Friday 7th September 2018
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Reserve Bank governor Adrian Orr lamented the dominance of short-term thinking in his first public speech since taking over as head of the central bank in March.
"I summarise the key plague on economic society as ‘short-termism’. This is the overt focus on the next day, week, or reporting cycle," Orr said in a speech to the Financial Services Council in Auckland.
"A short-term focus can be driven by the need to survive from day-to-day. However, it is too often driven by the desire to consume at an unsustainable rate," he said. "The desire for instant gratification or reward can often leave behind a trail of unintended consequences."
Orr said consequences of short-term thinking could lead to economic growth coming at the expense of a sustainable environment, social cohesion and cultural acceptance. While some critics may say the Reserve Bank should focus on inflation and interest rates, Orr said the bank had a strong vested interest in, and influence on, the long-term economic wellbeing of New Zealand.
"The long-term issues are critical to our task of maintaining low and stable consumer price inflation, promoting a sound and dynamic financial system, and meeting the currency needs of the public," he said.
While millions of people had been lifted out of poverty in the last couple of hundred years, there remained massive global challenges that were often resolved through financial crises, wars or civil unrest, or at the cost of someone else or something, such as the environment, Orr said, singling out environmental degradation, mass urbanisation, ageing populations, mass migration and income and wealth inequalities as current challenges.
In New Zealand, challenges included our environmental impacts, migration and urbanisation, creaking infrastructure, a rapidly ageing population, over-exuberant house prices, low productivity growth, and persistent and stubborn unemployment and low incomes, particularly amongst Pasifika and Māori, he said.
Still, capitalism could be improved, he said, noting the rapidly growing clusters of global capital concerned with better managing the failures that can arise from 'short-termism'.
"Hopefully, these efforts will in part head off the usual manner in which we ‘reset the clock’, through some kind of crisis or unrest," he said. "Significant global firms, investors, regulators and representatives of civil society are banding together to work hard on resolving the perils of short-termism."
New Zealand had the opportunity to lead the globe in positive change if it became more long-term in its economic activity, Orr said.
While a small country, the world often looked to places like New Zealand for leadership, he said.
"The great news is we are small, young of nation, lightly populated, green, kaitiaki (caretaking) of spirit, not dependent on the export of fossil fuels, and have a strong rule of law and sound moral compass," he said. "Significant and bold leadership is in our grasp."
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