Coronavirus: Government's post-COVID recovery should take a leaf out of Germany's book - economist

The proposal that the Government should have a greater grip on New Zealand's economy post-COVID is "exactly the wrong thing to do", according to the director of a free market think tank, who instead suggests taking a leaf out of Germany's book and liberalising the economy.

German economist and director of NZ Initiative, Dr Oliver Hartwich, says New Zealand could learn a thing or two from Germany's post-war response in regards to economic recovery. While Britain opted for a 'big government' approach post-World War II by regulating the economy, introducing the NHS and nationalising the Bank of England, Germany went for liberal policies that saw Economic Minister Ludwig Erhard, later dubbed the 'father of the German economic miracle', abolish price control in West Germany and liberalise the economy. 

"Germany went on a really good recovery, which was later dubbed the 'economic miracle'. Germany and West Germany became one of the economic powerhouses of Europe... they won the peace and eventually became richer than Great Britain," Hartwich told MagicTalk host Ryan Bridge on Monday. 

"Britain and Germany took two completely different approaches to their recoveries. Britain continued war-style policies into the peace, the argument being they had won the war and now wanted to win the peace with the same methods. Fast forward 30 years, Britain was basically bankrupt... they had a bailout in 1976 and the Winter of Discontent in 1978/79.

"We've heard a lot of rhetoric recently comparing the COVID crisis to a war, and in some ways it is - the costs are enormous, the cost to health, the cost to the economy. There are war-like devastations and we are all heading to an economic depression.

"If [COVID] is really war-like, maybe we can all draw some lessons from post-war recoveries. What can we do when this public health crisis is over, how can we get the economy going again?"

Hartwich acknowledged that New Zealand has effectively "won the war" against SARS-CoV-2, the strain of coronavirus that causes COVID-19. Although the Government has achieved an "amazing result", he said, it is now crucial to implement "different methods" when "building the peace and organising the recovery", as seen in Germany's post-World War II response. 

Winston Peters' approach 'exactly the wrong thing to do'

Hartwich has flatly denied suggestions made by Deputy Prime Minister and Foreign Affairs Minister, Winston Peters, to increase the Government's grip on the economy post-COVID, saying it is the wrong approach to New Zealand's recovery. Peters, 75, is known for his strong opposition to globalisation and neo-liberalism.

"What we need now is not what Winston Peters talked about... quite the opposite," he said.

"We need to really free the economy, because let's face it, we've seen massive dislocations in the economy, the factors of production, land, capital and labour. We need to rearrange them. Some of our industries are really deeply hit... the last thing we need to do is pretend we can restore things in time, because that won't happen."

Dr Hartwich (L) is advocating for a free market economy post-COVID, saying suggestions of greater Govt control by Winston Peters are "the wrong thing to do".
Dr Hartwich (L) is advocating for a free market economy post-COVID, saying suggestions of greater Govt control by Winston Peters are "the wrong thing to do". Photo credit: Left - / Right - Getty

Instead, Hartwich suggests that the factors of production - the inputs used in the production of goods or services to make an economic profit, such as land, labour and capital - need to be rearranged. He says a free market economy will establish where best to employ these factors and will "find the solutions" to the crisis.  

"When people like Winston Peters talk about a greater degree of control, a greater state share in companies, maybe some control over exports... that is exactly the wrong thing to do.

"We shouldn't trust the Government with deciding what kind of market we're going to have in 2021/2022, because the Government doesn't know better than any of us what the future holds."

What the Government could do to kickstart NZ's economic recovery

Hartwich proposed the revival of New Zealand's international education export, which has suffered massively due to border closures. It still remains unclear when international students, who are imperative to the financial wellbeing of New Zealand's universities, will be allowed into the country.

"We could revive that sector of the economy and open the borders to international students, of course with the mandatory two-week quarantine period. That would restart that bit of the economy as an export earner," he said. 

He also called for the liberalisation of building planning rules. On Sunday, it was announced by Trade and Export Growth Minister David Parker that Cabinet has approved the fast-tracking of large shovel-ready projects, largely bypassing the Resource Management Act (RMA). The Government is continuing to identify projects which could begin sooner with a large injection of public money, in an aim to boost the economy.

The new act, due to be passed in June, would take away the public and councils' input into whether projects proceed, instead handing this power to small panels of experts, chaired by an Environment Court judge. Projects that would benefit from quicker consenting include roading, walking and cycling, rail, housing, sediment removal, new wetland construction, flood management works and projects to prevent landfill erosion, Parker said.

However, Hartwich says he's dubious about the context, saying New Zealand could benefit from a more general planning reform than simply enabling the Government's own "big infrastructure projects".

He also noted the importance of keeping the employer-employee relationship alive, which could be achieved by extending the wage subsidies for a few more months. A prolonged subsidy scheme would allow more companies to scale up rather than rebuilding from scratch. 

"We're still in the first phase where the Government is taking responsibility and stepping in to help," he said.

"In phase two, the Government needs to step out of the way, let the recovery run and enable companies to grow again."