Opinion: An economics of kindness

Rt Hon Jacinda Ardern Prime Minister

Rejecting protectionism, New Zealand Prime Minister Jacinda Ardern says her country hopes to instead lead the world with a new economic approach built on improving people’s wellbeing.

There’s a phrase often used to describe New Zealand. Even though we are a tiny country thousands of miles away from almost everywhere, we punch above our weight.

Ours was the first country where all women won the right to vote back in 1893. In 1938, we were one of the first to introduce a cradle-to-grave social welfare system that endures in some form to this day.

This tendency to push boundaries also means we are sometimes the first to learn valuable lessons. Starting in 1984, New Zealand went further and faster than nearly any country in embracing the prevailing neo-liberal economic experiment. We slashed the top tax rate, dramatically cut public spending, removed regulations that were said to hamper business, and vastly reduced welfare benefits paid to the sick, those caring for children and the unemployed.

Economists and policymakers in many other countries pointed to New Zealand as a poster child for market-based reforms which were all too frequently accompanied by abrupt cuts to the social safety net.

Within 20 years, my nation lost its status as one of the most equal countries in the OECD. While incomes at the top doubled and gross domestic product grew steadily, incomes at the bottom stagnated and child poverty more than doubled. Some citizens were richer in cash, but the country was poorer in many other ways.

I was a child back then, but the consequences of this shift are etched into my memory and my politics. Kids in the small rural town I was living in at the time weren’t born into a decade of hope and opportunity, but one of inequality where users had to pay for basic services.

This experience wasn’t limited to New Zealand. It happened in many countries. Around the world, there is now increasing frustration over economies that see disproportionate benefits go to one group, and leave others behind. They are not only perpetuating unfairness but also hampering their overall growth potential and, increasingly, posing a threat to our democracies.

We have seen politicians and governments of all stripes respond to such disparities by rejecting the institutions and global systems that are believed to have produced it. I see how we reached this point, but I reject the idea that the only alternative is isolationism and the abandonment of global institutions.

We don’t need to start again, but we do need to change the way we do things. In May, my government will present the world’s first “wellbeing budget”. This is not a concept we came up with ourselves. The OECD and the IMF have, for a while now, have urged countries to look beyond a strong balance sheet and a strong economy to redefine success. We must focus specifically on living standards and human, social, and natural capital when we set targets and track progress. In our next budget, we will set five priorities each deliberately focused on long-term intergenerational change.

As an example, one priority will be to support the mental wellbeing of all New Zealanders, with a special focus on under 24-year-olds. From a purely economic perspective, there are clear benefits to supporting positive mental wellbeing including as enhanced productivity. From a kindness perspective, the modern age places huge stresses on young people, which affects their ability to live full, meaningful lives. Confronting this will make us a better country.

This isn’t woolly but a well-rounded economic approach — the same kind we will use to confront the challenges posed by climate change, digital transformation, social exclusion, poor health, housing and domestic violence. As leaders, we should not be afraid to reject the status quo, especially when an entire generation is doing just that.

At a time when the international rules-based order is under strain, when leaders around the world are grappling with understandably dissatisfied constituencies, I hope this wellbeing approach could provide a model which others in turn might look to. I wholeheartedly believe that more compassionate domestic policies are a compelling alternative to the false promise of protectionism and isolation. Now we have a chance to prove it.

But change of this scale requires us to look beyond three and four year electoral cycles. We must accept that the race to grow our economies makes us all poorer if it comes at the cost of our environment, or leaves our people behind. It requires what in the Māori language is called kaitiakitanga, or guardianship.

We in New Zealand hope to, once again punch above our weight by forging a new economic system based on this powerful concept — one that is successful, but one that is also kind.

This article was originally published by the Financial Times on 22 January 2019.