Tuesday, 1 November 2011

A country is not a company, and shouldn't be run like one

Over at the, normally reliable, TVHE blog rauparaha writes,
Phil Goff:
[There is] no businessperson in New Zealand that would say when you are in difficulty the best thing you could do is sell off your best-performing assets.
At least both major parties now agree that that the election is all about finding a new CE to run NZ Inc. What a shame we’re not inviting applications from people with proven, international experience.
And I have to say no! The last thing any genral election should be about is "finding a new CE to run NZ Inc". As Paul Krugman (yes even he is right about some things!) said A Country Is Not a Company. To see why consider, for example, the basic point that companies compete with each other but New Zealand doesn't compete with other countries. Thinking that countries compete is a just one false analogy that comes from thinking that countries are like companies when they're not. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia, for example, don't, their loss is not our gain. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gain a lot, in terms of sales and profits, from not having Pepsi to compete with and lose little since Pepsi doesn't buy much, if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sells if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

Countries trade, they don't compete. And thus we don't need to find "a new CE to run NZ Inc" because NZ Inc doesn't exist.

1 comment:

V said...

A rare opportunity for economists to agree, seems to happen about as often as a solar eclipse.

(I was going to say a transit of Venus, but perhaps too unkind) :-)