John Key, NZ PM, bows out: patriotic to the end

John Key made one of his last speeches as Prime Minister of New Zealand at the International Sovereign Wealth Fund Forum (IWSWF) on 8-11 November. He made his shock resignation announcement about one month later on 5 December, and will step down a week after that.

Everyone had an early start that morning, gathering to listen to Key at a breakfast meeting at 8am on 10 November at Auckland’s ANZ Viaduct Events Centre.  He was certainly more engaging than I had expected, was better in person than on television, could read an audience and knew his stuff.

Speaking without any notes, this is what he said- in summary.

In 1984, New Zealand was one of most closed economies in the world and, effectively, went broke. Although there was a left wing government at the time (it was Labour) it had some “very right wing policies.” (Just to set the record straight, I was working in New Zealand Treasury, covering the OECD and IMF at the time).

Now New Zealand is one of the most open countries in the world.  Only 9% of the private sector is unionised, it is highly efficient in many sectors and is a big proponent of free trade.

Arguably, New Zealand has one of most comprehensive free trade agreements in the world, and that’s CER (Closer Economic Relations) with Australia.

It is also the only country in the world that has a free trade agreement with all parts of China - Mainland, Taiwan and Hong Kong. Initially, two-way trade was broadly NZ$8 billion, NZ$2billion in exports, NZ$6 billion in imports. Now it’s NZ$20 billion; we export NZ$12 billion and import NZ$8 billion, and by 2020 we think this figure will be NZ$30 billion. NZ has had a dramatic change in the way it does business.

This government was also a big architect of TPPA (the Trans Pacific Partnership Agreement), along with Obama, which will help to create jobs.

The elimination of tariffs has enabled New Zealand to get access to many goods.

Also, if Trump really did put on a 45% tariff on Chinese goods this would be the single biggest income reduction of Middle Americans, he said, quoting from “The Economist”.

New Zealand has been forced to be very competitive. Manufacturers are changing, he said, citing the example of a plastic manufacturer that was now exporting other goods entirely,

The economy is also doing well. The New Zealand economy is 10% of the Indian economy but by 2020, growth in the Indian economy means there will be many middle-class that will buy New Zealand products. Tourism is New Zealand’s largest export earner; it’s not just lamb chops.

Services, including financial services, are an enormous part of New Zealand’s economy, and growing. If you can base yourself in New Zealand and locate a fund in New Zealand then why wouldn’t you?

What’s happening in the United States is that not enough people engage in the political process. Only 50% of American’s vote. In New Zealand, 80% of people vote (and there is no compulsory voting). 

When Clinton won the election in 1992 it was with 18% of the vote; so when Trump wandered around for basically one year saying, “I will mobilise these people that have never voted before”, the capacity to do this was questioned. But blue-collar workers, uneducated, rural, who have typically been disengaged from the voting process, voted this time.

A US political analyst said: “The media took Trump literally but didn’t take him seriously; and a lot of American voters took him seriously, but not literally.”

As a political party, National has been pro foreign investment, pro migration, pro trade and this has served New Zealand very well.

In response to a question asking why the United Kingdom voted for Brexit, he said: “The United Kingdom has not been able to turn the tap off regarding migration. People didn’t like the rules made in Brussels or the money going to the European Union without enough going back.

“We have to be careful; the whole world is changing. We do live in a world where social media is more important and people are questioning main-stream media now.“

In the Q&A he also said: “Historically, there are three things that cause a recession: 1) Drought, because the country is very agriculturally based.

(2) A rise in interest rates; but the long- term outlook suggests this will not happen. (The Reserve Bank is likely to chock off demand).

(3) An asset bubble. The suggestion that there is a housing bubble is unlikely because immigration is still strong.

(4) International events are likely to knock New Zealand over.

 

Ending the Q&A session he concluded:

What is the real risk to the world? There is a lot of cash floating around and we have to get this out. We can’t keep running deficits.