A Move to a Social Market Approach

By Mark O’Connor, Senior Infrastructure Advisor 

I recently read with interest Rodney Yeoman and Douglas Fairgray’s article A social-market economy - a rising tide? in the June edition of m.emo – the monthly publication put out by Market Economics.

I found this piece particularly interesting as it picked up on several themes that appear to be in favour with the media of late. This includes societal and environmental well-being, equality and the apparent move to a social market approach, driven both by society and a change in Government direction.

Such ideals have long been part of the thinking in Nordic countries such as Sweden and Finland. This article explains how historic actions in New Zealand alongside neoliberal policy direction saw us (and much of the western world) move away from the social market approach in favour of free market capitalism.

While this has had clear benefits (such as increased economic growth and incomes), it has also failed in a number of key areas for a large part of New Zealand’s population. We have a situation where house prices are so high the idea of home ownership is simply out of reach to a considerable number of people. This contrasts with the Nordic approach, where most people don’t care about owning a home because the benefits of doing so are marginal when compared to renting.

M.emo also does a good job of pointing out recent examples in New Zealand which show a shift towards a more social market way of thinking within Government, and the importance the courts are putting on non-market ideas such as environmental values and cultural significance.

So, why is this important?

The social market approach to policy forces us to ask a different set of questions when making decisions in the public realm. Rather than thinking about a decision in terms of simple economics (dollars, cents, profit, loss, growth etc.), questions now become focussed on a range of non-monetary aspects. What is best for everyone? What will be the most enduring and appreciated option in years to come?

This way of looking at policy is important when considering things like the environmental and cultural impacts a decision may have. History has shown time and again that letting the free market dictate things like land use, resource management and development (without proper regulation) can often lead to negative impacts on the environment.

Whilst development is a key part of economic growth – it should not be allowed to occur unchecked. We should always be asking the question of whether a development or change is the best thing for an area.

This change in thinking is significant for the team at Rationale and our clients. Being abreast of what the Government is doing and how it is thinking is at the very core of how we approach projects and advise clients on the best course of action. Understanding what non-market values the Government is placing particular emphasis on will help our clients make sure they can take steps to align with it.