Len Bayliss 14/9/03

1, Major decline in NZ international ranking in per capita GDP over last 30/40 years -now only OECD newcomers below NZ ie Greece,Portugal,Korea,Czech republic,Hungary and Mexico.

- GDP does not measure quality of life or unpaid activity- separate indices .

2 Reason for failure bad Govt economic management

- Much introspection; Monetary and Economic Council, National Development Conference ,NZ Planning Council, Muldoonnomics ,Rogernomics, numerous conferences, .

3.Major focus on Export growth under Muldoon ,and liberalisation/privatisation under Rogernomics and subsequent governments .Performence very disappointing - Declining productivity and huge increase in overseas debt (net international investment position) Increasing focus on major policy changes required . Senior Treasury and Reserve Bank officials not keen to admit need for change in their policies.

4. Labour Productivity, best measured on hours worked per employee, generally recognised as best, though inadequate , measure of economic performence .NZ productivity increase well below that of other OECD countries though some relative improvement in last 3/4 years . Is this temporary improvement due to better terms of trade (UK foot and Mouth) ??

5 Much political debate on reasons for poor performence -

- Trade Unions gutted since 1987/88-no longer favourate Aunt Sally .

- Welfare state encourages sloth andresults in high govt expenditure /taxation - NZ welfare expenditure well below OECD average . Business and farm welfare state/subsidies much more damaging pre 1985.

-Govt expenditure and hence taxation major detriment to effort, creativity etc .About average by comparable OECD countries . Overall country comparisons often very misleading . Key point is the quality of Government exopenditure not quantity. Major economies over 1990`s led to major deficiencies in infrastructure -roading,power,water,

- All parties ignore productivity as performence so poor- too hard basket .

- Much time wasted on irrelevant issues ie Superannuation and Saving etc

- General support for liberalisation , low inflation and for education priority-only marginal differences on economic policy.for many years

6. Why economic failure

- No economic strategy - ridiculed post 1984 picking winners/ exports not important

- Terms of trade major decline since mid 1960`s

- major investment to cope with rapid population growth rather than increase productivity

- Failure to rcognise importance of education particularly quality education.

- Using massive overseas borrowing to increase consumption and consumer credit rather than productivity and exports

- Failure to achieve competitive Forex rate because of RBNZ raising interest rates /forex rate to fight inflation. - major restraint on export and import competing investment.

- Very low standard of political and public debate -Media quality extremely poor concentration on financial markets not economic issues .

.- Low quality Treasury and Reserve Bank- well below Australian counterparts.

- Poor business management - Large coys performance of destroying shareholder value. .

7 What of future ?

No doubt that economic efficiency has improved but key question is whether it is improving as fast as in comparable overses countries .I have , as in 1993,considerable doubts .

- Major hadicap of poorly educated and trained labour force at all levels

- Other major handicaps are continued decline in real terms of trade and major burden of overses debt and debt servicing . Difficult adjustment ahead .

- Treaty of Waitangi issues

- No sign that politicians are keen to put tackling economic problems ahead of winning votes