Sunday, 27 December 2009

The usefulness of the "Buy Kiwi Campaign"

The Importers Institute comments on the usefulness of the "Buy Kiwi Campaign":
The Greens and the last Labour government decided to fund a "Buy Kiwi Campaign". They spent $10.2 million from our taxes, most of it ($8.4m) with an advertising agency.

The Ministry of Economic Development has now commissioned a review from consultants MartinJenkins and Associates. The report is available from the Ministry's website:

The report concluded "there was no convincing evidence of overall impact on consumer spending", "there was a lack of conventional policy analysis" and "there was no assessment of the likely impact or of the costs and benefits". In other words, Green and Labour politicians spent our money like confetti, spraying it against the Wellington wind - and achieved nothing of any use.

We could have told them all of that before they spent a single cent of our money. The only beneficiaries were some residents of Grey Lynn, who lined their pockets with the advertising extravaganza.
The uselessness of the campaign was very predictable. As Chris Worthington wrote back in 2007,
If you haven’t seen the new poster for the “Buy New Zealand made” campaign, it features an attractively attired woman, asking the question, “Does my economy look good in this?” The implication, of course, is that we should think carefully about the damage wrought when we purchase foreign-made goods.

As an economist, I am loath to criticise a campaign that features pretty models urging us to think more about the economy. But, to my great dismay, there simply isn’t any intellectual merit to the campaign’s message. Buy all the foreign products you want – it won’t hurt the domestic economy in the slightest.
Worthington continues,
If we think harder about the trade process, it becomes clear that there is an error in the intuition that when foreign goods are purchased, spending power (and thus jobs) vanish from the domestic economy.

The mistake begins with the terminology. We don’t “buy” imports, we swap for them. In order to purchase that Chinese-made dress, our poster-girl first needs to find someone willing to take her New Zealand dollars in exchange for Chinese currency. But New Zealand dollars serve only one purpose – you can buy New Zealand produced goods or services (exports), or you can lend them to New Zealanders who will in turn buy New Zealand produced goods or services.

So the money does not disappear – we can only buy imports if there is someone willing to accept our exports in return, either now or in the future (if the money is used for lending). And, indeed, imports and exports tend to closely balance over the long-run. Over the last 20 years New Zealand has had an average trade surplus of 0.9% of GDP.
So buy foreign, it makes not difference to the New Zealand economy.

1 comment:

Eric Crampton said...

Think of something that makes the greens and the anti-trade folks happy for less than about $3 per capita.

Oh -- Blogger's now classified me as spam! Hope to be back up soon.