What do lettuce, toilet paper, bus drivers, and carbon dioxide all have in common?
In the aftermath of Covid-19, these seemingly unrelated goods could be lumped together as top answers in a “supply chain
shortages” category on Family Feud.
The cost-of-living crisis following Covid-19, several severe weather events, and global geopolitical tensions have joined forces to create a perfect storm of supply chain disruptions, resulting in some empty supermarket shelves, increasingly frequent queues at petrol stations, and delays in most online shopping orders.
And with negative net migration throughout a decent proportion of 2021 and 2022 as a slew of millennials left to embark on their OEs after being stuck at home through lockdowns, having fewer workers and students around to produce those goods has resulted in a chicken-and-egg problem (ironically, with egg shortages being another issue).
Increasing supply chain disruptions have become such a front-of-mind issue that the Government has tasked the Productivity Commission with an inquiry on improving New Zealand’s economic resilience to persistent supply chain disruptions. The commission’s newly published issues paper notes that New Zealand is likely to remain exposed to heightened risks of supply chain disruptions over the next decade, outlines its current thinking on the causes of these disruptions, and poses some questions about how resilient our economy really is.
The commission’s first finding?
The future of supply chains is bleak – and they are unlikely to settle quickly due to myriad economic, social, and geopolitical factors – but so was the past.
Economist and historian Brian Easton investigated supply chain disruptions in New Zealand from the 1900s in the Productivity Commission’s accompanying working paper Learnings from The New Zealand Economic History of Shocks, concluding that “unexpected shocks to the New Zealand economy are endemic”.
Indeed, the 20th century has also seen its share of crises, not unlike the Four Horsemen of the Apocalypse: pestilence (1918 influenza pandemic and Sars), war (World Wars I and II), famine (food rationing resulting from the aforementioned wars), and death (the metaphorical death of the economy through the Great Depression – and actual death in the form of the 1918 Spanish flu pandemic).
But wait, there’s more – we had the wool price collapse (1966), the oil price hike (1973), the second oil price hike (1979), the economic reforms of the 1980s and 1990s, the collapse of the share market in 1987, what Easton describes as “the Rogernomics recession” between 1986 and 1994, and the Global Financial Crisis of 2008.
A trip down memory lane shows economic and societal disruptions are not just a recent problem. In fact, the New Zealand economy was battered and bruised throughout the 20th century.
Yet, we have a tendency to think the disruptions we face today are new or novel unprecedented events. While that may be true from the perspective of a person’s lifetime (for example, today’s generations have not experienced a global pandemic on the scale of Covid-19), this is not the case when we take a longer-term view.
However, the long-term “structural” impact of historical disruptions has largely been smoothed over thanks to a combination of market forces, tailored public intervention to crises, and deliberately designed systems to ensure governance structures can prepare for disruptions and minimise their impacts.
While their societal impacts will continue to be remembered through history classes, museum collections or heartfelt stories retold through communities and families – New Zealand’s economy has come out the other side.
The NZX is no longer crashing despite the 2008 GFC, and wool prices have well stabilised (despite fluctuations) since the 1970s. We are even starting to see the back of impacts from Covid-19 as cases trend downwards, lockdown restrictions are lifted, and the world reopens to tourism and migration.
These examples show that, as a country, we have gotten through disruptions in the past – and if we have the right policy settings in place, we can do it again. The important thing is we learn from the past and apply these lessons to challenges as they emerge. This requires building the ability to proactively prepare and invest in economic resilience, so the impact of a disruption is felt less severely across associated industries and communities.
Historical experiences may provide insights into New Zealand’s future economy and society. It wasn’t just the shocks, but the responses that shaped our current economy.
This is the crux of economic resilience – helping New Zealand industries and communities mitigate disruptions and negative impacts, recover faster, and seize any new opportunities.
Each disruption is different and there are choices about protecting the vulnerable and promoting adaptation.
Given the commission’s finding that the future outlook is more volatile, building resilience should be at the forefront of our minds if New Zealand wants to invest in policies that deliver enduring prosperity. We need to think more proactively beyond stockpiling eggs in our pantries – not least because the watchful eyes of the supermarkets have started imposing egg purchase limits on us.
Dr Ganesh Nana is chairman of the Productivity Commission.