The thing I wonder/ worry over more is the extent to which NZers themselves will be the ones prospering. The processed/ manufacturing food industry is already one in which rates of international/ foreign ownership are extraordinarily high. Basically Fonterra is an outlier here. I will trawl around at some point to find the graphs which shocked me on this point in 2007.
The other thing is that on a global scale the extent of our invaluable good soils/ productive crop and farmland areas are not large: go have a look at a map of the dairy industry, for example, and realise how fragile territorially we are there. By comparison, the budgets of those looking to corporatise primary aspects of production here — along with assets/ land — are enormous. I predict that within 15 years, short of protective action in this area, 40% of dairy and related land with be owned offshore, and selling commodities through corporate value chains which don’t send much at all back here.
The issue of foreign ownership is, I think, one we’ll have to talk about to some extent in the Progressive Path to Prosperity work topic.
I did some number-crunching recently, originally spurred by a comment-thread discussion involving Matt Nolan and Achela about terms of trade and the difference between national income and domestic product.
Take a look at this graph:
Source: National Accounts of OECD Countries: Detailed Tables, Volume II, 1996-2007, 2009 Edition
You can see, especially in the trend-line, that New Zealand’s Gross National Income has fallen pretty consistently as a proportion of Gross Domestic Product since 1970, from 98.8% to 92.5%.
To understand the significance of that, it’s necessary to explain the difference between GNI and GDP. For this, we can turn to the OECD’s Understanding National Accounts:
GDP measures the total production occurring within the territory, while GNI measures the total income (excluding capital gains and losses) of all economic agents residing within the territory (households, firms and government institutions).
To convert GDP into GNI, it is necessary to add the income received by resident units from abroad and deduct the income created by production in the country but transferred to units residing abroad.
The publication then gives some examples:
For large countries like Germany, the difference between GDP and GNI is small . . . But it is larger for a small country like Luxembourg, which pays out a substantial percentage of its GDP as workers’ earnings and other so-called “primary income” to the “rest of the world” . . . Primary income includes interest paid on money invested in Luxembourg . . . Ireland is in a comparable situation to Luxembourg, since it pays out substantial dividends to the parent companies of the American multinational firms that have set up there, partly, but not entirely, for tax reasons.
So what that means for New Zealand is that our net “primary incomes” payable to the rest of the world (such as interest and dividends) have increased from 1.2% of GDP from 7.5% of GDP.
How does that compare with other countries? I’ve selected a handful:
Source: National Accounts of OECD Countries: Detailed Tables, Volume II, 1996-2007, 2009 Edition
As might be expected based on the earlier OECD comments, Ireland’s decline in GNI/GDP has been sharper and steeper than New Zealand’s, and from a higher starting point. Australia’s trend parallels New Zealand but is more gentle. The United Kingdom’s ratio has risen above 100% in the last decade, for the first time since the early 1970’s. And, interestingly, the now-beleaguered Greece consistently had a ratio of over 100% until 2003.
Neither Greece nor Ireland’s current predicament would be an attractive fate for New Zealand. Can we see the fall in their GNI/GDP ratios as some sort of precursor to that? On the other hand, the similarity between New Zealand and Australia, who we don’t generally perceive as having a ‘foreign ownership problem’ is perhaps a bit of a surprise.
These figures and their implications are worth looking into further, I think.
To put my cards on the table regarding this topic, I’ve always tended to be something of a ‘free-trade progressive’. In this, I’ve been reassured by the example of Scandinavian social democracy which, even in the heyday of protectionism, combined a generous welfare state and a significant degree of industrial democracy with an expectation that their exporters should foot it on the international stage without tariffs or subsidies. And along with this, my tendency has also been to see foreign direct investment as something to be sought after (within reason) rather than something to be scared of.
Going into this Progressive Path to Prosperity topic, however, I want to have an open mind. And I do confess that the prospect of foreign investors having claims over an increasing amount of our productive capacity seems like something that, to say the least, is not sustainable indefinitely.
What’s your view? Are these steadily increasing “primary incomes” something we should be worried about? Is foreign ownership a threat to our economic sovereignty? Or do progressives need to get over their aversion to foreign investment and accept that foreign capitalists are no worse than domestic ones?
