The Press

Bank­ing on brighter times

What makes Tony Alexan­der, one of the best-known ‘celebrity economists’, tick? CATHER­INE HAR­RIS finds out.

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Th­ese are pre­car­i­ous times, but Bank of New Zealand chief econ­o­mist Tony Alexan­der be­lieves that the world would be a bet­ter place if peo­ple un­der­stood a down­turn is nec­es­sary ev­ery now and again.

‘‘Some­times you need to have a re­ces­sion and the rea­son is, you need to . . . weed out the in­ef­fi­cient op­er­a­tors: build­ings only partly used, ma­chin­ery partly used, peo­ple em­ployed when they’re not use­ful.

‘‘So you ac­tu­ally need a re­ces­sion now and then to wipe the slates. In some re­gards, it’s a nec­es­sary thing.

‘‘It would have been use­ful if we had had a re­ces­sion around the world a few years ago, to stop this hap­pen­ing now. No-one would want this re­peated,’’ he says of the credit crunch and the en­su­ing slow­down.

Re­cent events have meant chief economists are in as great a de­mand as ever, and Alexan­der is one of the most fa­mil­iar.

He is on the road 20 to 30 per cent of his time, and his abil­ity to make eco­nomics un­der­stand­able to the or­di­nary busi­ness­man or home­owner has made him a me­dia favourite.

He ob­vi­ously en­joys talk­ing ‘‘to the coal­face’’, but ad­mits to a love­hate re­la­tion­ship with the me­dia, whose de­mands can be ‘‘over­whelm­ing’’.

‘‘You’re al­ways out there in the pub­lic eye, you’re out on a limb and there’s al­ways some­body who’s go­ing to dis­agree with what you’re say­ing, so it’s very danger­ous.’’

So, af­ter 14 years in the job, he plans to repri­ori­tise his work­load a lit­tle, do­ing mainly bank events and stay­ing at home more, to help his part­ner with their five chil­dren.

That doesn’t di­min­ish the rea­son Alexan­der took the po­si­tion or why he be­came an econ­o­mist at all.

‘‘Ini­tially I got into eco­nomics from read­ing about the Great De­pres­sion and what went wrong. As a call­ing as such, I just found I en­joyed it, I found I un­der­stood it. Later on, I found peo­ple would pay for it!’’

An­other com­pelling rea­son was the fail­ure of his fa­ther’s build­ing busi­ness dur­ing a slump in the late 1970s.

‘‘My goal, as it were, has al­ways been to min­imise the num­ber of busi­nesses that get weeded out in a down­turn through not re­al­is­ing there’s a re­ces­sion on the way.’’

Grad­u­at­ing from Can­ter­bury Uni­ver­sity with an MA with firstclass hon­ours, Alexan­der headed to the Re­serve Bank of Aus­tralia in 1984 to do eco­nomic mod­el­ling.

He did not stay long, cit­ing five years of hard study and some ‘‘ap­palling man­age­ment’’ as ‘‘a recipe guar­an­teed to pro­duce a quick exit’’.

How­ever, it con­firmed what he al­ways knew: ‘‘That work­ing the back room beaver­ing away did not suit me. I needed to be closer to the coal­face.’’

Re­turn­ing to New Zealand in 1987, he was ebul­lient about the coun­try’s di­rec­tion away from strong reg­u­la­tory con­trol, only to watch the share­mar­ket crash and the coun­try’s growth stall for six years.

The role of a chief bank econ­o­mist – pre­vi­ously more of a man­age­ment job re­quir­ing strong gov­ern­ment con­tacts – was also be­com­ing more prom­i­nent.

‘‘When [Sir Robert] Mul­doon was still in power there were some high-pro­file peo­ple like [Think Big critic] Len Bayliss who was chief econ­o­mist at the BNZ, and I think what many peo­ple learned then was hav­ing a high pro­file could get you in trou­ble.’’

But as the coun­try dereg­u­lated, Alexan­der says banks re­alised they needed economists ex­pe­ri­ence.

‘‘They needed economists [who] un­der­stood what made float­ing ex­change rates go up and down, and mon­e­tary pol­icy – which was changed by the cen­tral bank rather than gov­ern­ment – fit. And every­one else was in­ter­ested in the same thing . . . Peo­ple just kept call­ing up.’’

Alexan­der took a job as trea­sury econ­o­mist with West­pac. His com­mu­ni­ca­tion skills soon saw him do­ing daily ra­dio slots, and af­ter sev­eral years he left to spend a year as an econ­o­mist with bro­ker­age Gar­lick and Co to build up his re­search skills.

With more ex­pe­ri­ence un­der his belt, he felt ready to go back to what has turned out to be a very me­di­afo­cused job with the BNZ.

He started in 1993 as deputy chief econ­o­mist, as­sum­ing the top job 18 months later.

As a bank em­ployee, Alexan­der ad­mits he can’t al­ways say what he wishes, but is largely un­con­strained.

‘‘It’s been ex­plic­itly said to me by a num­ber of se­nior peo­ple in the

with mar­ket bank that they value that I am­seen as an al­most in­de­pen­dent voice. Al­most.’’

We talk about the eco­nomic im­por­tance of su­per­an­nu­a­tion. Alexan­der re­calls how Mul­doon scrapped the coun­try’s com­pul­sory su­per­an­nu­a­tion scheme in the mid-1970s. He says it was a lost op­por­tu­nity but would never have sur­vived.

‘‘He’d have spent it all. He’d have thrown it down the gur­gler on more Think Big projects.’’

To­day, the Na­tional-led Gov­ern­ment has pledged to di­rect 40 per cent of the NZ Su­per Fund to­ward lo­cal in­vest­ments, which Alexan­der also thinks is a mis­take.

‘‘The ca­pac­ity of the New Zealand econ­omy to ab­sorb that kind of money and gen­er­ate good re­turns on it is lim­ited.

‘‘It could go to the share­mar­ket, but it would just end up be­ing the dom­i­nant fac­tor in the share­mar­ket. If you use it to cre­ate in­fra­struc­ture, you’ve got to re­mem­ber it’s got to be sold off at some point . . .and it’s got to gen­er­ate a re­turn.

‘‘The risk is, you may not gen­er­ate a good re­turn on the money and po­lit­i­cal im­per­a­tives may stop you sell­ing the as­set in two or three decades’ time when you have to sell.’’

As a stu­dent of the Great De­pres­sion, Alexan­der is con­fi­dent the world will skate ‘‘nowhere re­motely close’’ to those days.

The world’s ma­jor economies will not get near the un­em­ploy­ment rate of 20 to 30 per cent they did in the 1930s, he says. But when one in 10 jobs in New Zealand is re­lated to tourism, it could well go north of 6 per cent.

The credit crunch has not shaken Alexan­der’s faith in cap­i­tal­ism, but like for­mer US Fed­eral Re­serve chair­man Alan Greenspan, he’s found flaws: ‘‘ The bor­row­ers who bor­rowed too much money, the banks that lent too much, the reg­u­la­tory au­thor­i­ties who turned a blind eye and the cen­tral banks for muck­ing around with mon­e­tary pol­icy, for fail­ing to re­alise that some­times you need to have a re­ces­sion.’’

 ?? Photo: FAIRFAX ?? Cleans­ing force: BNZ chief econ­o­mist Tony Alexan­der says re­ces­sions wash away eco­nomic ex­cesses such as un­pro­duc­tive ma­chin­ery and peo­ple.
Photo: FAIRFAX Cleans­ing force: BNZ chief econ­o­mist Tony Alexan­der says re­ces­sions wash away eco­nomic ex­cesses such as un­pro­duc­tive ma­chin­ery and peo­ple.

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