We are told that this time it is bad. But, how bad? Have the oxygen masks really dropped? If so, can anybody remember the emergency briefing? More pointedly, does not the inglorious scramble by financial forecasters to predict the next Armageddon risk becoming a self-fulfilling prophecy?

Some are saying we are witnessing the biggest destruction of wealth we have ever seen. I beg to differ. I find it curious, to say the least, that some measure wealth in terms of what some people are prepared to pay for bits of paper.

I prefer to measure ‘wealth’ in terms of the physical resources available to humankind to produce and supply the things we require to improve our collective lives. Taking this frame of reference, the recent past has seen little destruction of the machinery, equipment, land, and buildings that are available to us. Transport, energy and communications infrastructure around the globe remains sound, while the collective skills and abilities of the people remain undiminished.

Yes, there is some destruction of wealth currently in, for example, Afghanistan. But such destruction hasn’t been seen on a global scale since, arguably, WWII when chunks of the UK, Europe, North Africa, and south-east Asia were destroyed. Without doubt, wars destroy wealth.

But, while financial crises destroy the paper value of the wealth we possess, they do indeed leave the real or physical attributes of that wealth intact.

Thus, the primary challenge facing New Zealanders and its businesses is to not get overwhelmed by the gloom from financial media and associated commentaries. In particular, we need to recognise that the economic issues facing NZ and its businesses remain essentially unchanged. If not, we seriously risk talking ourselves into an economic hole that is a lot darker and deeper than conditions warrant.

This may sound trite or, even, head-in-sand defiance. In my defence, I feel obliged to openly admit and state without hesitation that the current global crisis is very bad. But jumping up and down shouting “the end is nigh” at regular intervals is not very helpful. Especially to those who would probably prefer help with their oxygen masks that have just dropped from the overhead panel.

So, what is required? As you no doubt will recall from the emergency briefing at the start of the flight, we should calmly follow the instructions of the flight crew. And, what are their instructions? “Remember your training; this is what we have trained for”, they should/will be saying to themselves. Yes, the training manual is written precisely for these events. That is, you train for the bad times, not for the easy times.

For example, the All Blacks do not go into training to prepare for the possibility that one day they might have to play Portugal, with all due respect to Portugal Rugby. No, the All Blacks train for the eventuality that they one day may end up playing against a referee who has a liberal view of the offside line and difficulty with forward passes and they find themselves 2 points down with 10 minutes to go in a World Cup Quarter Final.

In a nutshell, anybody can run an economy (or a business) in the good times. The training, and the leadership, manuals are for use in the bad times. Now is the time to remember such training.

So, what should our flight crew be remembering from their training? Well, it is all about those resources. Apologies for the long sentence, but here goes:

The challenge for New Zealand is, and always has been, to use our resources to produce and supply goods and services for overseas customers to generate sufficient income to invest in maintaining, sustaining and enhancing our productive resources so as to protect the lifestyle most New Zealanders believe to be our birthright.

And the more successful we are in meeting this challenge, the more resilient our safety net for when the next crisis arrives.

The list of resources on which we should concentrate our efforts should be familiar to those who have studied business and/or economics (not to mention our official advisors). The list begins with people, skills, experience, and networks, and adds machines, equipment, buildings, land water, technology, innovation, enterprise and entrepreneurship. As argued above, most of these resources remain unscathed by the financial turmoil. But, the last three in this list are vulnerable.

The destruction of paper wealth potentially destroys enterprise, entrepreneurship and innovation. This is because these are susceptible to those ephemeral beings: mood, confidence, sentiment, climate and perceptions as to the future. In the current climate, it is the threat to these concepts that is dangerous to our future prospects. It is this threat that needs to be countered.

To maintain the spirit of innovation, enterprise, and entrepreneurship we must keep NZ open for business. A seriously-large investment programme across all elements of the list of resources would be a good start. NZ desperately needs to step up the pace to overcome our long-term infrastructure deficit. Now would appear to be the ideal time.

Note, my list of important items doesn’t include interest rates, exchange rates, debt-to-equity ratios, credit ratings, share prices, dividend yields and all those other concepts that dominate financial writings and commentaries. This is because I am unashamedly an economist, not a financial market analyst.

But meeting our challenges will also require an overhaul of the financial sector. This must entail the establishment of a new, closely-regulated financial payments system that enables business and trade. And this new financial system must be subservient to the needs of business and trade, not the other way around as what seems to have developed over recent times.

Yes, the textbook manual followed by the received wisdom (here and around the world) over the past twenty years needs to be binned. The shallowness of its analytical framework is obvious to anybody willing to look. The mantra of “less government, more market, control inflation, less government, more market, control inflation” may work in a textbook full of unsubstantiated assumptions, but the real world with real people rarely behaves in textbook fashion. The tried and true manual of economics – based on investment in resources and people to develop the generation of wealth in a sustainable manner – remains untarnished. Perhaps it may be pertinent to dust off that part of our training.

And may be it is time for NZ business and government leaders and advisors to look past the assessments of the media-ready financial economists. Given it was their financial sector that has caused the present global catastrophe, the fact that some continue to hang on their every utterance defies belief.

Consequently, I await our captains of industry on the flight deck – along with officialdom and their political hosts and hostesses in cabin class – to remember their training and calmly guide us to the emergency exit.

 - reprinted from the March 2009 BERL Forecasts