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Covid-19 and unemployment - 19 May 2020


Mike Doig gave us the Viewpoint tonight. He said,

'The Treasury says unemployment might peak at 10% as a result of Covid-19. Others say this is too conservative and it might get a lot higher. For comparison, the highest rate in recent times was 11% in 1991 and before the pandemic it was about 4%.

'In any case, there are going to be a lot of people out of work and we are going to see a lot of hardship.

'What can we do to help?

'In our club, most of us are retired and don’t have to worry about being unemployed. Those of us who are still working are highly skilled.

'Our household expenditure has been quite low during the lockdown. Now, we are being encouraged to go out and spend, to get the economy going again. We’re happy to do that, and now we are in level 2 this becomes more practical.

'But we should think before we spend. The job-creation potential of each dollar we spend varies a lot. If you buy an imported big ticket item like a new TV, or a computer, or a new car, a pair of shoes, or, heaven forbid, an overseas trip, there is very little value-added within NZ and therefore not much employment.

'There are other types of expenditure where the local labour content is much higher. Getting your car serviced, or going to cafes and restaurants, or having a holiday inside the country, or getting work done on your house or garden- these are all ideal for generating more employment.

'So, while we have high unemployment you might want to prioritise your spending accordingly.

'Hopefully, this is all rather temporary. We shouldn’t allow the pandemic to lure us into poor long-term policies. And this brings me to another issue- import substitution. Winston Peters has suggested that we give preference to local manufacturers if they can make something costing no more than 15% above an imported equivalent.

'This sounds appealing but it is a very, very bad idea. It would be a return to the failed policies of the past and requires a high degree of government intervention.

'For nearly 50 years we had the most protected economy in the developed world. The protection was based on import licensing and high tariffs, which required an army of public servants to administer. It was all swept away in the 1980s and 90s, causing great disruption (and the 11% unemployment I mentioned before).

'But in time, we adjusted, and New Zealand now has low, or zero, tariffs on most things and a raft of free trade agreements which make it easier for us to sell what we are really good at producing.

'Now we (and by ‘we’ I mean consumers, businesses and the government) can buy products and services because they are fit for purpose and value-for-money, without regard to their origin. This is very efficient.

'Remember that our standard of living is not just a product of how much we earn- it also depends on the price of things which we buy. To give an example, in 1974 a large colour TV would set you back about $900. In today’s dollars, correcting for sales tax and GST, that’s nearly $10,000! You can get one from Noel Leeming tomorrow for about $500- made in China of course.

'Better still, our manufacturers can focus on what’s important- understanding their customers and running their businesses efficiently- without having to look over their shoulders to see what new regulation the government has come up with.

'There is a moral issue here too. Increased trade has lifted millions out of poverty in developing countries. The NZ minimum wage is about $18 an hour. Garment workers in Bangladesh still earn less than 2 NZ dollars an hour. Shoemakers in Vietnam make less than 6 dollars. If we buy more from them their pitiful wages will go up and eventually, as we have found with India and China, they will be rich enough to buy our kiwifruit and wine.

'So my viewpoint is this: buy local for now, but return to free trade tomorrow'.

Covid-19 and unemployment - 19 May 2020

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