The Post: The economic recovery should start at home

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“I care little for the mere capitalist.” Such were the stark words of John Ballance, newly elected prime minister in 1891, as he faced down parliamentary criticism of his economic policy.

He told the House: "I care not if dozens of large landowners leave the country. For... the prosperity of the colony does not depend on those classes. It depends upon ourselves, upon the rise of our industries and upon markets being secured in other countries, and not upon any such fictitious things as large capitalists or large landowners remaining in or leaving the colony.”

History, as they say, doesn’t repeat but it does rhyme. And it’s hard not to hear echoes of that century-old debate in our current politics.

Last week’s much-touted “investment summit”, in which the Government sought foreign investors for our infrastructure projects, cemented an impression I had long been forming. Too much of the coalition’s economic pitch, I think, consists of this point: “We need overseas heroes to save us.”

Of course that’s not all there is to it. Reforms in schooling and land zoning, for instance, will lift skills and help shift investment away from residential property.

Nonetheless the appeals to foreign investors are constant. It’s not just the investment summit: we’ve also seen visa reforms for overseas financiers, changes to the Overseas Investment Act, and a drumbeat of support for public-private partnerships.

Foreign investment makes good sense where it brings otherwise unobtainable skills and knowledge into Kiwi firms. But that’s not what will necessarily result from reforms that allow overseas investors to just park their money in government bonds. Foreign investment can also see profits sent offshore, or control of strategic assets lost.

Nor are those investors a magic money tree: they always have to be repaid somehow. And if, as is generally the case, they face higher borrowing charges than do governments, we’ll end up paying more in the long run.

Such deals make even less sense when – as Kiwibank’s Jarrod Kerr points out – the government could double its currently low debt levels without troubling the markets.

National is, more generally, prone to implying that our economic success hinges on a handful of “self-made” entrepreneurs. All of which creates an opportunity for Labour. To draw a contrast with this adoration of millionaires, the party could rest its faith on something humbler and more home-grown: the country as a whole.

What if, after all, we slashed our child hardship rates, currently sitting at 13%, to just 4-5%, as in the Netherlands and Finland? Socio-economic status, the evidence shows, is by far the biggest factor in school attainment. It’s hard to succeed in a cramped, dangerously mouldy house, with insufficient food and nowhere quiet to do homework, and with parents experiencing the toxic stress of unpaid bills piling up.

Just think how many more entrepreneurial talents we would unleash if we lifted all those children out of poverty. Think, too, how many more world-leading companies Kiwis would launch if the government doubled funding for blue-skies research and development, lifting it to the OECD average.

Think, finally, of all the extra people who could contribute economically if we provided better skills training for welfare recipients wanting paid work. This is, again, an area where we spend half as much as our developed-country counterparts.

The prize, in short, is an economy based on backing one another, on believing that if we invest enough in the vast mass of ordinary New Zealanders, innovation and dynamism will spring up. This is what Ballance meant when he said our economic future depends “upon ourselves”.

You could call it investing in people; some call it bottom-up or middle-out economics. It’s an approach that doesn’t close the door on beneficial foreign investors, but which holds that the largest difference will come from uplifting the people already here.

Where would we find the money to invest in ourselves? Close to home, again. We could build pools of national wealth through a Kids KiwiSaver scheme, in which the state enrols every child at birth and matches small contributions from parents. We could increase adults’ KiwiSaver contributions. Or we could, as Winston Peters suggests, create our own sovereign wealth fund.

Speaking of New Zealand First: a little bit of progressive economic nationalism – as opposed to the ugly Trumpian kind – would help Labour cosy up to Peters’ party, should it want more potential coalition partners.

Could this agenda succeed politically? Ballance would have said so. By 1891, he had introduced the country’s first taxes on income, much as Labour is now gearing up to propose a capital gains or wealth tax. This helped fund his drive to build the economy from the bottom up, using state money to assist ordinary people to acquire small farms.

All this “met with considerable criticism both at home and overseas”, Ballance’s biographer Tim McIvor wrote. But, he adds: “This was largely silenced when the premier announced a record budget surplus in 1892.” Having helped lift the country out of its long years of depression, Ballance was – in our drought-prone country – known forever after as “the Rain-Maker”.