Economic recovery can create something better

In Covid-19 recovery we can recreate our economy as it was, or future-proof it against climate change and make it environmentally sustainable.  In doing so we can lift productivity and move closer to the world’s technological production possibility frontier.  This can lift wider wellbeing, including from value that is not priced and exchanged in markets.

Covid-19 is a massive economic shock within a short timeframe and with far-reaching effects.  Climate change is abstract, appears distant in time, and doesn’t emote a pandemic’s visceral imagery and burning platform immediacy.  It will be more devastating and expensive to counter even than Covid-19, and play out over a longer time.

We are recovering from a global natural disaster, not from the Great Depression.  Fiscal expansion should not focus on getting people spending for its own sake.  We will recover from Covid-19 through investing in the economy’s wealth-generating capacity, not through austerity that takes more than it gives.

Transitioning to a low net GHG and environmentally sustainable society requires public investment, regulatory change, and private sector delivery.  This will lift productivity if interventions upskill workers, and if we grow outwards-facing technological capabilities that are anchored in New Zealand firms.

If recovery is to be transformative as well as remedial, it means that when for example we insulate houses, build wind turbines or develop distributed energy systems we need to also:

  • Upgrade skills that are transferable so workers can adopt or create new technology and enhance workplace productivity
  • Build capabilities as close as possible to the international technological leading-edge
  • Anchor advanced capabilities within New Zealand firms to contribute to their future productivity and competitiveness

Recovery and transformation must be both labour intensive and skill uplifting. This does not mean using technology to destroy jobs.  It means extending current skills to increase the tasks a worker can perform, rather than eliminate workers from task performance. For example, electrical skills for built environment applications can be transferred and applied in future to wind turbine, EV, energy storage and distributed generation developments.

Government procurement gives scale, stability and predictability over timeframes that give firms confidence to invest.  It can ensure that New Zealand firms develop the technologies and capabilities to help the economy diversify and become more knowledge and skill intensive, and that these capabilities are both anchored in New Zealand and looking outwards to international markets.

Initiatives within this strategy might include:

Energy-efficient and sustainable built environments

 New housing development should drive adoption and mainstreaming of international sustainable building and energy management technology.  For example, German passivhaus (passive houses) can generate and feed into the grid more energy than they consume.  Housing development is labour intensive and can also extend skills to the international frontier.  It can engage many different firms and skillsets, with deep linkages and multiplier effects throughout the economy.

Existing housing and commercial and industrial buildings can be retrofitted with better insulation, double-glazing, solar water heating, LED lights and heat pumps. This would improve energy efficiency and deliver healthier indoor environments, while fostering technology adoption, skills enhancement and workplace productivity.

 Multi-storey buildings can be made from engineered wood products rather than steel and concrete.  They can deliver superior earthquake resilience and fire resistance, while sequestering carbon.  New Zealand is already technologically advanced in wood engineering, and mass adoption of this technology can lift radiata into higher value markets.

Transport system transformation

Road infrastructure spending is subject to long lag times.  It is capital rather than labour and skill intensive. It has weak backstream economic linkages and therefore low multiplier effects. It would not be a strong economic enabler because roading is already well developed, and at least in the short to medium-term Covid-19 takes pressure off roads due to its impact on tourism and on non-citizen inwards migration.

Railways are capital-intensive and inflexible.  Our geography and low population are constraints.  However, rail freight can take pressure off some roads, with safety and other benefits.  Existing urban rail services can be upgraded.

The big transport sector advances will be mass adoption of EVs, and supporting infrastructure such as a nationwide recharging system.  Mass EV adoption would save New Zealand billions a year in oil imports, and could be enabled through distributed generation.

Sustainable energy and distributed generation

New Zealand has among the world’s highest per capita endowments of renewable electricity.  This includes hydroelectricity, wind, geothermal and solar.  It underutilizes these resources, and squanders them through poor building energy efficiency and transmission losses.

More supportive rules are needed for wind power, photovoltaics, solar thermal, distributed generation and energy storage systems to smooth out generation intermittency.  This might include building regulation changes, feed-in tariff rules, and facilitation of lines companies’ innovation to support distributed generation.

Sustainable development of food and fibre industries

New Zealand’s food and fibres industries must help drive our economic (including regional) recovery and our climate change and environmental sustainability transitions.  They and their regional communities must be respected for this.

Pandemics are “zoonotic spill-overs” that arise from human-animal interactions, especially in densely populated countries with poorly regulated and unhygienic “wet markets”.  We have high animal health status, and freedom from many diseases common in other countries.  Our free-range farming systems, and our lack of dense, unhygienic contact between humans and intensive factory farming systems creates competitive edge internationally for our pastoral industries.

Carefully planned multi-functional dams can deliver hydro-power and amenity values as well as drought-proofing farming against climate change impacts.  Pyrolysis bioenergy can deliver co-benefits such as carbon sequestration in soil, reduced nitrate water pollution, and productivity gains.

We should foster clusters around our core industries, and support spin-offs from them such as knowledge and skill-intensive manufacturing, servicing and digital businesses.

We have strong food safety and biosecurity capabilities that support international food and fibre trade.  Covid-19 means countries will demand more surety in tracking supply chains and managing future biological risks.  This can create opportunities for us.  We can become a world leader in border control as it relates to tracking and tracing biologics, whether food, pests or viruses.

Medsafe is a world leader in tracking pharmaceutical supply chains.  Its capabilities have affinities with those we’ve developed for food safety and biosecurity.  Such capabilities require fidelity, verifiability, cross-border credibility, customer and regulatory compliance.  They are digitally-enabled and may increasingly use blockchain and AI technologies.

Increasingly these capabilities, and testing, monitoring and verification technologies can be applied to risk profiling of cross-border trade between countries with different food safety, biosecurity and human health regimes and different sociological structures.  For example, NBER research suggests that Facebook can help track correlations between coronavirus spread and social networks, potentially helping to predict pandemic pathways and manage them better (NBER Working Paper No. 26990 April 2020.)

Niche knowledge-intensive manufacturing and services (including digital) businesses

Covid-19 will see countries stepping back from value chain globalisation to secure pharmaceutical, medical equipment and other supply chains.  This may close off some opportunities for us, and create new ones.

We can carve out niches in medical services, and in high value biochemical development, akin to the niche Fisher and Paykel Healthcare has developed in medical electronics.  Malaghan Institute’s Graham Le Gros, supported by credible academic experts, suggests New Zealand should develop its own vaccine capabilities.

It is up to businesses to see the opportunities and exploit them, and government should foster the “general purpose technologies (GPTs) that underpin them, and perhaps identify “opportunity domains”.

For example, GPTs such as electrical, electronic and digital technology are enablers for sustainable energy, industrial processing, transport, agricultural and forestry equipment and drone technology.  An “opportunity domain” might, for example, be “distance industries” – online learning, remote monitoring, drones for environmental protection, search and rescue and fisheries surveillance.

Digital technology can overcome our scale constraints and turn them into advantages.  For example, 3D printing technology makes small-scale flexible manufacturing viable – akin to the advances we have made in the past in variable speed drives and flexible production systems.

Unpriced and non-market goods and services

We should also reflect on what we live for, as well as how we make our living.  While social media can waste time and polarise, it enables social connections.  It also delivers “cultural consumption” goods such as through Youtube that are not valued in GDP, and yet they mean a lot to people.

Our recovery can create space for a less material consumption and market transaction-based society.  This means valuing more non-material and non-market “goods”, services and experiences. These include green space, children’s play and adventure grounds, clean rivers, beaches, forests, mountains, tramping and mountain biking amenities.  It includes rare birds again in our gardens, relationships flourishing, and memories of good times we’ve had, including when we were “poor”…

About Peter Winsley

I’ve worked in policy and economics-related fields in New Zealand for many years. With qualifications and publications in economics, management and literature, I take a multidisciplinary perspective to how people’s lives can be enhanced. I love nature, literature, music, tramping, boating and my family.
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