John Campbell interviews economist Brian Gaynor
After the 1984 general election in New Zealand, the Labour Party came into power. Within a few days of taking office, new Prime Minister David Lange announced that there would be a drastic and radical re-structuring of the New Zealand economy. This was all strange news to the electorate who had previously had no inkling that this was to take place.

Roger Douglas ( now Sir Roger) had, during the period since writing his book 'There has to be a better Way', and since presenting his 'Alternative Budget' in 1980 which drew fire from opposition Leader Bill Rowling and P M Robert Muldoon, been working with a research team on the preparation of his 51-page 'Economic Policy Package' which he presented to the November 1983 Labour Party Policy Council and to their Caucus. This document was kept very secret until the new policy was unveiled by Lange.

During the next fifteen years, under either the two-term Labour government, or the three-term National Government which followed it, about 36 Departments of State were privatised, finance and goods allowed to flow freely across the national border, a major shift in power from unions of employees, to employers was enacted, most industry subsidies and grants were abolished, and many industries which had been established to ensure national self-sufficiency in important goods, went out of business. Roger Douglas later was reported as saying (or may have written - I'm not sure at this point in time), that every one of the reforms in the Economic Policy Package had been carried out.

It was also a period of exceptionally bad and frequent failure of private business with associated unethical behaviour of directors and senior staff, to the significant loss of shareholders.

As a result, there has been a large increase in emigration of trained young people, the financial balance of payments is in very bad shape, the national average wage for employees is about half that of the USA, the worth of the New Zealand dollar against the USA dollar has nearly halved, there are very large disparities between the 'haves' and the 'have-nots' ( where there was once a more equal sharing of economic benefits), and services such as health and education are headed towards crisis both from under-funding and loss overseas of the best personnel.



John Campbell interviews economist Brian Gaynor

Recorded from New Zealand National Radio Saturday morning, 7 October 2000

(NB: John Campbell = JC, Brian Gaynor = BG )

JC: This is National Radio. We are joined right now by Brian Gaynor, and for the next half-hour or so we are going to attempt to talk about - to decipher - the New Zealand economy.

Why we are where we are.

It has been a week in which once again the economy has dominated domestic news, from stagflation, to a New Zealand dollar worth less than 40 US cents, to near hysterical discussions of the brain-drain (which oddly enough is in fact at relatively low levels at the moment and was indeed much higher during the glory days of precisely the politicians who are now tut-tut-tutting and saying the end of the world is nigh). Indeed, if this week has demonstrated anything, it is the extent to which so much of what passes - in the main-stream media anyway - as economic journalism, is in fact the thinly-disguised posturings of the same old group striking the same old poses.

Given how radical the economic transformation of New Zealand has been in the past two decades, it is extraordinary just how un-sophisticated the accompanying debate has sometimes been.

So -- into the mix this morning, and I hope he's not feeling the pressure at all, we thrust Brian Gaynor.

Born and educated in Ireland, where he studied economics, he brain-drained from there and ended up here in 1976. He became a sharebroker, rising to research manager and partner at Jarden & Co - who are now of course CS First Boston. He then became economics and business adviser to David Lange, but by this time Richard Prebble and Roger Douglas had the numbers in Cabinet, so while Lange was listening to Gaynor, no-one was listening to Lange.

Since then he has written for the NBR and is now a highly respected business columnist for the New Zealand Herald.

Brian Gaynor, thank you very much indeed for joining us.

BG. Good morning John.

JC. Can we begin with the events of the past week; the brain drain stuff, the ad. in the paper, the hysteria about the loss of young people, all that kind of stuff?

How have you assessed that as it has unfolded?

BG. Well we certainly are losing young people, and - but we have been losing them for quite some time.

The debate, unfortunately, is not very logical, and we are getting two extreme points of view.

On one side we are getting what you might say is the Business Round Table, who is taking the view that it is Government policy that is to blame and this government has been very disappointing; and on the other side you are getting a kind of a reaction that - well, things aren't all that bad - in fact some people are saying "Well, if they want to leave, why not let them leave - we don't need people who are not loyal to New Zealand?"

Unfortunately most of those have been captured by the Business Round Table, because definitely they had some role in the ad. that was the catalyst for most of the debate this week.

JC Hmm. What sort of state do you think New Zealand is in now? There are certainly a lot of doomsayers saying "The end of the world is nigh." Is it - are we as - in as bad a situation as some people are suggesting?

BG Well, let's start at what our basic problem is.

Our basic problem is that we are spending more than we are earning. It's very very simple.

In other words we are importing more goods and we are spending more money travelling overseas, than the money that we are receiving from exports or from tourists coming here. And that's a basic problem that New Zealand has had for quite some time.

The reason I see that we are - that we have got that excess of expenditure over revenue is not that we are spending too much, is that we are not earning enough. In other words our exports aren't as high as they should be - our overseas earnings aren't as high as they should be. And that really is because the business community is not creating enough new businesses, are not investing enough in existing businesses to generate those exports.

We've got exports of about $26 billion; we need about $36 billion. We're about $10 billion short - we need to increase our exports by 40%.

(Brian Gaynor confirmed he is using the USA billion meaning of 1 billion = 1 thousand million, not the UK billion which is 1 billion = 1 million million. Dollar values are given in New Zealand dollars. Ed)

And that's a fundamental problem that New Zealand has and it is reflected in the current account, or balance of payments, problem which shows that we are spending far more than we are generating in revenue.

JC To what extent is then, is this a Government problem?

BG Well I don't think it is a Government problem, because over the last fifteen years effectively business; the control of the economy has been handed from the government, to business.

I mean that was the great reforms of the Roger Douglas - get government out of - aah - the economy; no it's not totally out of the economy - but reduce the size of government, deregulate the economy, remove subsidies and grants, privatise industry, and let business run the economy - let business take the agenda.

So a lot of the responsibility is on business. But yet business hasn't made the investment.

I mean we have borrowed a lot of money from offshore, but we've put it all into property and into housing.

And that's a business decision; that wasn't made by the Government. It was made by business people and individual New Zealanders.

So I look at a lot of the problems - I don't think the Government has been perfect by any means - but a lot of the problems have to be placed fairly and squarely with the business community.

It hasn't made the investment, and it hasn't made the good decisions that would lead us to increasing our exports and overseas earnings.

JC Which raises a question, because some of these businesses, and Telecom is an example that immediately springs to mind, are making substantial profits. If the money is not being re-invested in New Zealand business to grow the economy and to create the potential for exports and greater income, where is the money going?

BG Well, Telecom is a very very good example. And we go back to the privatisation programme, which, to me, has been one of the biggest disasters that has occurred in New Zealand.

Now, I'm ...

JC Now, now ... now, is this because you take an ideological opposition to the privatisation programme, or is this because you don't think it was executed well?

BG I'm in favour of privatisation.   I'm coming out and saying that quite clearly ...

JC Right.

BG It's the execution of it.

What we decided to do, which is contrary to most other countries, we decided to do what we call a 'trade sale', in other words, sell a hundred percent of our assets to the highest bidder. In most other countries, and Australia is a good example, Government sold say twenty or twenty-five percent initially, to the public, in other words, to the man or woman in the street.

Now, by selling Telecom, mainly to two US companies, but also to a number of New Zealand business people; that company has been run for the benefit of those shareholders. In other words, they have paid out most of the profits as dividends. And those dividends have gone offshore, effectively, to the shareholders of the two large American shareholders of Telecom.

For example, the Government sold Telecom for $4.25 million - billion, sorry, ten years ago.

It's paid out nearly seven billion in dividends alone. So, in other words, it's paid out about sixty percent more than the Government got, in dividends.

And those dividends have mainly gone offshore.

They haven't really been invested - re-invested in New Zealand.

Now, Telecom is beginning to wake up and realise "Oh, we are going to have to re-invest more than we did in the past".

So they have announced a cut in the dividend and they're now investing in Australia, and if they invest successfully in Australia, they will generate income in Australia which will be returned to New Zealand.

That's a positive step, but it's coming ten years too late.

We've missed ten years of opportunity as a result of the way we privatised Telecom.

JC Can we look at how the companies who bought, in the privatisation, have benefited? There were two, weren't there. There were Ameritec and Bell Atlantic.

BG Exactly.

JC They owned a hundred percent at first and then they sold down from there.

BG They started off with a hundred percent then they effectively gave an option of five percent each to two groups of New Zealanders. One was Fay-Richwhite (Sir Michael Fay and David Richwhite), and the other was to Alan Gibbs and to Trevor Farmer. And then they sold another twenty percent to New Zealand public at two dollars per share, having bought the shares from the Government at a dollar eighty-one. So they immediately made nineteen cents - ah - profit.

That was a requirement that the Government made, when they sold the Telecom. They said "We're not going to sell to the public of New Zealand". "We're going to sell to you, and then you've got to sell some of that".

JC So, how much did they sell to the public of New Zealand - 20%?

BG Yes, twenty percent.

JC So, why didn't the Government sell the twenty percent to the New Zealand public at a dollar eighty-one?

BG Well, because the Government believed that they were going to get a higher price by selling a hundred percent to one seller. It's a - I believe it's an ideological view, that one. I mean, there is no proof over time, that that is the most appropriate way for a Government to realise the highest price for selling an asset.

Certainly, if you look at what is happening in Australia with Commonwealth Bank, the partial privatisation - say selling twenty-five percent then another twenty-five percent then another twenty-five percent, then finally the last twenty-five percent; has proved to generate a far higher price, for the Government, than selling a hundred percent at the beginning.

JC So this is the difference between how the Australian Government has privatised and how the New Zealand Government has privatised.

BG Exactly. Yeup. And the difference is that the Australian Government sold to the ordinary guy - the man and woman in the street. So when the dividends were paid out, and when the share price increased, as a result of the benefits of privatisation - and there are benefits from privatisation - the benefit from that went to the ordinary shareholders - and one million plus shareholders in Australia; whereas the benefits of our privatisation went mainly to two large American companies, and their shareholders who are based in Baltimore, Chicago, Pittsburgh and New York; and to four New Zealand businessmen.

So the end result of it was, that Armitec and - um - Bell Atlantic have totally sold out now, of Telecom, and they both made about 3.3 billion clear profit; cash profit, not taking into account any dividends they received; and the four New Zealand businessmen, Sir Michael Fay, David Richwhite, Alan Gibbs and Trevor Farmer, have made about a hu - seven hundred and fifty million dollars in cash, not including the dividends that they received.

So there has been a total realised cash profit of in excess of seven billion New Zealand dollars, has gone to those people and they are now completely out of Telecom.

JC That is over and above the original purchase price - that the New Zealand received, of 4.25 million.

BG That's right. That's a clear profit, that's a profit; not what they realised. It's the actual profit.

JC So they considerably more than doubled their money.

BG Oh yes. Far more than doubled it. Yes.

JC In - in the space of what - eleven years.

BG In the space of - well, no, they were mainly out two years ago, so they finally sold out in seven - '98 - '99, so the space of eight of nine years - they - um - they probably tripled their money. I'm not including dividends, in the figures that I'm giving you. I'm just talking about pure capital profits.

JC Can we go back to the sale at the time. Richard Prebble was Minister of SOE's at the time. He said, and I quote "The sales process has been extra-ordinarily competitive, and the Government has achieved an absolutely top price for the taxpayer".

In hindsight, that comment must appear preposterous.

BG It was preposterous. It was a preposterous statement at the time. But it came from a very narrow view. He didn't see - aah - the boom in telecommunications that were about to occur; he didn't see the internet, he didn't see the boom in technology that was coming into the industry which made it far more cost-effective, in other words we've actually seen Telecom make huge profits even though as we all know, to call New York, or to call the UK is far cheaper than it was many years ago.

He said that on the basis of not having a really strong vision of the future prospects of the telecommunications industry.

JC Brian, at this stage people who favour privatisation will be yelling at the radio "But, it was because Telecom was privatised that they were able to do this". In other words, had the Government continued as the owner / manager / operator of Telecom, it would still be the same terrible old dinosaur that we used to have to wait six weeks to have a - to connect our phone. The private sector runs companies like Telecom better, ergo, the profits are higher.

BG I can't fully agree with that, because what was happening - there was a whole revolution in the telecommunications world-wide; and if you look at some of the telecommunications companies in other countries who weren't privatised - for example Telstra was only privatised about four or five years afterwards. Telstra made huge progress as a Government-owned; an Australian Government owned telecommunications company between 1990 and 1994, I think, when it was privatised. So we were seeing a revolution in the industry world-wide. And Telecom could have, and probably would have been able to take advantage of that.

Look at New Zealand Post, for example. New Zealand Post has never been privatised. It is one hundred percent owned by the Government.

Yet, New Zealand Post is a totally different business today, than it was ten years ago. I mean, you go into a Post Shop now and you can buy all kinds of things, they are entrepreneurial ...

I mean, I agree with privatisation, I'm not against privatisation, but I would prefer to have kept the benefits of privatisation within New Zealand, and to have distributed it to New Zealanders in general, rather than to have gone to the shareholders of an American company based in Chicago, Pittsburgh and Baltimore.

JC Can we go back then to our balance of trades - Balance of Payments deficit, and the fact that we are sending more money offshore than we are receiving into New Zealand.

To what extent are dividend payments to the owners of companies that the New Zealand Government and the New Zealand people once owned, contributing to this problem?

BG A major - I haven't got those figures with me today, but they certainly are a major contributor. I can't remember the figures, but I think out of the deficit of about 7.1 billion at the moment, about one and a half billion of that - ah - is dividends that are going from New Zealand to the overseas owners of New Zealand companies.

So it does represent a substantial proportion, and the irony of it is, that if the New Zealand economy does pick up, and if therefore company profits increase, and dividends increase, that takes a negative factor on our Balance of Payments, so in other words our exports really have to pick up quite dramatically to compensate for that. We really need a substantial increase in exports. And when I talk about exports, I'm talking then in general terms of anything that earns overseas revenue.

It could be a New Zealand company that's acting as a consultant engineer in Hong Kong and is earning money because of that and bringing the money back to New Zealand. We have to generate far more overseas revenue from our business activities.

JC Was it a faulty construct in the beginning then? Why did it never occur to anyone that if we divest ourselves of these companies, and these companies are phenomenally successful, and their owners are predominantly foreign, the money will leave New Zealand, thus creating a Balance of Payments problem? Did we not think about that?

BG I think we have - the whole thing about the economic reforms over the last sixteen years, there was one huge basic flaw to them.

Now, I'm not opposed per se to the economic reforms, I think about fifty percent of them were justified and warranted, but there was a belief that - if I can explain it in simple terms - there was two sides to the economic refirm - reforms.

There was a belief there was a lot of inefficient New Zealand industries. So what you did is by removing tariffs and barriers you - you made them efficient or they disappeared. And we were very successful at doing that.

We either made existing companies efficient or they disappeared. And we know about the textile industry and the car assembly industry - a lot of them have disappeared.

That was one side of the economic reforms.

The other side was, that once you did that, business would generate new businesses in New Zealand. All the capital and all the people who were employed in those old businesses that were restructured, would go into setting up new businesses. Our money would be put into existing businesses that were stronger - internationally competitive.

That second half of the equation, hasn't worked.

Hasn't worked at all.

So in actual fact, as part of the reforms - we actually got rid of a lot of industry, but we haven't built the new sunrise industries to compensate them.

Now, the feeling was, with privatisation, that it didn't really matter if we sold the companies off, to overseas owners. That New Zealand businessmen were going to create all these new businesses in New Zealand, and they would be the businesses that would create the kind of job opportunities for the young people who are now leaving - which is what the debate is about this week. But, businesses haven't created.

JC Why haven't they?

BG Well, lets talk about why they haven't. I mean a good example is - is a nub. And this is a question that needs to be put to the Business Round Table.

Why is it, that some of the leaders of the Business Round Table - and I'll mention some of them - David Richwhite, Alan Gibbs, Charles Bidwell; who have made an awful lot of money out of the privatisation, have left New Zealand and taken their money with them. Why have they not reinvested that money in New Zealand businesses, because after all most of the policies that have been implemented over the last sixteen years are the very ones that they promoted and - and, you know, were in favour of.

Well, I believe that the reason that we are not getting the new businesses, is that ... our policies are too ideological.

They are based on the fact that the Government shouldn't have any role in creating new businesses. Roger Kerr will argue that the Government can't make winners, and if it kind-of subsidises one kind of industry against another, it's taxing the good industries to find new ones.

But the reality is, everywhere else around the world, governments are giving incentives - whether they be tax breaks for research and development, or grants, or subsidies; to attract businesses, and it's an international competitive marketplace. The irony about all this deregulation is, that anybody can go anywhere, these days.

And New Zealand is purist. Very ideological. It won't offer anything to anybody.

So therefore, if you are a managing director of a company, and Motorola was a classical example recently, and you've got New Zealand which is quite attractive - it's English-speaking - it's got a lot of things going for it -

JC Your money would go a long way if you were a foreign investor in New Zealand -

BG Exactly. Your labour is now extraordinarily cheap. But if the Australians are offering you incentives, and the Irish are, and the Singaporeans - and the United States - it's a fallacy to say that the United States doesn't - every city in the United States offers some kind of tax breaks or incentives or rate reductions to attract businesses to it. You are going to go to the countries which offer you the better deal.

And New Zealand is purist; it won't offer any deals.

Even New Zealand businessmen are leaving because they are offered better deals elsewhere.

JC There is a profound paradox here and that is that at the moment there is a clamour to attract overseas investment. We must get people putting money into the country. And yet it seems paradoxically exactly the same ideology would not allow the Government to do anything, to work, to attract that investment.

BG Yes, I think that's the whole irony, say for example, about this week, and the ad., and the - the support that the Business Round Table gave. One of the reasons that people - young people are leaving, is because there isn't enough companies, and there isn't enough businesses growing in New Zealand to offer them the kind of job opportunities.

Now, the Round Table seemed to be giving some support to this advertising campaign. Yet a lot of people - certainly I - would argue, that one of the reasons that we are not having these businesses, is because of the policies of the Round Table. So at one stage you have ... ...

JC Can you explain the cause and effect there, because it's a - it's a - it's a complex issue ... ...

BG It is complex ...

JC In what way is there a causal relationship between what you see as the policies of the Round Table, and the departure of these young people in the past?

BG Well the Round table is totally opposed to giving any grants, subsidies, assistance - ah - to businesses; Government giving any kind of subsidies 'n grants and businesses. Yet around the world most governments do that, and businesses are attracted to where they are given the most subsidies, grants, - ah - tax breaks - whatever you like to call it.

So we are not attracting businesses, because we are not offering competitive deals to companies.

And the Business Round Table is very much in favour of that kind of policy which is a flat playing field, not giving any kind of grants.

JC And yet it seems a truism - that we must have attracted them - I mean we have talked about the Telecom example - Ameritec and Bell Atlantic. Let's look at Air New Zealand, lets look at New Zealand Rail. We did attract them - they did come here.

BG I'm talking really - I mean, when we talk about foreign investment, we've got to be careful to divide the two different things.

There's foreign investors coming in, buying existing assets; which is quite different to foreign investors coming in and starting off new businesses.

JC And that's what we need.

BG That's what we need. I mean, we - we - we got it, really, in the wrong way.

I mean it's very easy for someone to come in and to buy Telecom or Air New Zealand - you've got a - a - a set-up infrastructure, .you've got a - the company's already established, they were able to buy them quite cheap because we sold most of them after the sharemarket crash, when there was no New Zealand companies with any money who could buy them.

And, that's a totally different thing to, what, say, happened in Ireland, where the total policy is to encourage new companies to come in to set up green-field operations. In other words they set up a factory where a factory didn't exist before.

We've got companies coming in buying Telecom which was already there.

And buying Air New Zealand which was already there.

Other countries have got a very pro-active policy to attracting companies to come in to set up new industries and new operations.

So yes, we've had plenty of a - investment through the sharemarket, and through the asset sales, of the Government, but we haven't had them setting up green-field operations. We don't have a Microsoft, an Intel, a Pfizer, a Dell Computer; none of those operate in New Zealand. Yet if you went to Singapore or Hong Kong or Ireland or Finland, all those companies - not all of them - but many of them have got manufacturing plants employing huge amount of people, paying them very high wages, and exporting huge amount of products from those plants. Which is of benefit to those other countries.

We've missed that.

And the relationship between what's happened this week and, you say, the Business Round Table policies, is, that the countries who have attracted the Dell Computers and Apples, and Intels and Microsofts, are those who have offered incentives to those companies.

And, the young people, living in the countries where those plants are being set up, aren't leaving, because they have got very exciting job opportunities. To work for Microsoft and to get a Stock Option, in Microsoft, is a very attractive deal. Everyone is climbing over each other, in Ireland, say for example, to work for Intel or Microsoft, and they're not leaving.

We don't have any of those in New Zealand.

And one of the reasons is, because we won't give any incentives or any grants. And that's a policy where the Business Round Table has rigidly adhered to.

JC Can I suggest to you that some people listening, are going to think that you are stating the equivalent of saying the world is flat. That what you are saying now, is in some respects going to be regarded as a Luddite economic philosophy.

That the 'New Right' (and that's a term the Business Round Table rejects), but let's use that term because we all know what is meant by it, have so appropriated - have so captured - economic ideology, have so re-invented and re-defined it, that no-one's talking like you anymore?.

BG I agree with that. I even think that this Government is interesting when you listen to Michael Cullen making a speech; he defends a lot of the kind of policies - he talks about "We will continue to have a Government surplus, we will have the Fiscal Responsibility act, we're sticking with the Reserve Bank Act ... ".

Um - we are really locked in to a set of policies - a lot of them which are very good - don't get me - get me wrong on that - but are strict adherence to the ideology. And the refusal of a lot of people to accept that we can do something different, and be a bit more flexible and realistic, is really ham-stringing us very badly.

I mean, when I go overseas, and you go back to Europe, and you try to explain some of the policies of New Zealand, they look at you and thi - they can't believe that we can take such a rigid attitude.

You know, for example, in some of the countries in Europe where they have very pro-active Government policies, to encourage overseas companies to come in, ...

JC Give me an example of a country ...

BG Well, I guess Ireland is the example's to one I know most of, because I'm originally from there ...

JC You left Ireland in '79, right?

BG 70 - no, I left in the early 70's - it took me about six years to get here - to get to New Zealand.

JC When you left Ireland, without overstating the case, it was one of the basket cases of the entire European economy, wasn't it?

BG Entirely, and it had a very similar attitude towards New Zealand.

Most of the money invested was invested in property, very little was invested in manufacturing operations, and the Irish Government realised that the Irish businessman, he neither had the expertise, nor the skill, nor the capital, to kind of create a modern Irish economy. So what it did was, it concentrated on trying to get some overseas companies to come in and set up green-field operations. Not to buy existing assets - to - to set up green-field operations.

And Ireland is now full of companies like Dell Computers, Microsoft, Intel; and it did that by creating incentives and grants.

JC Right. Can we compare, then, the most obvious manifestation of the success of these policies.

The New Zealand sharemarket, and the Irish sharemarket. And I guess this is a difficult question to ask you to do.

Look back to the 70's, the value of the New Zealand sharemarket versus the value of the Irish sharemarket. Have you any idea of what the comparative values were?

BG Yes, I can tell you about 1985; the figures were; at the end of 1985 the value of the New Zealand sharemarket was nineteen billion New Zealand, and the value of the Irish, was two. So the New Zealand sharemarket was nine times bigger than the Irish sharemarket.

JC Right. Since 1985, we've had fifteen years of ...

BG Economic reform.

JC Economic reforms?

BG The value of our sharemarket yesterday was approximately forty-five billions,

JC That's from nineteen to forty-five billions?

BG Yeup.

JC The Irish sharemarket?

BG The Irish sharemarket is about a hu - last week it was about a hundred and fifty-five billion New Zealand, so

JC So we've gone from 19 to 45 billion, they've gone from 2 to ...

BG 155 approximately.

and when you look at - I mean you have to judge economic policies on their performance.

You know, there are certain things that you evaluate them.

You evaluate them on economic growth, you evaluate them on export growth, you evaluate them on the performance of the sharemarket; and on all the measurements that you use, umm - you know, the New Zealand economy has performed very badly.

And I'm always reminded of a speech that Doug Myers made in 1995, to the Institute of Directors. He said " It's never been better in New Zealand. We've had exactly the policies that we wanted, businessmen have never had such freedom in my time in New Zealand, and if it doesn't work, it's businesses' fault".

That was in 1995, Douglas Myers said that.

And I'm not saying that business is totally to fault, but I do think that you have to point a lot of fingers at the failure of us to create the kind of economy that we all want, has got to be pointed at Business.

Business has not done a good job in New Zealand.

JC And in part, and it seems to me, in significant part, it's because the profits Business has made, substantial in many cases, have gone overseas.

BG Yes it has. But it has also been some very poor governance in companies. We all know what happened in Brierleys, and the Robert Jones's, there's been some shocking governance.

And some very poor decisions at - at - board decisions - by - by - there.

JC When did you arrive at this theory, because you were a sharebroker. You were a partner at one of New Zealand's leading sharebroking firms.

You would be expected, if one worked in terms of clichés and stereotypes, to be saying precisely the opposite of this, Brian, I would have thought.

How did you come to this opinion?

BG Well, my opinions came, really, in the 1980's. I mean, I was in sharebroking.

And what happened with the de-regulation of the economy; effectively the Government said "We're stepping back, and we are handing the control of the economy over to business. It's up to you. We're de-regulating - removing all foreign exchange controls and all that kind of stuff."

And then we had this massive sharemarket boom, during the 1980's, where businessmen had the opportunity to be real leaders, to really set high standards.

Instead of that we got some of the greatest shenanigans that any country has ever seen - in terms of terrible accounting standards, companies being floated to the public which were really stack of cards, umm - shonky deals done between company directors and the companies to the benefit of directors ... ...

And we had New Zealanders put their faith in the business community, the business community getting the freedom for the first time, but putting no self-control on the situation ...

And New Zealanders put about five billion into the sharemarket in the 1980's, most of it which absolutely disappeared.

We had 300 listed companies at the end of 1998 (Brian Gaynor confirmed that he meant 1988), and 150 of them went into receivership. (Does he mean 1988 ? Ed)

And who did that?

It wasn't the Government that put them into receivership.

It wasn't poor Government policy.

It was very poor decision-making by businesses.

That's in the '80's, and I know that.

But we haven't actually made - we've improved since then, but we haven't made the steps that are required, since then, to improve the performance of business and the economy.

JC One of the things we were going to do with the Asset sales, was to pay off New Zealand's overseas debt.

It was 46 billion in 1989, in total it is now around a hundred billion now.

It's more than doubled. Why?

BG Well, what the Government did, is the Government did repay it's portion of the debt. I can't remember exactly the figures, what they were back in - in - ah - 1985, but the Government had about, I think, 35 billion of overseas debt, and the private sector about 10 billion, so that made up over 46.

Government debt is now about only 19 billion, private sector debt is 81 billion, that's the amount of money that the private sector owns. ( ? owes? Ed.)

This is one of my criticisms of the business sector.

What did the business community do with that extra 70 billion effectively that it has borrowed over the last ten or fifteen years?

JC What did they do with it?

BG It's mostly gone into property.

It's gone into residential housing.

The banks were one of - some of the major borrowers. And the banks have been very conservative when they lend to businesses.

I mean they demand a higher level of security than they do in most other countries, and because a lot of businesses don't want to - business people don't want to mortgage their house, ah - against - ah - the bank - their preference is not to set up a business. So people have borrowed to put it into residential housing.

So - the problem with that is, that we still have to repay the loan, but we are not generating the exports, because houses don't generate any exports; and commercial properties at the bottom of Queen Street ( the main street in central Auckland. Ed.) don't generate any exports.

JC We have got two and a half minutes. There's two things I want to get through, very quickly.

When you left Ireland as a young man, you complained about the religious zealotry of the place; the blinkered, singular philosophy, of life.

You've subsequently said, you left Ireland to get away from that, you've found it in New Zealand in a secular sense, in terms of our economic ideology.

Is that a fair paraphrase of what you've said?

BG Yeah, I never thought I would see - I mean the thing that attracted me to Australia and New Zealand - I lived in Australia for quite a few years - was in fact the open-ness, umm - the tolerance of different points of view. Umm - the lack of ideology - ah - which was part of that Irish upbringing - particularly the religious sense.

It does disturb me, the fact that New Zealand has headed down that kind of economic ideological route - and you know - but you remember probably back, John, in the early 90's that - um - Ruth Richardson used to talk about TINA "There is no alternative".

JC It was - I was in Press Conferences and things then

BG And it's still - um - the kind of view that's held by a lot of people - there's no alternative to the way that we have gone over the last - um - sixteen years.

But yet, other countries have taken different routes, and have proved to be far more successful than we have.

JC Right. In very short terms. What should New Zealand do?

BG Well, there's two things it needs to do more than anything else.
One. Is it has to have a savings scheme, and we haven't touched on that. But that's a savings scheme, whether it be - um - tax incentives or compulsory - and you know, Michael Cullen's going to announce something next week I think . But the
Second thing, it has got to attract overseas businesses to New Zealand. Green-field businesses. Because I don't think the New Zealand business community itself can generate the type of revenue or income or robust businesses to get this economy to the level that most of us want it to.
So we need to attract the Motorolas, the Intels, the Pfizlers - even Australian companies - Pacific Dunlops or whoever may be, and we need to find ways - I'm not saying that it's all subsidies or grants - but we have to find someth - we have to sell ourselves.

We don't even sell ourselves.

We don't even tell people that we are a good country to come and set up new operations in. We are beginning to do it under this Government, but it's going to take a long time.

I think it needs to commit more resources to that.

JC Brian Gaynor, it's been a fascinating half hour. Thank you very much indeed for joining us this morning.

People who want to read you can do so in the New Zealand Herald, can't they?

BG Yes they can, yes.

JC Brian Gaynor - economist - and a man - um - who - ah - has been a fascinating and - um - a - illuminating guest. The time on National Radio is ten o'clock.
ENDS. Broadcast 33 minutes 18 seconds.

Contact me here, at bj@caverock.net.nz

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