So long Pete

Posted on October 6, 2011

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(part two).

Our local MP (and neighbour) Pete Hodgson is retiring from politics. Here’s some of his valedictory:

Valedictories are supposed to be about the past, but my head lives mostly in the future. So let me give one portfolio, climate change, a bit more attention, because the world’s response has barely begun. There are 3 key problems. The first is the global addiction to cheap oil. It is an astonishing fuel but they are not making it any more. The second is that climate change is the only area of politics where, when the proof of the need to act finally arrives, the ability to act will have long since gone. The third is that we do not have governance structures that are equal to the task. Disturbingly we may even have discovered the limits of nation state democracies as an idea.

In New Zealand we have an opportunity and obligation to contribute to agricultural greenhouse gas mitigation because we can, and because success increases agricultural productivity. I commend the current government’s commitment to continuing and expanding that science and I wish all involved success and patience in equal measure.

Of course one way to reduce CO2 emissions is to run out of cheap oil. Inevitably we will. That requires a public policy response. Sure, the market will play its part – when a tank of petrol costs $300 not $100, behaviour will change.

But the market alone cannot deliver. Governments need to help. Most governments have started. We have stopped. Fuel efficiency standards scrapped, the biofuels sales obligation scrapped, curtailed sustainability measures in general – indeed the very word has been scrubbed off documents in a frenzied cleansing of the lexicon. This is unfortunate expensive behaviour. I spoke with a New Zealand biofuels company recently which is pulling out of here and investing instead in Thailand and the US. We need to be smarter than that.

Which leads me to sustainable development in general. I view it as a uniting idea, capable of creating wealth, creating ecological room, creating economic diversification and resonating strongly with the Kiwi ethos.

Certainly cows and tourism, alone, are not a future, precisely because those activities are not scaleable. There are now three dairy cows for every one that existed when I was in rural practice. If three cows are not a limit, four will be, or eight or some such number. Tourism is similarly not scaleable in New Zealand; the Galapagos effect will see to that at some point.

I define sustainability very simply. If we can’t do it forever then sooner than later we can’t do it at all.

Mining national parks is a case in point. So is an energy strategy based on offshore oil and gas production. So is getting rid of public debt by selling public assets. These are all things that can be done but once. They are unsustainable by definition.

Sustainable development is very strongly associated with technology. But also with design, with intellectual property, and sometimes with new business models.

Whether it is applied to a further advance in some primary product, or whether it is headed in the direction of clean energy, or the creative sector, or weightless exports or whatever, sustainable development demands high skills.

So it is a hi-tech, hi-skill future.

Here is another observation. There is a strong association between private sector R & D investment, and exporting. An association is not a cause, and not all exporters research. But nearly all research intensive companies export. Look more closely and those same companies are likely to be developing sustainably. And usually very quickly.

So, policies such as cancelling the R & D tax credit make no sense to me. The government said they couldn’t afford it. Fair enough. But the very next year they lowered company tax from 30c to 28c, which cost even more.

We must pay more attention to those firms that owe their existence, not to local domestic demand, but to some technology or some clever entrepreneur or both. Their sand pit is global not local. They usually export, they usually grow quickly, they usually pay high wages. They are the game changers. Not all firms are equal.

But sustainable development does not address the rich-poor gap. It is growing inexorably around the developed world, for many reasons. One is the tension between global salaries and local wages. More than one labour market is at play.

I think our approach to poverty has just started to change. It has always been a social justice issue – poverty is unfair on the poor. I think it is now being viewed also as an issue of social dysfunction – poverty is bad for everyone. There are strong links between the rich-poor gap and many social ills – teenage pregnancy, obesity, violence – you name it. Research, including New Zealand research, is beginning to unravel the detail.

Addressing poverty matters. I think we have underused the minimum wage as a tool. We were the first nation in the world to regulate a minimum wage, back in 1894. Since then it has variously risen above two-thirds the average wage and fallen below the depths of irrelevancy. Currently it is a bit below half the average wage.

If we are to reap the benefits of a relatively flexible labour market, we should also provide a bunch of civilised minima that endure. In New Zealand the debate is usually framed around the idea that raising the minimum wage will throw the low paid out of work altogether. Many crocodile tears are shed at that altar.

But research suggests the opposite – that raising the minimum wage can stimulate local economies and reduce unemployment, though only slightly. The current chair of the Council of Economic Advisors to the US Presidency, Professor Alan Krueger, is one such researcher. He is a mainstream empirical researcher, dealing in the practical, not the theoretical.

I appreciate this House is some distance away from doing for the low paid what we have already done for superannuitants – establishing an agreed floor But I will leave folk with the idea anyway.

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