Growing the sticky economy

The defeat of Labour leader Andrew Little’s procurement bill is another reason to have a regional food policy council. The bill, Our Work Our Future, proposed an amendment to the the Principles of Government Procurement, and the Government’s Rules of Sourcing to include two considerations, job creation and fairness.

The bill was supported by Labour, the Greens, New Zealand First and the Māori Party, but it was opposed by National, ACT and United Future. A National List MP, Paul Foster-Bell stated, “Jobs are not going to be created by trying to sell more things to ourselves,” and “And this bill is contrary to a number of our free trade agreements.”

The Government’s focus has been on driving down expenses and multinationals, with their  sophisticated systems and logistics, have been allies in that process. But if we factor in the negative externalities created by multinationals and the positive externalities created by fostering more local economic activity, any savings will prove to be minimal, or, false economy when total tax take is factored in.

The benefits of local procurement go beyond the benefits of jobs. There are social, economic and environmental benefits. Our knowledge of the food system, for example, suggests that there are diverse benefits from increasing local provision to name just a few:

  • more jobs, and therefore greater prosperity
  • reduced carbon emissions (through shorter food chains and supporting soil sequestration)
  • strengthening of rural communities.

If we look back over time, a number of multinational food service companies have arrived and established themselves here. They have significant resources to secure a foothold in local markets. One strategy is to identify key staff from local competitors and poach them, with the combined impact of reducing the local competitor’s capability and providing the newcomer with ready-made networks. If they face significant local competition, they can draw on head office for support. These multi-nationals have been seeking long contracts to embed themselves. Once they have achieved a foothold and they are the incumbents – they have an advantage in future government tenders. Thus an unlevel playing field emerges.

Fact based policy

It would be nice to think that government policy is based on evidence. Our research into the Social and Economic Impacts of the Whangarei Growers Market, reveals a 2.99 economic multiplier when local food displaces food from outside the region. This fits within a multiplier range of 2 to 4 times reported internationally. The 2.99 multiplier is based on the grower to customer transactions at the growers market, but what if we add in more complex value chains, for example, food cooked in restaurants, and that includes dry goods sourced from local or national suppliers. And what if we factor in the health benefits as we foster a greater appetite for local food?

benefits-of-local-procurement

Examples of benefits of local procurement

These multipliers are the basis of the “sticky economy” – an economy where money circulates longer locally. By contrast companies owned offshore are more likely to extract money for dividends to shareholders, head office costs and offshore suppliers. You can see a video explaining the multiplier here.

Kiwibank has a counter that calculates the quantity of bank profits lost offshore. This counter started from 28 October, 2016. You can get an update here. The total for the year to  31 March 2016 was $4.525 billion. Imagine if half of that money remained in New Zealand and we factored in the local multiplier. We don’t know how much of the Government’s $40 billion expenditure goes offshore, but with multipliers applied, this figure would be significant.

kiwibank-counter

It is very difficult to quantify these impacts in dollar terms, but the assumptions that support the rejection of this bill need to be challenged.

I am not against globalisation and regard myself as a global citizen. But the shareholder ownership structures that characterise most of the foreign companies that operate here are driven primarily to extract profits for those shareholders. Economist Shamubeel Eaqub argues for a balance between globalism and localism.

Let’s trade internationally, but do it intelligently. Enabling extractive foreign companies free reign here is not in our best interests.

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