Mercantilism colours Asia view

Published in The National Business Review (Auckland), 2 April 2015

NBR-02-04-2015To begin with an anecdote, a Western diplomat recently told me about a meeting he once had with a Chinese counterpart. They both wanted to discuss issues relating to the Pacific Islands.

For the Westerner this obviously meant small island nations like Fiji, Samoa, Tahiti, and Vanuatu. The Chinese diplomat, meanwhile, also had all of these places in mind – plus Australia and New Zealand.

Perhaps coming from a country of 1.3 billion people, any sea-locked nation below 50 million people looks like a small island state.

This anecdote shows how perceptions and perspectives matter. They matter for the way in which Asian countries engage with us in New Zealand; and they certainly matter in which we are prepared to deal with Asia.

This week, the Asia New Zealand Foundation released its annual survey of New Zealanders’ Perceptions of Asia and Asian Peoples. In some ways, its results are entirely unsurprising as a large majority of New Zealanders acknowledge the growing importance of Asia. How could anyone with only a cursory knowledge of economic realities disagree?

However, the survey also shows mixed views about the benefits of the economic relationship between Asia and New Zealand. Besides, it reveals a basic economic misconception on trade and investment more generally.

The reality of living in the Asian Century is well understood, with 80% of New Zealanders stating they believe the Asian region is important to New Zealand’s future. An even higher number (84%) say it is crucial to develop cultural and economic ties with Asia.

Overall, Asia is seen as the second-most important world region for New Zealand’s future, only narrowly beaten by Australia.

This high level of awareness of Asia’s growing importance is also reflected in the response to the question of which non-English languages New Zealand school children should learn. At 49%, Chinese topped the list of languages, leaving Maori (39%), Japanese (19%), Spanish (18%) and French (18%) behind.

There is a gap between these responses and actual language learning, nevertheless. Currently only 4218 school children are enrolled for Chinese language tuition, which is about the same as schoolchildren learning German (4185) even though German was named as a “to learn” language by just 8%.

Overall, the survey results leave no doubt that New Zealanders regard links with Asia as vital. So far, so understandable. Yet dig a little deeper into New Zealanders’ attitudes and the picture becomes more complex – and less positive.

In a nutshell, New Zealanders feel more positive about Asia the further away it is and the less permanent and direct the interactions with Asia are.

Asked which types of interactions with Asia will have a positive impact on New Zealand in the next 10-20 years, the largest majorities were recorded for exports from New Zealand to Asia and Asian tourism in New Zealand. In both cases, 91% of New Zealanders regarded these interactions as a positive.

Still 80% of all respondents regarded the general economic growth of Asia as a positive for New Zealand, and 79% welcomed free trade agreement between New Zealand and Asian countries.

New Zealanders therefore see value in Asian links if they help to increase exports (tourism is an export, too). But what if it is the other way around? What if Asian countries want to send goods, capital and people our way?

Well, at least 7% of New Zealanders think holidaying in Asia is a positive (they probably do not realise it is an import). When it comes to actual goods imports, only 66% saw them as a positive, which was still a larger percentage than those who welcomed Asian investment in New Zealand (64%), let alone Asian migration (53%).

More worryingly, New Zealand’s attitude toward Asian engagement on New Zealand soil is becoming more negative over time. The statement “New Zealand is allowing too much investment from Asia” was supported by 35% of respondents in 2012 but 41% in the current survey. To a degree, this growing negativity is likely to be driven by perceptions that Asian investment was responsible for rising house prices, a view held by 39% nationally and 54% of Auckland residents.

To find such a bias in favour of exports over imports in opinion polls is not at all surprising as it is not unique to New Zealand. A few years ago, US economist Bryan Caplan noted this phenomenon in his book The Myth of the Rational Voter: Why Democracies Choose Bad Policies. It is explained by a lack of economic literacy whereby people do not understand the wealth-creating effects of trade and economic interaction.

To people unfamiliar with economics, trade between nations can appear like a zero-sum game. They also often believe exports are a positive (since they create employment in the home country – incidentally another systematic voter bias identified by Caplan).

From an economics perspective, quite the opposite is true. Economists would argue that trade is not zero sum but wealth creating. They would also point out that exports are a means to an end, namely to pay for the things we would like to buy from others (that is, imports).

The Asia New Zealand Foundation’s survey therefore confirms that voters do not think rationally when it comes to international economic exchange.

They systematically underestimate the benefits of trade and greater economic openness. In the New Zealand case, they also scapegoat Asians for what is a domestic failure, namely to build more houses.

Though these popular mercantilist perceptions are plainly wrong and easily refuted by economic analysis, this in itself will not be enough. The benefits of New Zealand’s economic interaction with Asia need to be explained, ideally by politicians and journalists (and not just economists).

In doing so, New Zealanders’ fears of being faced with a giant and rising Asia need to be taken seriously and addressed.

Incidentally, that is also something for Beijing to take into account. If New Zealanders get the impression of being regarded as just another Pacific island, this probably would not help.

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