Interview
Benedikte Jensen
by Rebecca Macfie
Former public servant Benedikte Jensen is the new director of research at the high-profile think tank, the New Zealand Institute. Jensen, 43, whose most recent role was economic and financial adviser in the Department of the Prime Minister and Cabinet during the Clark Government, has rattled a few cages with her warning that unemployment could reach 11.2% over the next two years.
How have you found the shift from the anonymity of the public service to such a public role? I love it. It’s just so liberating being outside the public-sector environment, in terms of following ideas and being freer to explore a range of topics. The other thing I really enjoy is being in Auckland. There can be a bit of group-think in Wellington. There are some really skilled and wonderful people there, but I’m finding it refreshing being here and mixing with different thinkers and getting quite a fresh perspective.
Is that because Auckland is dominated by a corporate culture and Wellington by the Government? I think it’s a lot to do with that. One thing I observe with business people in Auckland is that they also understand and value the importance of relationships because, in the end, they’ve really got to make things happen. I think that is something that could be valued more highly in Wellington, and it might actually help them get out and around the country and engage more. The Job Summit was a good model of how Wellington could work differently.
You’ve pointed out in your research essays that New Zealand is the second most indebted country in the world after Iceland – and we know what happened there. Are you suggesting New Zealand risks an Icelandic-scale meltdown?
I wouldn’t put New Zealand in the same camp as Iceland because Iceland had a whole cluster of issues, one of which is that its banking system had become very over-leveraged and over-indebted. The irony with Iceland is that they had a lot of overseas investments, but they were not very prudent investments, and that has come home to roost. The debate about New Zealand’s indebtedness is not new, but the crisis is sheeting these vulnerabilities home. There is now huge risk aversion among international investors, and they are trying to find really safe-haven investments. That’s making them rethink whether, and for how long, they will keep funding small, open, peripheral economies such as New Zealand. They look at New Zealand and think, ‘They’ve had current account deficits of around 8% for a long time, they’ve got a stock of debt which is 85% of their economy, hmm, don’t know about that. On the other hand, the -Government books look okay and net debt in particular is very low.’ They are starting to ask the questions that maybe hadn’t been asked earlier because we had had a couple of decades of very exuberant risk-taking by international investors, and they were very happy to keep funding New Zealand’s problems.
Your warning of 11.2% unemployment is based on a study by US economists Kenneth Rogoff and Carmen Reinhart into the aftermath of financial crises. But isn’t there a risk with such dire- predictions that we talk ourselves into an even deeper trough? The risks so far have been that if we don’t look seriously at the range of possible scenarios, we will end up being unprepared. I’ve had a bit of feedback from people in the policy community in Wellington who were getting quite frustrated that no one was accepting that things could get as bad as [they were in] the early 1990s when we had unemployment of close to 11%. They were grateful that I’d got the debate going.
There is a bit of a crisis in economic forecasting at the moment because we are in this non-linear world. Forecasting relies a lot on the sense that you can use trends over the past five or six years and forecast into the future.
Economics at the best of times has difficulty picking the turning points in cycles, but in the current -environment the margins of error around that are magnified -incredibly. So I stand by my view that using some careful research looking at what, on average, has happened globally with financial crises is as valid as any other form of prediction at the moment, and we should include that in the mix.
