Thursday, April 24, 2008


For those with lingering doubts about the iron laws of
capitalism—actually, there is basically only one, which
is you go where the money is or is likely to be—then the
announcements of April 17 will have dispelled them
once and for all. First, Fisher & Paykel confirmed that
it would close its Dunedin factory and shift production
to countries like Thailand and Mexico. On the same day
the ANZ bank said that 500 data-processing jobs would
be moved offshore; but for the moment let’s focus on
F&P, a New Zealand company of long standing. As one
of our leading and most enterprising manufacturers for
half a century, no one should question its historical
commitment to this country; and I was impressed by the
evident sincerity of managing director John Bongard
when he said how much it grieved him to make such an

But what’s a guy to do when, as James Weir pointed out
in the Dominion Post, F&P will pay no tax at all in
Thailand for the first eight years, and the Mexican
workers will get less than $4.50 an hour? As Weir also
says, "global manufacturing is a race to the bottom," and
F&P have been going ever more global since 1987. At the
altar of globalismo, one sooner or later will sacrifice
everything—home, friends, family, nation, loyalty, sense
of identity, all.

Are nation-states, though, so powerless in the face of this
trend? It ain’t necessarily so. The first two reasons for
moving that rolled off Bongard’s tongue were the rising
Kiwi dollar and interest rates, and neither of those is a
God-given force of nature beyond governmental control.
Both, in fact, could be addressed through reform of the
Reserve Bank Act, which more and more is taking on the
aspect of a constipatory blockage in the alimentary canal
of the New Zealand economy.

Not to put too fine a point on it, for the sole sake of
containing inflation the act keeps both interest rates and
the Kiwi dollar damagingly high, to the detriment in
particular of exporters, upon whom our economy’s
lifeblood depends. It means that no matter how well they
do in terms of production and efficiency, exporters will
be penalized by the poorer returns consequent on an
overvalued exchange rate. As stated earlier this year by
John Walley, chief executive of the Manufacturers and
Exporters Association (MEA), this made a mockery of
2007's being officially designated Export Year. "Despite
the best of intentions," wrote Walley in the New Zealand
, "the scheme failed because it generally provided
nothing tangible to exporters to compensate for the
impact of less than a tenth of a cent adverse change in
the dollar."

In other words, so long as the dollar rides high and free,
any attempt to incentivize exporters is like pushing them
forward while cutting the ground from beneath their feet.

The MEA wants the Reserve Bank Act amended so that
domestic inflation is specifically targeted without
collateral damage being done to the export sector
through the impact of the exchange rate. There are other
ways of tackling inflation, as Bryan Gould has argued in
an impressive submission to the Finance & Expenditure
Select Committee’s long-running and seemingly
interminable inquiry into monetary policy; and there are
other ways of monitoring and regulating exchange rates
in order to keep people working, producing and
exporting. Otherwise, as Gould says, "As a country, we
cease to be interested in making new wealth, because it is
just too hard. We concentrate instead on manipulating
existing wealth and on creating higher values in existing
assets like housing."

Ever since the excessive inflation of the late 70s and early
80s our policy-makers appear to have lived in terror of
the beast’s return: the Reserve Bank Act, which so
dominates the economic landscape, was created precisely
to prevent such a calamity. In the process, however, some
very silly and counter-productive things have been allowed
to happen. Sooner or later, maybe, F&P would have closed
down all their New Zealand operations; but I’m betting
that, had monetary policy not been such a be-all and end-all
for the past 20 years, they would have stayed around a lot
longer. Their departure, factory by factory, worker by
worker, should cause us all in New Zealand to think long
and hard about the macro-economic course to which
successive governments have committed us.

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