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Kiwi Economic Strategy is at a Cross-Roads

Intro: As beliefs in this country fall into three increasingly equal sized and competing parts, building a unifying system is set to become a battle.


What kind of economic system is best for us? Once there was a time when capitalism, tempered by a comprehensive, European-style social safety net, was the only thing on our menu. However, times have changed - many Kiwis now favor taking an indigenous approach. Others prefer how the fast-growing Asian economies are organized.


Statistical projections suggest support will become evenly divided across all three such systems in this country over the next few decades. So what are the beliefs and values underlying them?


Whereas traditional leftists & rightists bicker about whether government spending & taxes should be higher or lower, for those identifying as Māori, as well as Indigenous in other countries, the problem is more fundamental. In these circles, capitalism is often viewed as an unpleasant word. It is associated with colonialism, materialism & individualism. Capitalism in the 19th century didn’t exactly emphasize social responsibility, fairness, inclusion and the environment.


Since those times, changes have obviously occurred, particularly in terms of the creation of public welfare. However, for many Indigenous groups, dependency on a State whose legitimacy is held as dubious is hardly a satisfactory resolution.


Even in those Western countries where Indigenous rights don’t much feature in their politics, the question of whether a vibrant form of capitalism can successfully co-exist alongside their massive unfunded future welfare liabilities and vast regulatory state is now in doubt. That doubt centers on their sharply declining rates of total factor productivity growth.


The upshot is that comparisons between our performance and many fast-growing Asian economics are being made with increasing frequency. Admirers of such places argue we’ve lost our economic mojo. Take Singapore, for example, where the unemployed receive no benefits. Who is responsible for helping if you lose your job there? You are, by drawing on your and your family’s private savings.


Average income per person here was twice Singapore’s in 1970. Now theirs is nearly double ours. Strikingly, the household savings rate has averaged over 30% of income during the past 20 years in Singapore, as well as in China. What's been the Kiwi average? Close to zero.


Where does this leave us?


A swathe of our electorate supports increasing the generosity of our welfare system, one which is already more socialized than most, meaning it features not only tax-funded transfers, but also heavy State provision of services. Dependency on the State is not a big deal for this group. Our low private savings record doesn’t feature in their arguments. Their focus is frequently not just on equal opportunity, but on equitable outcomes. They talk the talk of “the need” for capital gains and wealth taxes to lower inequality.


Another portion of the electorate instead believes too little focus on personal responsibility has taken away our edge. These folks want to see incentives sharpened. They want us to be more competitive in the Asia-Pacific region, where most of our major trading partners lie. They lament our slow productivity growth, which they regard as our number one economic problem. They prefer the approach in places like Singapore that emphasize savings so households don’t look so much to the State for hand-outs. They would like to see such savings flowing into more investment.


For those identifying with the Māori viewpoint, on the other hand, ensuring Kiwi institutions better reflect Indigenous beliefs and values, which differ from many of the ones on which capitalism rests, is paramount. In particular, striving to raise productivity, defined in terms of GDP per hour worked, in order to feed an individual’s materialist greed for more is not the ultimate, over-riding objective.


This article has no interest, nor right, to cast judgment over these three different world views. Its purpose is just to highlight the starkly conflicting beliefs and values with which they’re associated. Some will deny they’re incompatible. Others will say assimilation will happen and we will converge on a united vision. However, convergence in beliefs and values only occurs slowly down generations.


Meanwhile, building a unifying system out of similar-sized and not obviously reconcilable parts is set to become an intensely fraught three-way battle in this country. After all, we have a European welfare-state history, geographically sit in the Asia-Pacific region and are in the midst of an indigenous renaissance.