The Engineering, Printing and Manufacturing Union’s ‘jobs crisis’ summit in Auckland will be over in an hour or so after you receive this edition of Insights.

The secretary of the EPMU, Bill Newson, claimed before the summit that the decline of manufacturing reflects 30 years of ‘hands-off’ economic management. It is time, he argues, for government to take a more active role in the economy, generally, and the exchange rate, particularly.

However, Newson has a strange view of ‘hands-off’ economic management. The Clark-Cullen government lifted government spending by 5% of GDP and passed more than 25,000 pages of primary legislation in a decade. Indeed, in the last 30 years, taxes per capita have risen 25% faster than the consumer price index.

Perhaps some of those attending the summit (in reality, a two-and-a-half-hour meeting) are pining for the good old ‘hands-on’ days of no weekend trading, blanket foreign exchange controls, centralised wage fixing, queues for mortgages, inefficient and loss-making state monopoly providers, and extensive price controls.

Regardless, debates about exchange rate management are not about choosing between ‘hands on’ and ‘hands off’. Under the fixed exchange rate system that dominated much of the twentieth century, monetary policy was used to defend the official exchange rate. The aim was to get much the same rate of inflation as one’s major trading partners.
Since 1989, monetary policy has instead been directed at achieving an explicit (low) inflation target, but is just as ‘hands on’. The implicit aim of the exchange rate is to offset (on average) any sustained difference between domestic and foreign inflation.

Competitiveness is different. It is about productivity relative to costs. It is also about resourcefulness, flexibility, adaptability and innovation. The following factors continue to stifle manufacturing New Zealand:

• intrusive regulation, particularly in hiring labour
• having the most restrictive FDI regime in the world for manufacturing, according to the OECD
• the private sector having to compete with the higher public sector wages
• very high rates of tax by the standards of the best-performing Asian economies.

It is unlikely that the EPMU will end its summit by demonstrating a commitment to making it easier for firms to create jobs and increase productivity. But one can always hope.