of economic growth. Lasting policy changes that encourage productivity and stimulate business are a better solution. This is a sound path to take us from recession to recovery.

• Read the "Job Summit" top 20 proposals and background discussion papers