Unfettered Ramblings

Sunday, March 11, 2007

The Value of Growth: "Buy New Zealand Made" versus Globalisation

In a recent report ("So Far and Yet So Close", available from www.nzinstitute.org) the New Zealand Institute advises that with respect to New Zealand's international economic competitiveness and possibilities for growth:

"The government’s support and funding of the Buy Kiwi Made programme sends the wrong messages in this regard. New Zealand should be supporting companies that have significant international expansion plans, irrespective of whether the production occurs from a New Zealand base or overseas. Business groups also need to actively support and promote these firms."

Very soon after the report was released the Green Party issued a press release challenging this statement. Issues of sustainability and global warming were raised. Underlying the debate on these issues is a seemingly unasked question: "What good is growth?", or put another way "What is growth for?". It seems to be taken for granted that economic growth is good. If this assumption is ever challenged the response is usually something like "Growth means more money and an increased standard of living." But seldom is the next question asked: "For whom?" To whom do the benefits of growth (or the economic impact of sports events, for another example) accrue?

It seems fairly obvious that benefits accrue to the owners of businesses (more revenue should, all other things being equal, mean more profits) and also the people employed by business. It also means that there are more jobs available. But New Zealand has the lowest unemployment rate in the OECD, so who fills those new jobs? Either we import workers, or locate production facilities overseas, as advocated by the New Zealand Institute. In eaither of these cases the benefits of economic growth accrue not to the New Zealand workers, but the owners only.

There is nothing wrong with this, of course. Business people are in business to make money and should not have to apologise for that. However when we, as consumers, are told that we should help businesses make more money, the obvious response is "Why? What's in it for us?". If we are to give our support to the "Buy New Zealand Made" campaign, the answer seems to be "You will be helping your friends and neighbours get or keep their jobs." In the case of the "Buy New Zealand Designed but Overseas Produced" scheme, the answer will be "You will be helping business owners increase their profits." The overall economic impact of supporting local businesses is enlarged by the fact that the wages paid locally increase local spending and tax revenue, which gives benefits to New Zealand. However if only the business owners are accruing the benefits of growth, a much smaller total amount of spending and tax will accrue to New Zealand.

How many "business owners" are there in your community? This is a difficult question to answer, but one way to get an approximate figure is to look at the proportion of "Working Proprietors" in the employment statistics from Statistics New Zealand. This figure is around 7%, and given the definition of "working proprietors" we can expect that the actual proportion of business owners is somewhat lower. The other group of people who "own" businesses are shareholders. The number of New Zealanders who own shares in at least one New Zealand company is very difficult to estimate (not least because the definition of a "New Zealand Company" is very ambiguous). In 2001 Statistics New Zealand surveyed households and found that 21% of households owned shares. Hence the number of people who own shares in New Zealand companies will be at most 21%, and probably less.

It is not for us to advocate how one should allocate one's helping in the community. However we feel that a clear appreciation of where one's philanthropy actually goes will be helpful.