Monday, February 6, 2012
We feature each week Nicholas Reid's reviews and comments on new and recent books. We feature each week Nicholas Reid's reviews and comments on new and recent books.
“THE NEW ZEALAND ECONOMY – An Introduction” by Ralph Lattimore and Shamubeel Eaqub (Auckland University Press, $34:99)
I took this on as a kind of experiment. I asked if I could review a simple primer on New Zealand’s economy, The New Zealand Economy by Professor Ralph Lattimore and economics consultant Shamubeel Eaqub .
I was consciously stepping out of my comfort zone.
My ignorance of Economics is such as would make a Year 11 or 12 Accounting student blush. I know that a country which spends more than it earns is in trouble while a country which earns more than it spends is probably doing well. I can tell primary products (raw resources and agricultural output) from secondary products (processed or manufactured goods), and I know what is meant by tertiary industries (services – everything from education and health to tourism and prostitution). I have some grasp of the interaction between the private and the public sectors and an awareness of how global forces have an impact on national and local economies. And then I begin to run out of puff and wonder how these things work in concert. A severe drop-off in demand, leading to a drop-off in production and employment, is about as far as I get when I try to understand what causes recessions and depressions. I know this understanding is woefully inadequate. In any real discussion on economics, I’d be lost in a matter of moments.
So here was my experiment, perhaps appropriate for a blog posting which appears on Waitangi Day. I was going to see if I could understand an elementary text on how New Zealand’s economy works. At least I know that the economy is one of the key things in defining a nation.
Let me make it clear that The New Zealand Economy is intended as a text-book. Its preface suggests a readership of junior university students and perhaps senior high-school students (with a bit of teacher guidance). Its trim 140 pages, heavily freighted with graphs and diagrams, work methodically through nine chapters. A general introduction to the New Zealand economy is followed by an account of New Zealand’s long-term economic performance and how New Zealand is integrated into the global economy. The authors then give two chapters to showing that economic activity is never an autonomous thing. Government policy has a huge impact on both industrial development and the control of labour markets. After this are three chapters on financial aspects – capital flows, capital markets and government’s fiscal policies. And finally a chapter on the worth and perils of macroeconomic forecasting.
I must make it clear that many of these terms I understand only because I had this little book to define them for me. Lattimore and Eaqub are considerate guides, providing running glosses and usually referring to their graphics in making their definitions. They are also clearly optimists with much faith in the world economic process, declaring on Page 34 that “Globalisation has transformed the global distribution of income, lifting large numbers of people out of poverty, especially in China and India.” As they interpret it, New Zealand’s economy is inevitably tied to the world’s. Protectionism – tariffs, quotas and subsidies for exports – should be shunned as they “usually result in economic inefficiency because they inhibit choices for firms and consumers around the world.” Economic nationalism is not an option. New Zealand has generally run a deficit since the 1950s, but New Zealand ’s Gross Domestic Product has gradually risen since the 1970s, thanks to market reforms and to the rise of Asia.
The authors are economists rather than social commentators, but the economic data they compile on New Zealand does tells a social story.
I look at a graph on Page 75 defining employment rates by ethnicity, and I see that in New Zealand 5% of the Pakeha workforce were unemployed in 2009, while for both the Maori and the Pacific Island workforce the percentage was 15%. There is a huge social story behind this which can be read in the newspapers and seen on the TV news any day of the week.
On Pages 84 and 85, I look at both the graphs showing New Zealand’s major imports and exports and the authors’ explanation that “wool exports are too small to warrant their own category in the graph”. I know that behind this there is a huge historical story.
The graph on Page 87, showing our major trading partners, reveals that Australia, China and the USA, in that order, are the countries that now buy most of what we produce, with a clutch of Asian nations following them. Britain now takes only 4% of our output. Another huge historical story lies behind this (and, for me, another valid argument for a New Zealand republic and an indigenous head of state). We are now many, many decades away from being Britain’s offshore farm. Meat and dairy produce may still be our top exports, but they are now a minority of all our exports and do not dominate the field.
I appreciate Lattimore’s and Eaqub’s awareness that economics is not an exact science and their frank admission, in introducing their last chapter, that “forecasting the future of the economy is a mixture of science and art”. Nevertheless, they do make a prediction – that New Zealand’s economy will continue to grow in 2012, but that the rate of growth will slow.
In the end, did my experiment work? As a non-economist, did I become more enlightened about our economy by reading this text?
In terms of New Zealand’s general economic situation, certainly. Lattimore and Eaqub make it perfectly clear that New Zealand’s economy is inextricably tied to the world’s, has to be competitive to make any sort of impact, and is really always in some sort of peril. Nevertheless, I am not sure that I am any wiser about the causes of major economic depressions, although the authors do gamely explain recessions in terms of international pressures, labour productivity and available finance.
I found it easier to read the two case studies with which the text concludes than to read the body of the text itself. Gary Steele discusses the impact of technology on New Zealand’s economy, giving the example of refrigeration. Philip McCann explains economic geography by studying Auckland and showing why and how it dominates the national economy (although he cautions that, to benefit the whole country, there should be more “connectivity” between Auckland and the rest of New Zealand.)
Perhaps all this means is that it would take more than even one careful reading to master all the specialised vocabulary involved in this book. Indeed, it would probably take a year’s academic study of Economics, for which The New Zealand Economy would make an admirable basic text.