Import News from the Importers Institute
27 September 2000 - Why Cullen must go
The Minister of Finance must go, quite simply for the same reason that every coach of a non-performing sports team
eventually does.
(This article first appeared on The Independent, 27 September 2000)
In rejecting Importers Institute statements attributing responsibility for the kiwi's collapse to government policy, Bob
Edlin (Editorial, 13 September) said we must look overseas to identify the forces at work on our dollar.
He pointed to the size of New Zealand's current account deficit and the relative strength of the US dollar.
Those factors are, of course, relevant, but far from conclusive. The European Union has a balance of payments surplus,
but the euro has fallen against the American dollar, while the US balance of payments is in deficit.
The value of a currency depends largely on investors' perceptions. It appears the euro is seen to be as non-viable as
the Labour/Alliance coalition's policy direction. Perceptions, however, are also not always conclusive: Since the
beginning of this year, the New Zealand dollar has devalued by about 18% against the Russian rouble.
The New Zealand dollar is not so much steadily falling in value because we are gradually becoming impoverished by
frequent tea breaks, as it is collapsing in direct response to government policy.
It is entirely understandable that those directly responsible for policy would want to divert attention from the
consequences of their decisions. They blame a fall in German business confidence, point to the strength of the US
economy and tell us we must consume less and produce more.
When all else fails, politicians like Dr Cullen will simply assert the dollar is undervalued. It is not very clear how
he manages to be better informed than the markets in reaching such an insight, but it would be a fair bet that he is not
investing his own salary on the forex market.
The most absurd argument of them all is that having a low currency is good, because it makes it easier to export. This
is as true as saying that knocking $50,000 off the price of your house is a good thing because it is then easier to
sell. Imports and exports go together. It is simply not possible to increase local production significantly without also
importing more raw materials, machinery, and all those other things a country with a small industrial base must buy
abroad, such as computers, pharmaceuticals and cars.
While exports and imports are strongly correlated, the same cannot be said in respect of the exchange rate. Factors such
as the Richardson reform burst of the early 90s, followed by the big Peters spend-up and the election of a
Labour/Alliance coalition last November correlate much more closely with the kiwi's fortunes.
The option of going back to a more bucolic lifestyle, using natural remedies from organically grown herbs and setting up
cottage industries making macramé hemp pot hangers is not consistent with New Zealanders' aspiration to live in a
first-world economy.
The Importers Institute called for Dr Cullen's resignation, a move that Bob Edlin labelled as "shifty dealers in
political spin [showing] a lamentable paucity of constructive policy options and a spuriously simplistic clamour for
heads to roll".
Our answer to that superb collection of adjectives is that Dr Cullen must go, quite simply for the same reason that
every coach of a non-performing sports team eventually does.
To improve the balance of payments, we must encourage more exports and enterprise. It is difficult to see how we can do
this in a policy climate where new labour market rigidities are introduced, taxes are increased, biology research is put
on hold, privatisation is ruled out on ideological grounds and selling our best produce remains the preserve of
functionaries employed by cooperatives.
During the election campaign, Dr Cullen told the business community that all a Labour-led government would do was make a
few technical amendments to the Employment Contracts Act. When the true nature of the changes helped to precipitate a
fall in business confidence, Dr Cullen again assured businesspeople he would take their concerns on board. A
substantially unchanged Employment Relations Act has since been passed.
Like her social-democratic colleagues in Germany and France, Prime Minister Helen Clark will soon realise she has no
option but to moderate her government's anti-business policies.
Mr Cullen appears to be in denial, hoping things will come right of their own accord. He offers no solutions and does
not have the credibility with the business community to carry out the necessary changes. That is why we said that, for
the good of New Zealand, he must go.
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