Is the rock star economy actually very fragile?

(First published in the Nelson Mail and Manawatu Standard, May 20. Please note: this was published before Bill English delivered his Budget speech.)

Conventional wisdom has it that New Zealand is doing well economically, at least by international standards.

Calling us the rock star economy, as one over-excited bank economist did in January last year, might be overdoing things a bit. But we certainly came through the global financial crisis relatively unscathed compared with most northern hemisphere countries.

Share market investors have enjoyed a couple of very good years, although the gains don’t seem to have trickled down to wage earners (funny, that). We’re even enjoying the rare pleasure of getting the jump on Australia, where the mining boom has run out of puff and the economy is contracting.

The economy is frequently cited as the main reason National won a third term. Economic growth is strong and Finance Minister Bill English is seen as a prudent manager who has kept things stable during a period of international turbulence, even if he has failed to deliver the surplus National kept promising.

(Why National placed so much emphasis on achieving that surplus, when it looked shaky from the outset and was never likely to be more than paper-thin anyway, is a mystery – but politics, like economics, isn’t always easy to understand.)

You can be sure that English will use his Budget speech tomorrow to tell a positive story, despite having no surplus to boast about. That’s what governments do on Budget Day. Between elections it’s arguably the most important event in politics: an opportunity for governments to set goals and put the best possible gloss on their achievements.

But whatever English might say tomorrow, and no matter how enthusiastically his colleagues might applaud him, I can’t help worrying that the New Zealand economy is highly vulnerable.

I suspect I’m not entirely alone in this. Reserve Bank governor Graeme Wheeler, a man not given to making extravagant statements, talked only last week about the threat posed to the banking system by the stratospheric rise in Auckland property values.

Wheeler said the risk of a sharp fall in Auckland house prices causing a “significant” rise in bank loan losses had increased in the past six months.

His words were typically restrained. But when someone like Wheeler talks about the stability of the financial system being at risk, we should sit up and listen.

There are parallels here with the conditions that triggered the global financial crisis in the United States. There, people ill able to afford mortgage payments were encouraged to borrow heavily to invest in houses.

When property values collapsed, those purchasers were left “underwater” – burdened with homes that were no longer worth the money they had borrowed to buy them, and unable to service their mortgages.

In simple terms, banks couldn’t recover their money. The resulting crisis destabilised the entire international banking system. It was a central cause of the global recession whose effects are still being felt.

It would be a cruel irony if, having escaped the worst effects of the global financial crisis, New Zealand now experienced a similar financial shock, albeit on a far smaller scale, because of the overheated Auckland housing market. But that seemed to be what Wheeler was suggesting.

It wouldn’t be the first time. In fact it happened as recently as 1989 when the taxpayer had to bail out the BNZ, which had succumbed to the euphoria of financial deregulation and pressed money on everyone who showed up at the door.

But the Auckland housing boom isn’t the only risk – in fact may not even be the biggest risk – to our “rock star” economy.

The elephant in the room is the dairy industry. Wheeler mentioned this, too, pointing out that many dairy farmers are heavily indebted and facing negative cash flow because of the slump in dairy prices.

The average farmer is milking 100 more cows than six years ago but making no more money, according to a speaker at a recent conference.

Our international competitiveness has been severely eroded. More forced sales of dairy farms can be expected – another serious issue for the banking sector.

Who saw this coming? Certainly not the farmers and investors who borrowed huge sums assuming the dairying bonanza would continue to deliver fat profits. And probably not the government either, which seemed happy for New Zealand to become heavily dependent on one industry as long as it delivered economic growth.

What makes matters worse is that vast tracts of land have been converted to dairying from other uses for which the land was better suited. The environmental cost, which is borne by all of us, has been enormous.

The possibility that after all that, the perceived economic benefits of the dairying boom may have been largely illusory is too dismal to contemplate.

Oh, and did I mention that if the banks take a big hit because they’re over-exposed to the dairying sector, the rest of will inevitably suffer too, one way or another?

But then what would I know? I’m not an economist.

Alcohol's mystical hold on Otago University students

(First published in The Dominion Post, May 15.)

TVNZ’s Sunday programme this week included an item about student partying in Dunedin. Residents unlucky enough to have noisy, drunk, inconsiderate students as neighbours have had a gutsful, and who can blame them?

The programme included footage taken in a student flat famous for its parties. An occupant proudly showed the reporter his rubbish-strewn bedroom, still trashed after the most recent revelry.

To say it wasn’t fit for a dog would be an understatement. No self-respecting rat would have tolerated the mess and filth.

Other footage included scenes of the annual Hyde St party that marks the start of the academic year. At this year’s event a St John’s Ambulance vehicle was attacked, a dozen party-goers were arrested and many more needed medical attention.

An anthropologist studying the footage might reasonably conclude that human evolution has peaked and that we’re now on our way back to being grunting cave-dwellers.

I understand the programme is likely to be the subject of complaints that it didn’t fairly reflect the behaviour of the whole Dunedin student population.

That may be so. Certainly, Sunday did little to dispel the view that many students are pampered, narcissistic slobs. It seems a very long time since student culture was defined by political passion and cutting satirical wit.

What struck me most, however, was the readiness to place the blame for the oafishness not on the students, where it belonged, but on booze. “It’s absolutely the alcohol,” said one of the aggrieved neighbours.

Otago University’s vice-chancellor, Harlene Hayne, also seized on alcohol as the culprit. If student behaviour was going to be changed, she said, New Zealand had to get serious about making alcohol harder to obtain.

Professor Hayne appears not to have a very high opinion of her students. She seems to regard them as powerless to control their behaviour under the mystical influence of drink.

But of course alcohol makes a convenient scapegoat for the university’s embarrassment at the bad publicity brought on it by all the unruly partying.

Don’t blame our students, Hayne seemed to be saying; blame the wicked liquor barons who force them to drink too much and then behave like oiks. And blame the politicians who refuse to tighten the liquor laws (no doubt because they’re in thrall to the booze merchants).

What Hayne and the disgruntled neighbour of the student revellers appear to overlook is that hundreds of thousands of New Zealanders drink alcohol regularly (I do it every day) without behaving badly.

Drunken idiocy is not an inevitable consequence of liquor consumption. People don’t have to trash houses, urinate in the street, vomit in the neighbour’s garden or start fights. It’s their choice to do so.

The problem, then, is not alcohol; it’s us. This is a point made persuasively by the British anthropologist Anne Fox in a recent study of public drunkenness in New Zealand and Australia.

Critics will question the credibility of Fox’s research because it was commissioned by the liquor conglomerate Lion, but much of what she says is inarguable.

She says we accept a level of drunkenness that would not be accepted in many other Western countries. But she also points out that even in societies where there is high liquor consumption, it’s not associated with anti-social behaviour as it is here.

Fox argues that we accept drunkenness as an excuse for behaviour that would not otherwise be tolerated, and that scapegoating alcohol as the sole cause of bad behaviour merely diverts attention from “maladaptive cultural norms”. (I think that’s a polite way of saying we’re an immature lot, and who can disagree?)

Let me be clear: I detest boorish drunken behaviour. But no one is forced to get drunk, and still less to behave like a moron (or turn violent, which of course is far worse) if they do.

Dunedin mayor Dave Cull had it right on Sunday, even if the vice-chancellor of Otago University couldn’t see it. Cull said there had been too much tolerance of bad behaviour.

As long as we exempt people from responsibility for offensive behaviour when they’re drunk, we’ll make no headway against the drinking culture that public health experts and sanctimonious academics profess to be so concerned about. 

But of course it's easier to blame the liquor industry. It also panders to popular prejudices (enthusiastically stoked by the same academics, some of them employed by Otago University) that we are all at the mercy of wicked, unscrupulous capitalists.

 

Why I'll no longer be watching 3 News

At about ten past six last night I switched off my TV in disgust. Then I sent a text message to Mark Jennings, TV3's head of news and current affairs, telling him I wouldn't be watching 3 News again anytime soon. I doubt that he'll lose any sleep over that, but at least I felt marginally better for having registered a protest.

What I'd just seen on 3 News made me feel literally sick to the stomach. The network reported that Kaikohe police had arrested a 15-year-old girl for an assault that was captured on video and put online.

Journalist Karen Rutherford's report on the incident included the video footage. It was hard to watch, as only real-life violence can be - the more so when the perpetrator is a teenage girl.

The assault was shocking in its savagery and intensity. The victim, a girl of similar age, was reportedly ambushed as she got off a bus. She attempted to defend herself but was overwhelmed by the sheer fury of the attack, which involved knees to the face and head as well as a hail of punches. The assailant looked as if she had done this sort of thing before.

That a 15-year-old girl should be capable of such sustained and clearly premeditated violence was only one of several reasons to be shocked. Another was that someone, probably an associate of the attacker, captured it on video and put it online for others to enjoy. A third was that bystanders stood around and did nothing.

But this simply tells us there are feral people out there who indulge in behaviour (presumably learned from, if not encouraged by, their elders) that most of us find reprehensible. We knew that anyway.

What was inexcusable was that 3 News magnified and compounded the outrage by screening the footage - and not just briefly, which would have been all that was necessary to convey what had happened, but at length. And repeatedly.

I replayed the item this morning. Rutherford's item ran for more than two minutes, during which there were six video segments - that's right, six - showing the attack. The longest ran for about 13 seconds and cumulatively the footage ran for nearly a minute.

It was stomach-churning, and what made it all the more repulsive was that the incident was reported with the hypocritical tone of moral disapproval at which television journalists excel.

We were told that the Kaikohe police were disgusted that someone had filmed the assault, and an academic interviewed by Rutherford suggested that the person who did the filming was no better than the perpetrator of the attack.

Amen to that. But where does that leave 3 News, which obviously liked the footage so much that it showed parts of the attack two or three times?  A few seconds would have been sufficient to show us how ugly it was, but the footage was gratuitously replayed over and over, even as Rutherford was telling viewers in tut-tutting tones how despicable it was.

If the person who shot and uploaded the footage was morally complicit in the offence, then 3 News is too - in fact far more so, because 3 News took what would previously have been seen by only a very limited online audience and replayed it, at length, on national television.

I would feel complicit too if I continued to watch a news bulletin that demonstrated such an abysmal lack of ethical judgment, so I won't.

The quintessential Anzac Day experience

(First published in the Nelson Mail and Manawatu Standard, May 6.)

Drive east from Masterton toward the Wairarapa coast and you come across a charming country village called Tinui. It was here that my wife and I attended an Anzac Day service on the centenary of the Gallipoli landings.

The April 25 pilgrimage to Tinui has become an annual ritual for us, not because of any deep personal connection, but because in many ways it’s the quintessential Anzac Day experience.

It also has historical significance. The Rev Basil Ashcroft held a service in Tinui’s pretty little Anglican church (still in use) at 7.30am on August 25, 1916 in honour of seven young local men who had lost their lives at Gallipoli. It’s claimed to have been the first-ever Anzac Day commemoration.

So here we are in brilliant autumn sunshine, several hundred of us – the crowd gets bigger every year – filling the road outside the Tinui hall. Many others take up vantage points on a tree-shaded bank opposite.

A pipe band leads a small parade up the quiet country road from where the Tinui pub, now downsized to a café, used to stand at the turnoff to Castlepoint.

Local schoolchildren stand in front of the war memorial and recite the names of the 48 men from the surrounding district who died in the two world wars – 36 in World War I and 12 in the 1939-45 war.

Among those killed in the 1914-18 war were two lots of three men with the same surnames, which gives some insight into the devastating impact the war must have had on what was then an isolated farming community.

One of those named is Private J R (Jack) Dunn, who was sentenced to be shot at Gallipoli for falling asleep on sentry duty. By modern standards it seems unthinkable, but a different military ethos applied then. (To its credit, Australia refused to let its soldiers be executed by the British, but New Zealand deferred to its former colonial masters.)

Dunn was subsequently reprieved by British general Sir Ian Hamilton but died anyway in the bloody assault on Chunuk Bair only three days later. His body was never recovered.

Someone from the military always gives a speech at Tinui and this year it’s retired sergeant major Bob Davies, a Vietnam veteran who rose to become the New Zealand army’s top non-commissioned officer.

An imposing man of classic military bearing, Davies gives an authoritative account of New Zealand’s involvement in foreign conflicts. It’s not a political speech but in passing, he makes a significant point.

One of the reasons New Zealand had a disproportionately high casualty rate in World War II, Davies says, was that the defence forces had been run down after World War I and we were unprepared. I couldn’t help wondering whether we’re in a similar predicament today.

We sing the national anthem in Maori and English and listen to a Bible reading in which St Paul enjoined the Ephesians to put on the full armour of God so that when the day of evil came, they would be able to stand their ground.

“Stand firm then,” Paul wrote, “with the belt of truth buckled around your waist, with the breastplate of righteousness in place,  and with your feet fitted with the readiness that comes from the gospel of peace.”

Paul has always struck me as a bit of a prig, but he could string words together -- you have to give him that.

The stirring hymn How Great Thou Art follows, after which we recite the time-honoured words from Laurence Binyon’s poem For the Fallen. Then we’re introduced to a song that’s new to me. Called Honour the Dead, it’s sung to the tune of Abide with Me and includes a verse honouring conscientious objectors – something that would have been inconceivable a generation ago.

I applaud the gesture of respect to the “conchies”, many of whom were men of great moral courage, but the words – written by the prolific New Zealand hymn writer Shirley Murray – are too hand-wringingly mawkish for my taste.

The crowd watches in solemn silence as wreaths are laid. Then the Last Post is played and right on cue, three vintage World War I aircraft from Sir Peter Jackson’s collection at Hood Aerodrome in Masterton come into view over a nearby hilltop and fly overhead.

All this is accompanied by the warbling of tuis in the trees above the road. It’s lump-in-the-throat stuff, and all the more so because of the idyllic setting. The men who left this peaceful valley in 1914 could have had little idea of the bloody maelstrom awaiting them.

Afterwards everyone gathers in the hall for a superb Kiwi morning tea (mince savouries, club sandwiches, asparagus rolls) prepared by the local Women’s Institute. Those feeling energetic can then climb to the top of nearby Mt Maunsell, where a small party led by the Rev Ashcroft installed an Anzac memorial cross in 1916. A cross still stands there, on a rocky outcrop high above the valley, though it’s not the original one.

They’re expecting a big crowd next year for Tinui’s 100^th Anzac Day service. Needless to say, I intend to be there.

Did we overlook something on Anzac Day?

(First published in The Dominion Post, May 1.)

Something was missing amid the outpouring of sentiment surrounding the Gallipoli centenary.

Go back 30 years, and Anzac Day was often an occasion for debate about the state of the armed forces.

The Returned Services Association was then still an influential voice. Its leaders were men who had served in World War II. They consistently sounded warnings about the dangers of running down our defence capability.

My generation – the generation that marched against the Vietnam War – dismissed them as crusty old reactionaries. But the veterans in the RSA had personally experienced the consequences of being thrust into war ill-prepared.

Defence spending had been greatly reduced after World War I, the so-called war to end all wars. It’s now widely accepted among military historians that our lack of preparedness was one reason why New Zealand forces had such a high casualty rate – twice that of Australia – in World War II. So how’s our preparedness today?

We got rid of our combat aircraft in the early 2000s. The mainstays of our air force, the Orion and Hercules aircraft, date from the 1960s; they’re contemporaries of the Morris 1100.

Admittedly we have a relatively modern, if small, naval fleet and the army has progressively upgraded its vehicles, although the suitability of the replacements remains a subject of fierce debate.

But by world standards our defence spending is low: just 1 per cent of GDP, compared with Australia (1.6 per cent), Britain (2.2) and the United States (3.8). All four countries have cut defence spending in recent years, but New Zealand’s commitment has consistently been far weaker than that of its friends.

Combat has become a disreputable word, as opposition to the current Iraqi deployment shows.

As long as it’s safely distanced by history, as with Gallipoli, war seems acceptable, even noble, but we prefer our modern defence force to be cuddly and non-threatening. It exists chiefly to monitor truces, conduct fisheries patrols and occasionally locate lost Tokelauan fishermen.

New Zealand defence personnel are internationally acclaimed for the work they do, but no one should kid themselves that they’re capable of defending us against attack. For that we would have to rely on our friends, principally Australia and the United States.

How has this come about? For one thing, there has been a generational change in politics. The baton passed from politicians with first-hand experience of war – men like Jack Marshall and Robert Muldoon – to the idealists of the protest generation.

The RSA has lost its clout as its numbers have thinned, so there’s no one to harass the government on defence issues.

In any case, spending on defence has never been a vote winner. It becomes important only when the country’s security is at risk.

It doesn’t help that defence equipment is eye-wateringly expensive. A single Boeing Globemaster, one of the planes being touted as a replacement for the venerable Hercules, costs $300 million.

The government spent $650 million buying 105 light armoured vehicles in 2001 – a crazy decision – and only 11 have been deployed in combat (in Afghanistan, where they proved unsuitable).

Politicians find it hard to justify that sort of expense, especially when vociferous lobby groups are clamouring for more spending on health, education and welfare.

But defence spending has been compared with buying an insurance policy. It’s something you do even when you hope it won’t be necessary. And if we expect other countries to help us in a crisis, they’re surely entitled to expect that we’ll pull our weight proportionately.

A symbolic turning point was the Labour government’s decision in 2001 to scrap the air force’s combat wing. Justifying that decision, Helen Clark famously said that we lived in an “incredibly benign strategic environment”.

Five months later, al-Qaeda launched its attacks on the United States and the world was spectacularly destabilised overnight.

How does Clark’s assessment stack up today? The Middle East is a seething cauldron. Vladimir Putin’s Russia is back to its aggressive Cold War ways, flexing its muscles over the North Sea as well as in Ukraine.

Tension between China and a nationalistic, militarily resurgent Japan has risen to dangerous levels and the North Korean despot Kim Jong-un has nuclear missiles that he may just be mad enough to use.

Benign? Hardly. But Anzac Day has come and gone, and with it an opportunity for a useful discussion about defence. Clearly, we're more comfortable wallowing in sentiment over the conflicts of the past than with the troublesome realities of the here and now.