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Opposition hears manufacturers' calls for lower dollar

An Opposition party inquiry into the manufacturing sector heard from a cross-section of exporters at Parliament today, all of whom argued a lower exchange rate was more important to them than any specific government support to their industry.

Led by New Zealand Manufacturers and Exporters Association chief executive John Walley, the inquiry heard dire predictions about the state of the economy if its ability to manufacture elaborate, high-value products were allowed to continue eroding.

"The biggest thing is the exchange rate," says Mr Walley, a long-time critic of the Reserve Bank's singular focus on controlling inflation.

High-tech entrepreneur and Labour Party backer Selwyn Pellett told the inquiry his companies had exported more than $450 million of goods and services since starting in 2001, when the exchange rate was US39 cents, compared to US83 cents today.

Mr Pellett was uncertain he would have started his business if the exchange rate had been so high 12 years ago.

He was about to bank about $10 million in gains on the sale of his shareholding in Endace, a software company he helped found, but would not invest that sum back into the New Zealand economy at present.


Comments and questions

Maybe they would like to broaden the "inquiry" to include the competitiveness of NZ's employment and environmental laws in the international marketplace also?

One-eyed "inquiries" seem to be guaranteed to have one-eyed outcomes .... or?

In economics we refer to this as omitted variable bias. When you don't look at all possible variables it becomes easy to make incorrect conclusions that the problems are all due to the variables you are looking at (i.e. dollar goes up, growth goes down so there must be causation and nothing else is responsible).

It just shows that the opposition parties aren't very interested in economics...

By international standards New Zealand is very lightly regulated. In fact, right-wing libertarian think-tanks consistently rate NZ as one of the most free market economies with a high ease of doing business. Perhaps we have to ask whether the failure of NZ private business to create wealth (requiring state businesses to shore up the sharemarket) is because the free-market model is a failure or because NZ business leadership isn't up to the task.

Geoff, I always wonder about those studies. From my perspective as an employer, my labour costs are much higher and my employees have far more "rights" than they would overseas. And they don't work as hard, to boot. I submit those same studies have shown that NZ efficiency is one-third that of other nations eg Germany or the US.

In my view the solution is not to manipulate the currency, but to de-regulate the labour force so that willing and able souls will get the jobs and the lackeys will get the boot.

But using a temporal frame of reference the globe is very heavily regulated now compared to former times. So NZ being the "freeist" is like being the best of a bad bunch, historically speaking.

And maybe it is only in the West that the regulations are actually enforced? If you do business in a regime that has multitudes of regulations on the books but a quick back-hander makes all those go away, in reality are you heavily regulated or actually one of the more free places?

Of course, the "cross-section" of exporters all want a lower exchange rate - it improves their profit margins, at the expense of everyone else in the country. If we had a dire economy, we would have a lower exchange rate. We haven't, and we haven't.

Get out of USD. In 2012 our average rate for the year against the Aus$ was the 2nd lowest in a decade, with 2011 being the lowest.

With lower exchange rate, imports like cars and ipads will be expensive! Is that what we want? The purchasing power of our dollar will be eroded. The minimum wage would have to rise to to restore the same purchasing power of wage earners. Are manufacturers ready to increase wages too?

This plays right into the opposition parties' hands. When the story airs on radio and TV there will be no mention of the effect a lower exchange rate will have on consumables. Mr Shearer, Dr Norman and their colleagues will beat this story to death. Oh, to have a reporter on TV and radio who is capable of asking the right questions.

It is a sad circle of events. The companies want more profits to feed the shareholders and their pockets but then the workers can't afford to live so they push for a wage rise... How long before the big bubble bursts again? When will people stop and think that money does not grow on trees. For everyone who gains on so-called free money off shares, someone else loses it and it is usually the worker who ends up paying out.

Perhaps the opposition would like to hear from the majority - those who like lower prices, possibility to travel overseas etc. Exporters will have their turn. That's how the dice cycles. Our Reserve Bank system is working. it isn't broken. Keep your noses out of it Labour. Ditto to The Greens.

Norman has already shown his ineptness in wanting to print money to lower the exchange rate, whilst, as his gums were still flapping, Aussie lowered their interest rates and their dollar went up!
These Opposition gab-fest are just chaff to the mindless media scrum bleating on the Govt. Witness a Labour stooge giving the critical evidence and no-one in the media questions his bias.

Cheaper cars and ipods mean nothing if you have no job. What proponents of a high dollar appear to be arguing is to sacrifice manufacturing jobs and tip families into poverty so that their toys are cheaper.

Forgetting the iPod, I don't consider a modern reliable and cheaper-to-run car a toy. The list goes on for a raft of imports that I consider price and quality, for necessary purchases are preferable to the old expensive shortages in choice. Far better for some chance of a better-quality life.

There is one simple question for Pellet and co. How does the Government lower the exchange rate when the currency you are measuring it against ( ie. the US$ ) is falling through the floor at the same time.

It's just a report of what happened, JP. The fact it involves John Walley is a signal to any informed reader of how tenuous yet bug-eyed the analysis that unfolded would have been.

The question all of the above need to ask, is how are you paying for all your imported items? The answer is simple: you're buying on credit. That's the real problem and it's reflected in your international liabilities and accumulated current account deficit.

In terms of our pure trade account, we are not doing too badly, but at some point the creditor will look to be paid, and we will have to sell something to pay for it. This means more assets (land, companies) or more goods and services (exports).

It's far better to get ahead of this and not wait for the bubble to burst, as happened in Iceland.


The issue is that the entire world is based on credit and the illusion of wealth, otherwise known as fiate currency. So who is our creditor? the US? And who do they get their money from? China? And where does China get its money? From selling garbage to the US? So who is the real debtor here? Where is the real $$? It is one big global Ponzi scheme that's too big to fail.

Charge it!,

Spoken like a true person who knows nothing about how the monetary system actually works. Here's a tip - spend less time reading conspiracy theories and take some (monetarist) economics classes.

Interesting that most here see this as a political stunt.
The facts:
The manufacturing sector is in serious decline
The jobs in that sector are declining at an alarming rate
There are no 'new' jobs of any consequence being created for those displaced people
They end up on benefits, which means a higher drag on tax revenue, or depart for Aussie

What do we want this country to look like in 10 years?

Do we really want virtually all of the export income earnt by 9000-odd dairy farmers? That's where we are heading, with no real employment for the young - except off shore or at McDonald's
Off shore if they have been educated and do a 'runner' owing a massive student debt
or at McDonald's if they don't
or on the DPB

Be quite clear, there is a structual problem in this economy - it's not just the dollar it's also one-way free trade aggreements that give unlimited access for whatever to NZ, provided we get better access for NZ dairy product in to their market..
The collateral effect of these aggreements is the decline of our manufacturing industries as the dairy industry prospers.
Is that the country we want?
We need fair bilateral trade that is not free access for everything!

I see the outlook for wheelwrights is also very bleak.

Fact: NZ manufacturing is not in serious decline.

And there is an obvious way for NZ to lower the exchange rate. Do it the old fashioned way - peg the Kiwi to a range of the TWI. This has worked for Hong Kong for years and it works for China. It worked for Mahathir when he told Soros to bugger off.

And before all you talk-back readers start moaning - I am an employer and hardly a supporter of Labour or Greens. I'm also a longstanding free market economist, so I don't think you'd like to take me on with any half-pie economic theories.

Its over time for NZ to start looking after itself, and not just sigh and say " but the markets won't let us...."

Pull up Shearer in the corridor and ask him to comment on this, and his tongue will be out partying all night.

Funny that manufacturing's biggest decline occured under Labour and has stayed roughly stable under National...