Economic growth can make us all a little safer

Dr Eric Crampton
28 April, 2015

It’s easy to get reasonable people to agree that economic growth is a good thing, at least in principle.

The New Zealand Initiative hosted a panel discussion on its recent report, by Jenesa Jeram and me, outlining the case for economic growth and dispelling a few myths around growth.

With me were MPs Chris Bishop (National), Dr David Clark (Labour) and James Shaw (Greens). And since they’re all reasonable people, they all agreed that economic growth is a good thing.

Chris Bishop highlighted the role growth has played in bringing billions of people out of abject poverty, emphasising the National Government’s commitment to growth.

He reminded us that those stopping growth in the developing world means stopping the rollout of proper sewerage systems and flush toilets.

The move to indoor plumbing is within my parents’ lifetime in Canada, but is in my generation’s memory in Christchurch, where the last long-drop man retired only a few decades ago. We too quickly forget all the things we take for granted.

David Clark also lauded growth but warned that, if technological innovation is too fast, we need mechanisms for retraining displaced workers.

It is an important point, and I wonder whether we have the appropriate balance between trades training and universities. But, I still worry a lot more about too little technological progress than too much.

Tyler Cowen’s recent book, The Great Stagnation, warned of the slowdown in productivity growth and technological advancement – especially in health care, education, and sectors primarily serviced by government.

One consequent bottom-line for me is that we need to be more careful that we not put too strong of barriers ahead of those who would want to innovate here, like the government seems to have done in pushing a joint Google-REANNZ research project to Australia because of TICSAA telecommunications regulation here.

For all of the complaining we hear about a lack of economic diversification, New Zealand is hardly a friendly place for foreign companies wishing here to invest and actually engage in world-leading research and development.

James Shaw proved the most optimistic, in an important big-picture sense, about the potential for technological innovation and the decoupling of economic growth from reliance on scarce resources and energy.

3-D printing in particular has great potential to let more manufacturing be done close to point of consumption.

He also warned, entirely correctly, that it is very hard for a green-minded consumer to know what to purchase when components for electric cars can involve unseen toxic tailings pools in China. In a world without comprehensive pricing of the external environmental costs of production, it’s not easy being green.

It’s when the rubber hits the road that maintaining support for economic growth gets harder.

Every time that government passes a policy or implements regulation that fails cost-benefit assessment, or without adequate consideration of costs and benefits, it is effectively saying that economic growth does not matter that much.

No party has covered itself in glory on this front.

While Minister English has been pushing towards better estimates of cost-effectiveness in government service provision, when there’s a by-election to be won, well, the Beehive can be worth a few bridges.

Labour recently has rightly criticised the government for the deadweight costs involved when ACC premiums are higher than they need to be, but too quickly forgets the deadweight costs associated with collecting the revenue needed for other large-scale spending projects.

And while biotech GMO approaches to nitrogen-fixing and reducing ruminant methane emissions hold promise, the Greens’ preferred regulatory approach prevents too much of this important work.

The country needs a more rigorous approach to the Regulatory Impact Statements that accompany new bits of regulation and ongoing reviews of existing spending programmes to ensure that they continue to be the most cost-effective way of delivering the desired services. Too much spending rolls over from year to year without substantial review. New spending programmes and new regulations draw at least some scrutiny; the mass of existing spending and rules do not.

And growth does matter.

Had New Zealand’s economic growth rate been only a percentage point higher since 1970, the country would today have higher per-capita GDP than Australia and be fourth in the OECD instead of languishing below the median.

Further, economic growth is the single best way we can prepare against the range of natural calamities to which New Zealand can be subject. In our report on the merits of economic growth, we found that wealthier countries are better protected against even earthquakes.

Richer places can afford safer buildings. Over the next twenty years, a 1% growth rate would reduce the number of deaths in a substantial Wellington earthquake by about twelve percent. But at a 4% growth rate, the number of fatalities could be cut by over 60%.

As Wellington and Christchurch continue their unwelcome wobbles, let’s not forget the role growth can play in making us all a little safer.

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