Latest G10 Macro Rates Blog
With Shayne Dunlap, Co-Portfolio Manager
Is this the direction for western economic policy of the near future?
New Zealand’s Prime Minister Jacinda Ardern has recently announced a new budget policy called the “Wellbeing Budget”. It sets five priorities focusing on living standards involving human, social and natural capital.
From a country ranked 53rd on the IMF 2018 GDP list, this barely raised an eyebrow at Davos 2019, where it was unveiled by the NZ Finance Minister Grant Robertson. However, it may be worth a closer look, especially when details are revealed in NZ’s budget due May of this year. For example, the budget will measure and report a broader set of indicators, such as child poverty and housing quality, to show a “more rounded version of success”, alongside the more traditional GDP growth. Homelessness, youth suicide rates and levels of mental health will likely be incorporated. It’s about bringing kindness and empathy to governance and embedding it within the process. It may all just be political promise with very little practical policy doctrine attached. It is worth noting that New Zealand has previously been a global forerunner. It was the world’s first in granting women the right to vote in 1893 and one of the first to introduce a full life social welfare system in 1938. Its Central Bank the RBNZ was the first in following a mandate of price stability (inflation targeting) in 1989.
In 1984 New Zealand dramatically deregulated its economy. Slashing protectionist tariffs, and then floating the currency in 1985. This evolution to a freer market economy had lower taxes, but with it, abrupt cuts to the social safety net. New Zealand’s economy had to react quickly, less manufacturing, but more focus on services, tourism and exports. Because the reaction function is so much faster in its small open economy, it has been perceived as a petri dish by many market participants. This is what makes the latest announcement so interesting. One could argue that these focuses have been in place within the Scandinavian nations for some time, with associated good “happiness” rankings. But this is the first time we have seen this policy change in a western open market economy that has been at the vagaries of the recent economic cycles. Making it a potential leader for a sea change to freer fiscal budgets elsewhere under a “wellbeing” mantra.
Interesting that this comes at a time where the Wellcome Trust is considering a permanent 4-day work week, and increased news bytes regarding “purpose not profit motives” and “social entrepreneurship representing the next evolution of capitalism”. This trend is not a passing fad either, for instance, the socially responsible investing (SRI) market has risen 200% to $22.89 trillion in the 10 years to 2018.
I don’t profess to know the future, but I do predict that the austere reaction to budgets in the last global economic downturn may have a significantly softer edge in the next.
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