The Little Princess Effect

Twin brothers marry twin sisters.  One of the sisters is a little princess.  She wants it all and she wants it now so they go out and buy everything that bumps and squeaks for their new home.

The other sister says, no.  We will sit on apple boxes and eat off our knees until we have money for a table, then chairs and on and on for all of their house hold appliances and furniture.

Now flash forward 5 years.  Both couples have the same furnishings although the furnishing of the little princess and her husband are a little older and a little more worn.  The main difference is that the little princess and her husband are still paying off their furnishing with interest while Frugal Wife and her husband are  debt free. 

From here on, the frugal couple have all the advantages.  All their salaries are theirs to spend, save, invest or whatever they choose to do with it.

The same principle holds with overseas investments in our business.  It is a little slower if we insist on using our own investment but in the not very long-run we are better off.

An added advantage of the slower approach is that you don't think you have unlimited money and hence waste it on frills.  You are canny with your money and have time to explore the inns and outs of your new business before you commit huge amounts of cash in mistakes.

What have been the results of being little princesses in the past.

We don't do our own banking.  We have had a number of small banks for some time and just recently, the post office started KiwiBank (the tail now wags the dog).  But most of our banking including banking by our government is with Australian banks.  Because we wanted a banking system right away we now loose around a billion dollars every 6 months to Australia.  Imagine what this amount of money staying in a Kiwi bank would do for our economy but we were little princesses.  We wanted it all and we wanted it now.

We don't fish our own waters.  Yes, we have some fishing boats but the main industrial fishing is done by overseas boats.  Recently we had an example of what this results in.  A Korean boat with Indonesian workers was mistreating their workers most abysmally.  The workers asked for asylum in New Zealand and help getting their wages paid.  Later that same boat caught a particularly valuable net of fish and chucked the fish they already had stored in their holds overboard so they would have room for the new fish.  We wanted the fish landed in New Zealand to be cheap so we went for the overseas option, ignoring all the spin offs of doing our own fishing. Now it has been revealed that not all of the fish caught by these foreign boats are even landed in New Zealand.

Note.  A number of times on National Radio it has been estimated by various experts that for every core job, 4 secondary jobs are created. This will apply to all the examples in this blog including fishing.  In fact it is more extreme in the case of fishing.  Just think of the land based infrastructure with their core jobs, needed to repair boats, process fish and so forth.

We don't build our own rail stock.  Despite a BERL report stating that we would need to purchase our rail stock for 38% of the local price, we decided to buy our rail stock overseas.  This rail stock we bought contained asbestos despite the specifications saying that it should be asbestos free and many repairs had to be made including fixing the suspension systems.  Otherwise, at speed the rail cars jumped off the tracks.  Even if the overseas rail stock had been excellent, it would have been a bad decision to buy overseas.  The BERL report didn't even take into consideration the long term benefits, namely the up-skilling of our work force.  With the sophisticated electronics needed in modern rail stock, our work force might have gone on to use the Open source pattens by Tesla to produce the affordable electric car - called, of course, the Kiwi.  Who knows what other spin offs could have occured.

We don't produce all our own baby formula.  We have allowed a Chinese company to gain a foot hold in New Zealand.  There was a big scandal about melamine being added to milk products in China which besmirched our reputation.  We should simply produce the product here in New Zealand and sell it to whomever wants to buy it.

We don't value add our own logs.  China thinks in terms of centuries, we in terms of quarterly reports and single election cycles.  China has given us top dollar for our logs, destroying our milling capacity. China has huge cash reserves from selling goods to America and the rest of the world made by her underpaid work force.  Now China has generously offered to build us a large modern wood milling plant.   We really need to start to think, at least in decades.

We don't bottle our own water.  This really is beyond belief.  We manage the much more complex wine and milk from field to customer.  Surly we can bottle our own water.  It is a license to print money.  And it is about the most cost efficient use of our water.  It takes over 1000 liters of water to produce a liter of milk.  It takes 1.37 liters of water to produce a liter of bottled water.  And in many places the retail price is about the same.  There has been some discussion in New Zealand on putting a price on water.  A price that would be significant for the water bottling industry would cripple our farmers and a price the farmers could survive would be insignificant for the water bottling industry.  All we have to do is to own the bottling companies and tax them as we would any other business.  And..... keep the profits in New Zealand. We took the easy way out and now someone else benefits from the sale of our pure water.

These are just a few of many examples of the Little Princess Effect.  We wanted it all and we wanted it now instead of taking the slower rout with more effort on our part but ending up far better off.  No wonder we don't have the revenue to pay our teachers and medical workers more.  We have thrown away so many jobs, each of which would pay income tax to the exchequer and so much more money flowing through the economy with GST going to the government at each transaction.

We have to start thinking like Frugal Wife.