NZ should trade less,while enjoying it more

Free trade has its limitations, writes Tim Hazledine.

If someone says they're worried about global population growth, you wouldn't immediately accuse them of wanting to ban babies. If someone is concerned about the damage done by excessive alcohol consumption, you wouldn't at once label them wowser prohibitionists.

At least, a reasonable person wouldn't. One of the most reasonable, well-informed people I know is the political commentator Colin James. Yet, in his column in the February 16 issue of the Otago Daily Times, reporting on the Green Party's recent conference, his description of the Greens' economic stance is: ''a rejection of free trade in the belief that good can be done behind closed doors. That rejection of the global economy doesn't exactly mesh with their global environmental perspective predicated on there being only one planet for all humans.''

Statements like this and the thinking (or non-thinking) behind them are all too common, and not just from right-wing ideologues, but from shrewd centrists like Mr James, and trade and finance ministers of both major New Zealand political parties.

Query some extreme position called ''free trade'' and - whizz, bang - you're catapulted in an instant to the other extreme of isolationist autarky (''closed doors''), having ''rejected the global economy'' en route. Now, I've checked out the Greens' trade policy on their website. You may like it or not, but it is, of course, not a proposal for shutting New Zealand off from the world.

It's as though the whole subject of a country's stance with respect to the rest of the world has been declared not decent for public discussion, politically incorrect, like differences in IQs between races or the corrosive influence of private schools on the social fabric.

Behind such positions is usually a fear of finding out something uncomfortable; something that we've swept under the carpet rather than confront. I can see this with racial and other differences, but frankly wouldn't want to put free trade in this fenced-off category.

So let's give it a go. How might a reasonable person approach the trade/globalisation issue, in particular from the perspective of our own small island economy? An open-minded starting position could be that trade may be just like babies and booze - that is, good things in themselves, but you can have too much of them. I will suggest that New Zealand is approaching or even past the point where we have too much trade, the wrong sort of trade, and the wrong attitude to it.

First, some history. The modern free trade movement has honorable origins in the great post-war Keynesian programme to eradicate war, tyranny and economic slumps from the Western world. The Great Depression of the 1930s had been exacerbated by ''beggar-thy-neighbour'' trade protectionism, increasing tariffs on imports to around 30% or more.

The 1944 Bretton Woods agreement, of which economist Maynard Keynes was a key architect, set up international institutions to bind nations into liberal, stable partnerships. These would soon include the rounds of tariff-reducing negotiations under the Gatt (General Agreement on Tariffs and Trade), which, by the 1980s had basically succeeded in reducing tariffs on most manufactured products to single-digit levels, if not zero.

That's fine, but over the past quarter century, forces never seen before have arisen in the world economy. It's not just about the ''West'' any more. Poor countries in south and east Asia, led by China, have begun industrialising at a terrific rate, pouring out cheap manufactured goods for the world market. The resulting boost to international trade is not ''efficient'' in any absolute sense - labour productivity is lower in the new economies, and the supply chains are long and cumbersome, but much lower wages have more than compensated up till now.

Those cheap imports do come at a price for us. The shift of manufacturing to the South and East is resulting in a welcome decrease in economic inequality between countries, but also an increase in income disparities within the developed world, and this nowhere more extreme than in New Zealand. Increased inequality can be directly linked to the hollowing-out of our manufacturing sector - historically the most reliable, large-scale provider of well-paid blue collar and skilled technical jobs.

Further, it can't last. Within a generation, the artificial cheap labour advantage of China, Vietnam, Indonesia et al will be just about wiped out by their economic growth, as it was earlier in Japan and then Korea.

Then the world will be divided into two types of country: those that have retained their manufacturing capability - probably including the US, Germany and Korea - and those that have forgotten how to make complex things. The latter group - which will include New Zealand on current trends - will be relegated to the status of ''hewers of wood and drawers of water'', on terms that will be imposed on us by the economies which can still produce all the other goods we need to survive.

It's happening already, with forced-trade initiatives such as the Trans-Pacific Partnership (TPP). You may be a bit sceptical (I am) about what politicians can achieve, but we want it to be our elected government, not the US or China, that runs our affairs, surely?

Perhaps we should be trading less, but enjoying it more, with a ''Clean, Green and Expensive'' strategy instead of desperately thrusting low-value commodity exports on whomever will take them. I don't know, but I do believe we need to be thinking and talking about these things. That's not unreasonable, is it?

- Tim Hazledine is a professor of economics at the University of Auckland Business School.

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