Gordon Campbell on living at Level Three with residual anxiety

877048efe04248510959d4d5d01a14b2Two weeks. That’s roughly the length of time the government has given itself between moving to Level Three, and making a decision on May 11 about how the virus has reacted, with a view then to a wider re-opening. No doubt, the political and economic pressures driving the return to something that looks more like normality are immense. But hmmm…basically, Level Three is an experiment being run against the clock, and we’re the guinea pigs whose vital responses are going to be checked by the people in the white coats with the clipboards. Try not to feel too much underlying anxiety during this day of celebration.

Given the gestation time of the virus, two weeks does seem like a rather short time for assessing whether and where Covid-19 may have spread under Level Three conditions. A month at Level Three would have been more realistic, if only because so much about the behaviour of Covid-19 still remains mysterious. To repeat ad nauseam : there is still an active debate on whether the virus is transmitted by big droplets expelled by coughs and sneezes – or by the tiny aerosols expelled during conversation, and which can hang in the air in poorly ventilated rooms, and be carried over considerably further distances than two metres.

As winter approaches, aerosols also hang heavier in the air for longer and can be carried further on the wind – although the medical evidence remains inconclusive with respect to how much of a detectable aerosol-borne presence of Covid-19 virus is required for an infection to occur. The motive for wearing masks has a lot to do with this possibility of aerosol transmission. Our Health Ministry has been reluctant to go down that path. Instead, the MoH has echoed the WHO focus on Covid-19 transmission via droplets exchanged between people, and via the surfaces onto which those droplets may fall.

Well, as we head back into workplaces and meetings in boardrooms, we’re about to carry out a Covid-19 experiment about aerosols, and on how well office spaces in New Zealand are ventilated. IMO, Covid-19 provides an extra reason to skip – if you can – staff meetings and the whiteboard brainstorming sessions.

On a wider front, the four weeks of Level Four lockdown have given us plenty of time to think and to prioritise, but not enough time to reach definitive conclusions. Here for instance, are a few areas where the questions continue to outnumber the answers :

1.Are DHBs Good For Our Health? Maybe not. To wonder about the wisdom of New Zealand having such a teeming abundance of DHBs isn’t to question the value of the staff who work within them. One lesson of the lockdown is that our frontline medical staff – and our first responders in supermarket shelf stacking – are of far more use to this country than say, currency traders and thus, they deserve to be paid accordingly in future. But the District Health Board model? It hasn’t had a great lockdown.

Once we’ve got through this crisis, surely the current DHB framework has to be scrapped, or simplified by a significant number of mergers. In a country of barely 5 million people it never made sense to create 19 different bodies to deliver public health….and the pandemic has exposed how most of our DHBs came into this crisis with differing capacities, and with systems that weren’t interoperable. (A centralised system of national contact tracing had to be created overnight and made compatible with the inputs from the 12 regional Public Health Units run by the 19 DHBs.) PPE importation and delivery also had to contend with the fact that some DHBs had different rules and practices when it came to PPE use, and it is still uncertain whether the key equipment is being distributed equitably around the country. Ditto with respect to ICU beds.

It has been a historical legacy. The rampant de-centralisation of public health was a product of the market fanaticism of the early 1990s, when competition in public health and the funder/provider split were considered to be gospel truths. They weren’t – ever – and especially not during a nationwide health crisis. Overall, New Zealand has always been too small to enable markets to function efficiently. What we got instead were private sector monopolies, duopolies and virtual cartels rather than smoothly functioning markets and efficient feedback loops. In public health, the market dogma led to wasteful amounts of fragmentation, duplication of management and competition between DHBs – which are now belatedly being urged to co-operate with each other.

Each DHB has developed its own bureaucracy, at considerable expense. Over time, the obsessive need to measure and justify resource allocation has all but paralysed decision-making – such that frontline medical staff have struggled to acquire core equipment, or shift their resources in a timely fashion into areas of pressing need. Staff have burned out in frustration. Medical specialists have left New Zealand for less ideologically driven healthcare environments abroad.

In the meantime though, we’re stuck with the DHB system, given that it isn’t practical to re-structure public health in the middle of a pandemic. However, once the crisis is over it will be hard to make a case for more than say, six DHBs – maybe four in the North Island, and two in the South Island. At this point, no-one is any the wiser about what level of DHB consolidation has been recommended by the Health and Disability System Review led by Heather Simpson and her panel of expert advisors. Come Level Two, maybe that package can finally be unwrapped.

2. Is China Still Our Crucial Market? Probably – and maybe even more so than before. China was the origin of the Covid-19 virus, and New Zealand’s dependency on China as a trading partner has long been a cause for concern…but ironically, the virus will probably cause us to double down on China in the meantime, while we try all over again to diversify our exports. In the meantime though…with the collapse of tourism and international education, farm produce and forestry are going to be our prime export earners, and China still looks to be the most reliable customer for those products, as economist/consultant Keith Woodford argues in this excellent interest.co.nz article. As Woodford suggests, the prospects for wine exports are dire, and kiwifruit growers may well struggle to harvest their crops – and if and when they do, China ( and maybe Japan) look like being the best market options. Beyond that :

Turning to pastoral products, we know that China has already become the most important market for NZ beef, followed by the USA. We are also fortunate that for many Americans there is no culinary alternative to the burger.

Sheep meats are more complex. China is by far the largest market for mutton from older animals and I expect that market will continue to give good returns. China is also important for lamb, but so are Europe, the United Kingdom, and the United States. I see only bad news for lamb meat to the United States for at least the next six months. For Europe and the UK, I also see very challenging times, but I hope to be surprised. Our dairy products are exported widely to many parts of the World. Alas, I see only bad news for everywhere except China…

China’s attractions aside….as yet we have no idea as to how the damage done to international trade and normal supply chains by Covid-19 will end up raising the price New Zealand has to pay to freight its exports to foreign markets. Obviously, there is a related risk that foreign farmers will unload their produce onto markets at home and nearby, thereby pushing down prices…In the coming months, globalisation is likely to come under intense pressure from this Covid-driven rise in nationalism. The new politics of looking after one’s own producers and exporters are going to put past loyalties under immense strain.

3. Will Prices Rise or Flatline? For years, what’s deemed to be good for the economy has not necessarily played out all that well for everyone. Already, Covid-19 is accentuating social inequality. People who can work from home are a relatively privileged group, reliant on other less fortunate people whose work ( in healthcare, in supermarkets, in rubbish collection etc ) has required them to be at work and exposed to the virus, even during Level Four. In that sense, and as Slate magazine recently pointed out,

most of us are living on the cruise ship now, and looking for non-contact room service from the support workers in the galley.

Here’s an example from the pre Covid era. Back in the days before we had to put on Hazmat suits to shop for groceries, it has been widely assumed that when our currency declines in value, this is good news for everyone. In fact, it is mainly good for exporters and the friends and family, and not so much for the ordinary consumers now forced to pay higher prices for imports. In recent weeks, our currency has been declining steeply against both the US and Australian dollars. For motorists, this decline will cancel out some of the gains from the plunge in global oil prices.

There’s a wider question, though. Basically, will the shocking impact of Covid-19 on jobs, household incomes, retail trade and international commerce mean that the forces of (a) inflation or (b) deflation will be likely to dominate the course that the economy will take in the coming months, and for the year to come ?

Initially, it is dead easy to point to the deflationary pressures. Demand is already crashing, fewer people will be in jobs, and those with jobs are likely to be spending on only the bare essentials and saving what they can in a precautionary fashion. Add to those downward pressures the impact of Covid-19 on demand in our foreign markets, and the disruption to the usual global supply chains….and you can readily conclude that retail/consumer spending is going to dry up, and no-one (surely) is going to be able to raise prices for years to come. Oil prices and house prices are going to reflect the same reluctance & inability to spend….So arguably, the Reserve Bank will have to be working overtime if inflation is going to be cranked up to anywhere near its current annual target band.

Unfortunately, that may not be how it plays out for ordinary punters down at the supermarkets – which are essential industries, and duopolies to boot. In the short to medium term won’t their market dominance and the scarcities and the rising freight costs associated with supply chain disruption all combine to cause prices to rise regardless, for people trapped in a captive (super) market ?

In addition, could there also be a ‘Fonterra’ effect, whereby the prices available in overseas markets hike up the prices we have to pay here at home, at least for some forms of our farm produce? (Presumably much of that old Fonterra effect on domestic prices will be countered by the fact that Covid-19 will have hammered the incomes and purchasing power of our foreign customers, too. So overseas prices may flatline elsewhere too.) Add in the falls by the NZD against the US and AUD though and the rising prices/socio-economic inequities outlook is of genuine concern. Sure, the fall in oil prices will put a significant dampener on inflation, but this will not compensate entirely for the price disruptions that may be coming down the pike.

That’s the crossroads we’re now at. Namely, will prices flatline or even decline, with low and stable interest rates ( and prices) stretching out for the foreseeable ? Or will there be inflation caused by (a) scarcities and (b) supply chain disruption and rising freight costs, with both those factors made worse by the declines in our currency versus the US and Australia ? Added caveat : if we’re going to make more stuff here rather than import it – as Finance Minister Grant Robertson says – we are likely to be paying more in future for the components.

4.Does central government still matter ? Is the Pope a Catholic? Almost quaint to think that for the past three decades, the free trade/free market advocates have been trying to shrink government to a size where it could be drowned in the bath. Surely, the era of demonising government for its alleged inefficiency is over. The GFC should have taught us that regulation and red tape usually exist for good reason. The Covid 19 crisis has gone further, and proved that when calamity hits and free markets collapse, central government (and the taxation that sustains it) is the only support we can all rely upon.

It won’t be the same in future, though. For an unknown length of time, as jobs vanish and income shrinks, what’s to become of GST – the tax that assumed capitalism and consumption would always go on together like love and marriage, horse and carriage….But if household spending shrinks to the bare essentials, and the revenue take from GST ( and from income tax and business tax as well ) also shrinks for much the same reasons, what level of public services will we still be able to afford ?

The May Budget will give us some inkling about those tough decisions. Just an idea, but shouldn’t we put those big ticket Defence items (the Poseidons, the Hercules replacements) on ice for perhaps …the next decade or more ? The real threat has already landed here, and it is so small it can’t be spotted with a $3 billion squadron of surveillance aircraft. Time to rethink the priorities.

Footnote : Talking about Covid-19 and social inequalities…the priority that the National Party is giving to app-driven contact tracing is a telling example of the different access to Covid solutions. The problem is not simply the one the government routinely mentions ie. that app tracing is at best, only an adjunct to the usual grind of phone/human follow up work.

While the potential privacy concerns with app tracing van be managed by keeping it voluntary, and by building in anonymising safeguards and sunset provisions….the system requires a very high level of take-up to be useful. Moreover…ask yourself which people in society have smart phones with Bluetooth functions they can afford to leave on, all the time ? Yep, it’s the people with good jobs and reasonable incomes, who are already better placed to ride out this crisis. Smart phones able to run Bluetooth nonstop tend not to be in the hands of the low income workers and elderly who are at most risk from the virus. But as Bloomberg News recently pointed out, it is a boon to the more affluent, work-from-home crowd. No wonder National feels so compassionately for them.

Finally…. app tracers like Singapore’s TraceTogether system record and collect adjacent contacts only between those phones left on in the vicinity – and in some urban settings, proximity may not have meant actual inside-the-bubble contact. The app can be frustratingly over-efficient in that respect. In the immortal words of Bill English, it’s a nice-to -have right now, and not a need-to-have.