Two weeks. That’s roughly the length of time the government has given itself between moving to Level Three, and making a
decision on May 11 about how the virus has reacted, with a view then to a wider re-opening. No doubt, the political and
economic pressures driving the return to something that looks more like normality are immense. But hmmm…basically, Level
Three is an experiment being run against the clock, and we’re the guinea pigs whose vital responses are going to be
checked by the people in the white coats with the clipboards. Try not to feel too much underlying anxiety during this
day of celebration.
Given the gestation time of the virus, two weeks does seem like a rather short time for assessing whether and where
Covid-19 may have spread under Level Three conditions. A month at Level Three would have been more realistic, if only
because so much about the behaviour of Covid-19 still remains mysterious. To repeat ad nauseam : there is still an
active debate on whether the virus is transmitted by big droplets expelled by coughs and sneezes - or by the tiny
aerosols expelled during conversation, and which can hang in the air in poorly ventilated rooms, and be carried over
considerably further distances than two metres.
As winter approaches, aerosols also hang heavier in the air for longer and can be carried further on the wind – although
the medical evidence remains inconclusive with respect to how much of a detectable aerosol-borne presence of Covid-19
virus is required for an infection to occur. The motive for wearing masks has a lot to do with this possibility of
aerosol transmission. Our Health Ministry has been reluctant to go down that path. Instead, the MoH has echoed the WHO
focus on Covid-19 transmission via droplets exchanged between people, and via the surfaces onto which those droplets may
fall.
Well, as we head back into workplaces and meetings in boardrooms, we’re about to carry out a Covid-19 experiment about
aerosols, and on how well office spaces in New Zealand are ventilated. IMO, Covid-19 provides an extra reason to skip –
if you can - staff meetings and the whiteboard brainstorming sessions.
On a wider front, the four weeks of Level Four lockdown have given us plenty of time to think and to prioritise, but not
enough time to reach definitive conclusions. Here for instance, are a few areas where the questions continue to
outnumber the answers :
1.Are DHBs Good For Our Health? Maybe not. To wonder about the wisdom of New Zealand having such a teeming abundance of DHBs isn’t to question the value of the
staff who work within them. One lesson of the lockdown is that our frontline medical staff – and our first responders in
supermarket shelf stacking – are of far more use to this country than say, currency traders and thus, they deserve to be
paid accordingly in future. But the District Health Board model? It hasn’t had a great lockdown.
Once we’ve got through this crisis, surely the current DHB framework has to be scrapped, or simplified by a significant
number of mergers. In a country of barely 5 million people it never made sense to create 19 different bodies to deliver
public health….and the pandemic has exposed how most of our DHBs came into this crisis with differing capacities, and
with systems that weren’t interoperable. (A centralised system of national contact tracing had to be created overnight
and made compatible with the inputs from the 12 regional Public Health Units run by the 19 DHBs.) PPE importation and
delivery also had to contend with the fact that some DHBs had different rules and practices when it came to PPE use, and
it is still uncertain whether the key equipment is being distributed equitably around the country. Ditto with respect to
ICU beds.
It has been a historical legacy. The rampant de-centralisation of public health was a product of the market fanaticism
of the early 1990s, when competition in public health and the funder/provider split were considered to be gospel truths.
They weren’t – ever - and especially not during a nationwide health crisis. Overall, New Zealand has always been too small to enable markets to function efficiently. What we got
instead were private sector monopolies, duopolies and virtual cartels rather than smoothly functioning markets and
efficient feedback loops. In public health, the market dogma led to wasteful amounts of fragmentation, duplication of
management and competition between DHBs – which are now belatedly being urged to co-operate with each other.
Each DHB has developed its own bureaucracy, at considerable expense. Over time, the obsessive need to measure and
justify resource allocation has all but paralysed decision-making - such that frontline medical staff have struggled to
acquire core equipment, or shift their resources in a timely fashion into areas of pressing need. Staff have burned out
in frustration. Medical specialists have left New Zealand for less ideologically driven healthcare environments abroad.
In the meantime though, we’re stuck with the DHB system, given that it isn’t practical to re-structure public health in
the middle of a pandemic. However, once the crisis is over it will be hard to make a case for more than say, six DHBs –
maybe four in the North Island, and two in the South Island. At this point, no-one is any the wiser about what level of
DHB consolidation has been recommended by the Health and Disability System Review led by Heather Simpson and her panel of expert advisors. Come Level Two, maybe that package can finally be unwrapped.
2. Is China Still Our Crucial Market? Probably – and maybe even more so than before. China was the origin of the Covid-19 virus, and New Zealand’s dependency
on China as a trading partner has long been a cause for concern…but ironically, the virus will probably cause us to
double down on China in the meantime, while we try all over again to diversify our exports. In the meantime though…with
the collapse of tourism and international education, farm produce and forestry are going to be our prime export earners,
and China still looks to be the most reliable customer for those products, as economist/consultant Keith Woodford argues in this excellent interest.co.nz article. As Woodford suggests, the prospects for wine exports are dire, and kiwifruit growers may well struggle to harvest their
crops – and if and when they do, China ( and maybe Japan) look like being the best market options. Beyond that :
Turning to pastoral products, we know that China has already become the most important market for NZ beef, followed by
the USA. We are also fortunate that for many Americans there is no culinary alternative to the burger.
Sheep meats are more complex. China is by far the largest market for mutton from older animals and I expect that market
will continue to give good returns. China is also important for lamb, but so are Europe, the United Kingdom, and the
United States. I see only bad news for lamb meat to the United States for at least the next six months. For Europe and
the UK, I also see very challenging times, but I hope to be surprised. Our dairy products are exported widely to many
parts of the World. Alas, I see only bad news for everywhere except China...
China’s attractions aside….as yet we have no idea as to how the damage done to international trade and normal supply
chains by Covid-19 will end up raising the price New Zealand has to pay to freight its exports to foreign markets.
Obviously, there is a related risk that foreign farmers will unload their produce onto markets at home and nearby,
thereby pushing down prices…In the coming months, globalisation is likely to come under intense pressure from this
Covid-driven rise in nationalism. The new politics of looking after one’s own producers and exporters are going to put
past loyalties under immense strain.
3. Will Prices Rise or Flatline? For years, what’s deemed to be good for the economy has not necessarily played out all that well for everyone. Already,
Covid-19 is accentuating social inequality. People who can work from home are a relatively privileged group, reliant on
other less fortunate people whose work ( in healthcare, in supermarkets, in rubbish collection etc ) has required them
to be at work and exposed to the virus, even during Level Four. In that sense, and as Slate magazine recently pointed out,
most of us are living on the cruise ship now, and looking for non-contact room service from the support workers in the
galley.
Here’s an example from the pre Covid era. Back in the days before we had to put on Hazmat suits to shop for groceries,
it has been widely assumed that when our currency declines in value, this is good news for everyone. In fact, it is
mainly good for exporters and the friends and family, and not so much for the ordinary consumers now forced to pay
higher prices for imports. In recent weeks, our currency has been declining steeply against both the US and Australian
dollars. For motorists, this decline will cancel out some of the gains from the plunge in global oil prices.
There’s a wider question, though. Basically, will the shocking impact of Covid-19 on jobs, household incomes, retail
trade and international commerce mean that the forces of (a) inflation or (b) deflation will be likely to dominate the
course that the economy will take in the coming months, and for the year to come ?
Initially, it is dead easy to point to the deflationary pressures. Demand is already crashing, fewer people will be in
jobs, and those with jobs are likely to be spending on only the bare essentials and saving what they can in a
precautionary fashion. Add to those downward pressures the impact of Covid-19 on demand in our foreign markets, and the
disruption to the usual global supply chains….and you can readily conclude that retail/consumer spending is going to dry
up, and no-one (surely) is going to be able to raise prices for years to come. Oil prices and house prices are going to
reflect the same reluctance & inability to spend….So arguably, the Reserve Bank will have to be working overtime if inflation is going to be cranked
up to anywhere near its current annual target band.
Unfortunately, that may not be how it plays out for ordinary punters down at the supermarkets – which are essential
industries, and duopolies to boot. In the short to medium term won't their market dominance and the scarcities and the
rising freight costs associated with supply chain disruption all combine to cause prices to rise regardless, for people
trapped in a captive (super) market ?
In addition, could there also be a 'Fonterra' effect, whereby the prices available in overseas markets hike up the
prices we have to pay here at home, at least for some forms of our farm produce? (Presumably much of that old Fonterra
effect on domestic prices will be countered by the fact that Covid-19 will have hammered the incomes and purchasing
power of our foreign customers, too. So overseas prices may flatline elsewhere too.) Add in the falls by the NZD against
the US and AUD though and the rising prices/socio-economic inequities outlook is of genuine concern. Sure, the fall in
oil prices will put a significant dampener on inflation, but this will not compensate entirely for the price disruptions
that may be coming down the pike.
That’s the crossroads we’re now at. Namely, will prices flatline or even decline, with low and stable interest rates (
and prices) stretching out for the foreseeable ? Or will there be inflation caused by (a) scarcities and (b) supply
chain disruption and rising freight costs, with both those factors made worse by the declines in our currency versus the
US and Australia ? Added caveat : if we’re going to make more stuff here rather than import it – as Finance Minister
Grant Robertson says – we are likely to be paying more in future for the components.
4.Does central government still matter ? Is the Pope a Catholic? Almost quaint to think that for the past three decades, the free trade/free market advocates
have been trying to shrink government to a size where it could be drowned in the bath. Surely, the era of demonising government for its alleged inefficiency is over. The GFC should have taught us that
regulation and red tape usually exist for good reason. The Covid 19 crisis has gone further, and proved that when
calamity hits and free markets collapse, central government (and the taxation that sustains it) is the only support we
can all rely upon.
It won’t be the same in future, though. For an unknown length of time, as jobs vanish and income shrinks, what’s to
become of GST – the tax that assumed capitalism and consumption would always go on together like love and marriage,
horse and carriage….But if household spending shrinks to the bare essentials, and the revenue take from GST ( and from
income tax and business tax as well ) also shrinks for much the same reasons, what level of public services will we
still be able to afford ?
The May Budget will give us some inkling about those tough decisions. Just an idea, but shouldn’t we put those big
ticket Defence items (the Poseidons, the Hercules replacements) on ice for perhaps …the next decade or more ? The real
threat has already landed here, and it is so small it can’t be spotted with a $3 billion squadron of surveillance
aircraft. Time to rethink the priorities.
Footnote : Talking about Covid-19 and social inequalities…the priority that the National Party is giving to app-driven contact
tracing is a telling example of the different access to Covid solutions. The problem is not simply the one the
government routinely mentions ie. that app tracing is at best, only an adjunct to the usual grind of phone/human follow
up work.
While the potential privacy concerns with app tracing van be managed by keeping it voluntary, and by building in
anonymising safeguards and sunset provisions….the system requires a very high level of take-up to be useful.
Moreover…ask yourself which people in society have smart phones with Bluetooth functions they can afford to leave on,
all the time ? Yep, it’s the people with good jobs and reasonable incomes, who are already better placed to ride out
this crisis. Smart phones able to run Bluetooth nonstop tend not to be in the hands of the low income workers and
elderly who are at most risk from the virus. But as Bloomberg News recently pointed out, it is a boon to the more
affluent, work-from-home crowd. No wonder National feels so compassionately for them.
Finally…. app tracers like Singapore’s TraceTogether system record and collect adjacent contacts only between those
phones left on in the vicinity – and in some urban settings, proximity may not have meant actual inside-the-bubble
contact. The app can be frustratingly over-efficient in that respect. In the immortal words of Bill English, it’s a
nice-to -have right now, and not a need-to-have.