What does the OECD really have to offer us?

The Organisation for Economic Cooperation and Development (OECD) is often loosely described as “the rich countries club”.  It isn’t an entirely accurate description –  there are several high income oil exporting countries who don’t belong (as well as places like Singapore and Taiwan), and some countries that are members (notably Mexico and Turkey) aren’t particularly high income.     But it is a grouping of mostly fairly advanced fairly open economies (New Zealand’s been a member since 1973).   And the organisation claims to be able to offer useful advice to countries as to how to improve their economic performance.  I’ve become increasingly sceptical of that proposition, especially as regards New Zealand.

On a biennial cycle the OECD’s Economic and Development Review Committee (EDRC) meets in Paris to review each member country’s overall economic performance, and offers some specific advice both on general economic management issues and on specific topics agreed in advance between the secretariat and the country concerned.  I wrote about the process, which draws on extensive staff work, on the day New Zealand was last reviewed in April 2015.

The next review is almost upon us.  The EDRC is scheduled to discuss New Zealand on 20 April, so the draft text is probably already in the hands of New Zealand government agencies.   The final text will presumably be released in late May or early June.  This year’s agreed special topics are “Increasing Productivity”, and “Labour Markets and Skills”.    The latter topic apparently includes the New Zealand immigration system, and when the OECD team came to Wellington last year I participated in a meeting with them, along with various government agency representatives, on some of the strengths and weaknesses of our system.   Historically, the OECD tends to be very strongly pro-immigration –  without much evidence for its benefits, especially in remote places like New Zealand –  and I expect their treatment this time will again reflect that presumption, probably with some suggested tweaks at the margins.   But, as often, the OECD might be able to present some cross-country data on the issues in interesting ways.

Quite what they’ll come up with to increase productivity could be more interesting.   In many ways, New Zealand is a test for whether the OECD has much useful to say.  For a member that was once among the richest and most productive OECD economies and now languishes a long way down the league table, New Zealand has been a bit of an embarrassment to the OECD.  After all, we did an awful lot of what they suggested 25 to 30 years ago.

I’m writing about the issue because a few days ago the OECD released one of their flagship cross-country publications, Going for GrowthThese documents often contain a lot of interesting cross-country comparative material –  data collection and presentation is one thing the OECD defintely does well.  But they also get specific, and have a couple of pages of economic policy priority recommendations for each country.  Since the OECD  must already have written their full substantive report on New Zealand for the forthcoming EDRC survey, one might have expected that the recommendations for New Zealand would be particularly incisive and well-focused, offering suggestions which, if adopted, would clearly help reverse our long-term underperformance.   As they note, labour productivity gaps between New Zealand and the other advanced economies have continued to widen over the last quarter century.   As the OECD’s own chart illustrates, real GDP per hour worked is now about 37 per cent below the average for the countries in the upper half of the OECD  (these are countries from Luxembourg and Norway at the top, to Italy and the UK at the bottom).

So what does the OECD propose for New Zealand?

  1. Reduce barriers to FDI and trade and to competition in network sectors.   Recommendations:  Ease FDI screening requirements, clarify criteria for meeting the net national benefit test and remove ministerial discretion in their application. Encourage more extensive use of advance rulings on imports and improve the publication and dissemination of trade information. Sell remaining government shareholdings in electricity generators and Air New Zealand. Remove legal exemptions from competition policy in international freight transport.
  2. Improve housing policies. Recommendations: Implement the Productivity Commission’s recommendations on improving urban planning, including: adopting different regulatory approaches for the natural and built environments; making clearer government’s priorities concerning land use regulation and infrastructure provision; making the planning system more responsive in providing key infrastructure; adopting a more restrained approach to land regulation; strengthening local and central government emphasis on rigorous analysis of policy options and planning proposals; implementing pricing to reduce urban road congestion; and diversifying urban infrastructure funding sources.
  3. Reduce educational underachievement among specific groups. Recommendations: Better target early childhood education on groups with low participation in such education. Improve standards, appraisal and accountability in the schooling system.To improve the school-to-work transition, enhance the quality of teaching, careers advice and pathways, especially for disadvantaged youth, and expand the Youth Guarantee. Facilitate participation of disadvantaged youth in training and apprenticeships. Students from Maori, Pasifika and lower socio-economic backgrounds have much less favourable education outcomes than others.
  4. Improve health sector efficiency and outcomes among specific groupsRecommendations: Increase District Health Boards’ incentives to enhance hospital efficiency, improve workforce utilisation, integrate primary and secondary care, and better managed chronic care. Continue to encourage the adoption of more healthy lifestyles.
  5. Raise effectiveness of R&D support. Recommendations: Further boost support for business R&D to help lift it to the longer term goal of 1% of GDP. Evaluate grant programmes. Co-ordinate immigration and education policies with business skills needs for innovation.

The general goals seem fine, in as far as they go.  And some of the specifics seem sensible enough too (others –  more R&D subsidies, government encouragement of “more healthy lifestyles”  –  seem distinctly questionable).    But could anyone with a reasonably in-depth understanding of the New Zealand economy and its performance over the last few decades, really think that that list, even if adopted in full, would really make a material difference in turning around New Zealand’s long-term productivity underperformance?   I’m all for fixing the housing policy disaster, but when the OECD talks of the agglomeration gains that might make possible, have they actually looked at the dismal Auckland productivity performance over a period when Auckland’s population has already grown very rapidly?

It is also quite surprising what they don’t mention.   Perhaps macro imbalances, such as our persistently high real exchange rate, or our (typically) highest real interest rates in the OECD, don’t easily fit in a structural policy document –  although they are significant symptoms that a list of possible structural policy remedies needs to notice.

But the OECD does publish as part of Going for Growth quite a range of cross-country comparative data on various structural policy indicators.  Even then there are puzzling omissions.  There is nothing at all, for example, on immigration policy.    And company tax is also missing.   Here is the data from the OECD website on statutory company tax rates for 2016.

company tax rates

New Zealand is in the upper third of OECD countries –  and with a company tax rate well above that group of countries (from the Czech Republic to Switzerland) at around 20 per cent.   I’m all in favour of reducing FDI barriers, for example, but for many firms who might consider establishing here, the likely tax bill is probaly a more significant consideration.  And I suspect it offers more payoff in improving productivity than the health system, whatever the merits of the specifics they propose there.

It was also interesting that the OECD does not mention our labour laws.    It is well-known that our minimum wage is quite high relative to median wages/labour costs. In fact, the OECD again illustrate it in their indicator pack. This is their chart, and I’ve simply highlighted New Zealand.

min wage OECD

It is a quite a stark picture, but doesn’t seem to be a priority issue for the OECD.  Actually, I doubt altering the minimum wage laws offers very much on the productivity front, but even if one is simply concerned about disadvantage (as they very much seem to be) we know that getting people into jobs is the best path towards longer-term economic security.   One needn’t go to the US end of this spectrum, but places like the Netherlands and Belgium aren’t exactly known as bastions of heartlessness, small government or whatever.

Overall, I think the list still suggests the OECD has very little idea what has gone wrong in New Zealand, and hence has little more than a generalised grab bag of ideas to offer in response –  many no doubt quite useful in their own way, but mostly likely to be tinkering at the margins.

Out of curiousity, I had a look at what they had to recommend for the previous country on the (alphabetical) list –  the Netherlands.  It is an interesting country too.  Productivity –  GDP per hour worked –  is above that for the group of countries in the upper half of the OECD.  Indeed for decades productivity levels in the Netherlands have been very similar to those in the United States.  Per capita income lags a bit behind, because Dutch people on average don’t work long hours each year (although the participation rate is high).    But it is, by most counts, a very successful economy.    Real GDP per hour worked is about 65 per cent higher than in New Zealand.

What does the OECD recommend for them?

  1. Lower marginal effective tax rates on labour income.
  2. Ease employment protection legislation for regular contracts and duality with the self-employed.
  3. Reform the unemployment benefit system and strengthen active labour market policies.
  4. Increase the scope of the unregulated part of the housing market
  5. Increase direct public support for R&D  [even New Zealand spends more on this than they do]

Setting aside the OECD’s taste for R&D subsidies, it mostly seems sensible, plausible, and well-targeted.  They  seem to have a better idea what to offer an already rich and successful country in the heart of Europe, than they have to offer a once-rich now-underperforming remote one.   For us, that is a real shame.

One can only hope that when the productivity chapter of the forthcoming New Zealand economic survey comes out, they can offer a more persuasive grounded set of recommendations as to what might make a real difference in reversing our decades of underperformance.

(For a more optimistic take on the OECD’s recommendations for New Zealand, see Donal Curtin’s assessment.)

 

 

In sort of, kind of, half-hearted partial defence of Wellington City Council

That isn’t a stance that comes naturally.   Wellington City Council wastes money with the best of them (convention centres, possible runway extension, bike stands outside our church, and so on –  they even use ratepayers’ money to help fund the New Zealand Initiative) and presides over land-use restrictions that deliver increasingly high house prices.  And then there are more localised gripes – but which have managed to get quite a bit of national coverage –  like the Island Bay cycleway.

It was built without adequate consultation, and after it was built an overwhelming majority of participants in a well-run survey of residents conducted by the Residents Association told the Council they didn’t like it and wanted it gone.  There was never an obvious reason for it in the first place –  The Parade was one of the wider flatter safer streets in Wellington –  but the then Mayor lived in Island Bay and liked to cycle to work.   (It remains part of a grand vision of a cycleway all the way into the city –  key bits of rest of the route currently serviced by roads that are barely wide enough anyway).   And the only bit of the street I’d be a bit hesitant about cycling –  through the shopping centre, with reversing angle parkers etc –  is the only bit where there is no cycleway.  It has been a fiasco all round.  It is still relatively early days, but as someone who is mostly a pedestrian or a motorist, I suspect the overall environment is now more dangerous than it was (not very).  As a pedestrian, one suddenly finds the cycleway merging with the footpath (to get round bus stops).  As a motorist turning out of side streets it is materially harder to see oncoming traffic than it used to be.  And I’m not at all sure how people who live on The Parade, backing out of their driveways, cope.  It would probably matter even more if there were many cyclists, but on a nice autumn morning I just walked the length of the cycleway and didn’t see a cyclist.

The story is back in the news because a local dairy owner has decided to close his business, and blames the loss of short-term parking for a downturn in business (more than a few parks were removed to facilitate the cycleway).  Perhaps so, but I’m just a little sceptical.  Perhaps that is partly because it isn’t clear to me who uses dairies, even when parking is no problem, apart perhaps from school kids buying lollies.   I’m in the neighbourhood all day, and I might have used a dairy twice in a year.  But along the length of the cycleway –  a distance I just walked in 14 minutes –  there are six dairies (including the one planning to close soon) and a full-service supermarket (open from 7am to 10pm every day), for a population of around 7000.  There were only one or two more when I first moved here 40 years ago.  On one corner, two dairies face each other across the street –  and somehow seem to survive.  And actually, the dairy that is to close is the furthest from all the others, and the only one everyone has to pass coming into Island Bay from the city.  It is a little hard to believe that the ill-considered cycleway is the only, or even dominant, factor.  The Wellington City Council is guilty of many things, and a prima facie assumpton that they will be guilty of whatever they are charged with is often safe (don’t get me started on the walkway they currently have indefinitely closed to protect “heritage interests”), but perhaps not this time.

None of which excuses the inaction on the cycleway.  It was kicked beyond the election last year, even after the survey results had been released, and now we are told to expect a decision in six months time.  Meanwhile, of our two local councillors, one is off to become a member of Parliament –  unless perhaps the Greens find a more dynamic candidate, in this one of their strongest party vote seats –  and the other sees his future in Christchurch –  he’s running for Parliament for the Greens in Ilam.   The fear remains that the other councillors, the bureaucrats, and the cycling lobby  –  all keen on a whole network of cycleways –  will just wait things out and the monstrosity will be with us forever.

Agreeing with the Governor

If I go on finding myself agreeing with Graeme Wheeler, there won’t be much point writing about OCR announcements.  But, as it happens, he has only three more to deliver.

I could quibble about a few details in this morning’s announcement, but the only one I wanted to highlight briefly was this proposition

Monetary policy will remain accommodative for a considerable period.

In six months and a few days, the Governor will have moved on.  We’ll then have an acting Governor, with no Policy Targets Agreement, for six months.  And not until this time next year will we have in place a monetary policy decisionmaker, with an agreed target, who can make moderately credible statements about possible monetary policy decisions over the medium-term.    So to be strictly accurate,  that sentence should probably have read something like

“If the forecasts underpinning today’s decision are roughly right, and if my successors have (a) the same target I do, and (b) the same interpretation of that target, and the same reaction function, then monetary policy will remain accommodative for a considerable period.”

But in this post, I’m backing the Governor, and one line I was particularly pleased to see was this one (emphasis added)

Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low and stable.

I made that point here a while ago, so I was pleased to see the Reserve Bank also highlight the  point.    Here is what I mean, using the OECD’s data on CPI inflation ex food and energy –  the one readily available and consistently compiled core inflation measure.

OECD inflation ex food and energy

I’m using monthly data, to be as up-to-date as possible, and New Zealand and Australia don’t have monthly CPI data.  But the comparable quarterly chart doesn’t look materially different.

I’ve shown two lines.  The first is the median core inflation rate for all individual OECD countries (with monthly data).  But that includes 19 euro countries (plus Denmark) that have only one monetary policy.  So the second line is the median core inflation rate for the distinct monetary policy countries/areas –  ie delete the individual euro area countries, and replace them with an inflation rate for the euro area as a whole.  I’d probably tend to emphasise that measure.

But on neither measure is there any sign that core inflation has been picking up at all.  And although the US has been raising its policy interest rate to some extent, there have been more cuts in policy interest rates in the last 18 months or so (the sort of time it takes policy to work) than increases.

Of course, that is only actual inflation outcomes.  Perhaps there is more inflation just ahead of us –  a story markets seem to have taken a fancy to.

For what it is worth, international agencies still thought there was a negative output gap across the advanced world last time they looked (the OECD thought it was -1.4 per cent last time they updated their published forecasts).

The unemployment picture –  another read on excess capacity and resource pressures -is a bit different.    For the G7 countries as a whole, the unemployment rate is now a touch below the troughs reached at the peak of the last boom.    For the OECD group as whole – even including places like Greece –  it is only around 0.7 percentage points higher than at the peak of the last boom.  For the median OECD country, the unemployment rate now only about half a percentage points above the average for the last boom year (2007).

Here are the unemployment rates for the largest OECD economies

U rates big countries

The unemployment rates have been falling for some considerable time, and there has been no pick up in inflation yet.  For each fall, of course, the respective NAIRUs must be getting closer, but it is probably safer to wait and see that core inflation has actually begun to rise –  especially in view of the low starting level –  than to simply assume that it must happen soon.

Of course, when one looks at unemployment rates what does tend to stand out is how little the unemployment rates in New Zealand and Australia have come down.

U rates NZ and AusIn both countries the current unemployment rate is around 1.5 to 1.7 percentage points higher than it was in the year or so prior to the global downturn.  And neither country was troubled by a domestic financial crisis, nor did they run out of room to use conventional monetary policy.  The monetary policy authorities should have been able to do better.   If I look across the monetary areas in the OECD (again replacing individual euro area countries with the region as a whole), the only places with a worse record on this score –  unemployment rates now compared to the pre-recession levels – are:

  • the euro area as a whole (visible in the first chart above) where they did run out of conventional monetary policy options,
  • Norway, and
  • Turkey, not a paragon of economic management or political stability.

Core inflation measures have been picking up a little here, as they should have after the sharp cuts in the OCR the Reserve Bank had to implement.    But our unemployment record –  at a time when much of the rest of the advanced world has been able to run unemployment rates back near pre-recessionary levels without (yet) seeing signs of core inflation rising –  is one reason why I think the Governor is quite right not to express any bias about the direction of the next change in interest rates, however far away (and delivered by a person yet unknown) that might be.

Superior measures, but still no productivity growth

Statistics New Zealand this morning released their best estimates of New Zealand productivity growth.  They are annual only –  so the new data is for the year to March 2016 –  and cover only the “measured sector”, so excluding parts of the public sector in particular where productivity is just very hard to measure (there are few market prices for the services for a start).  They also make an adjustment for the changes in the composition of the labour force –  there is, in principle at least, a lot more human capital associated with an average worker now than decades ago when few people had a tertiary education.

Last week I ran this chart, showing an estimate of quarterly labour productivity growth (real GDP per hour worked)

real gdp phw dec 16 release

It isn’t an encouraging picture.  In fact, the last five years have been so bad, I’ve been hesitant about believing reality was quite that bad.

But here is new annual data, showing labour productivity and multi-factor productivity, both indexed to 1998 when the data in this format start.

measured sector productivity mar 2017

The summary?

  • No multi-factor productivity growth, in aggregate, for a decade –  the latest data point is very slightly  below that for the year to March 2006.
  • And no labour productivity growth for the last four years –  a picture very similar to the (differently measured, and more recent) real GDP per hour worked chart above.   In the last 10 years, there has been only around 4.5 per cent labour productivity growth in total.

Different models, and different measurement bases, will produce different results.  None of them suggest there has been much productivity growth in New Zealand for some considerable time.  And to repeat Paul Krugman’s succinct summary

“Productivity isn’t everything, but in the long run it is almost everything.”

New Zealand Initiative on immigration: Part 10 Recommendations and Conclusion

At last we get to the end of the New Zealand Initiative’s report on New Zealand’s immigration policy.

I don’t want to spend much time on the Conclusion page or so.  Even in a short section, there is lots I could challenge or disagree with, but much of it is ground already covered.  But I did want to highlight briefly the tone they adopt.  It is not one that, say, respects the very wide differences in immigration polices found across time and across the countries of the world (even just among the relatively advanced countries).    Or one that recognises that in some area men and women of goodwill and decency might have different preferences as to how best to organise or govern societies.  It isn’t even one open to the possibility that not all state-facilitated immigration –  to any place, at any time –  will necessarily benefit the natives of the place.  Rather, the only things that can possibly lead to different conclusions than the Initiative are fear, confusion, racism and so on.

This is what I mean.

Such is the intensity of the fear and confusion among the public that many opposition parties have seized on this narrative, some naively and some opportunistically. The pro-immigration Key government too has tightened policy settings to appease the public.

No one, presumably, has engaged in a thoughtful or considered reassessment?

Radical changes to policy settings simply to appease populist fears is misguided and even harmful.

The only reason anyone might apparently consider change is “to appease populist fears”.

Which is all a bit odd because a couple of paragraphs on they come to the economic aspects of immigration –  economics being the core expertise of Initiative people.  And there, writing about New Zealand, they say (emphases added)

Economic worries about immigration are overblown. There is no compelling reason to believe migrants are causing major detrimental impacts to the labour market. Although the empirical evidence is less than conclusive, there are good reasons to believe, as most economists do, immigration can make a positive contribution to economic growth.

Note how weak the actual claims are.  It isn’t exactly a ringing endorsement of the contribution of New Zealand’s immigration policy to the economic wellbeing of New Zealanders.  After all, I’m happy to sign up to the proposition that immigration “can” make a positive contribution to per capita economic growth, productivity, NNI per capita or whatever. Pretty clearly it did in New Zealand in the 19th century.   It is just that the Initiative, at the end of a major report, can point to no evidence that it actually has done so in recent decades, or is doing so now, in New Zealand.

But what of their specific policy recommendations?  For practical purposes, they endorse roughly the current scale and structure of our immigration policy (with no attempt to assess whether New Zealanders would be better off if, say, the programme were 50 per cent larger, or smaller, than it is).  There are, broadly, four areas of reform they suggest.  As they argue –  noting again the loaded language

Most of the low-hanging fruit have been picked, but policy can still be improved. And there are less harmful ways to placate those who demand an exclusionist policy.

The first is “giving business more of a say”.  In some areas, I agree with them.  For example

Rather than let government decide what types of skills the market needs, let the market reveal it through the price system. A market-driven approach could be to adjust the points system to assign points to the salary ranges of job offers rather than the specific industries migrants are qualified in.

I would favour something similar for our short-term work visa rules.  Set age-related salary thresholds, and set them quite high, and use that as the main tool to decide whether or not to approve a work visa.  I’d have no real problem in offering work visas fairly freely for any position (genuinely) paying, say, $100,000 per annum or more, subject to a limit of, say, three years.   After all, in the Initiative’s words –  and ones I could have written myself

Skills ‘shortages’ can be rectified through higher pay rather than lobbying
government to add the skill requirement to the list.

Where I depart from the Initiative is when they fall back on comparing people with pineapples.

The free market is a much better decision-maker on how many imported pineapples or cars New Zealand needs. Likewise, the number and types of skilled workers New
Zealand requires is for businesses to decide without the strong hand of government.

What is being decided, in our medium-term immigration programme, is how many people, of what sort, will be able to come and join the polity that is New Zealand.  Pineapples don’t vote, pineapples don’t come with cultures.  People do.    The Initiative seems largely indifferent to any notion of the state as agent of the collective preferences of its citizens, but most voters probably see it differently.   I’d put their sentence the other way round:

“It is for the government, on behalf of the public, to make choices as to how many, and what type of, people to invite from abroad to become New Zealanders.    Firms and employers will choose optimal production structures, remuneration patterns etc, in light of all the resources and constraints they face.”

The Initiative also explores the option of imposing a levy, “to limit the effects of migration on infrastructure costs”.    One of the authors, Rachel Hodder, followed up this idea in an article on interest.co.nz.    As she puts it

Our recommendation then also stands as a challenge to political parties that have been using infrastructure burden as justification for cutting immigration. If that is the genuine reason you believe immigration policy needs to be adjusted, then why not explore this option first?

It is an interesting idea, and I don’t think I’d have any objection in principle.  It would increase the chances –  although certainly not ensure – that large scale immigration would actually be benefiting New Zealanders in aggregate, although on its own it would do nothing to allay the distributional concerns (that relatively unskilled New Zealanders are losing out).

The Initiative proposes the idea of a levy without, as far as I can see, giving any sense of the possible size.    One angle might be to look at the public sector capital stock, which presumably needs to be augmented, in much the same per capita amounts, for each addition to the population.   As at last March, Statistics New Zealand estimated that the current value of the general government sector’s capital stock was around $41500 per person.  But that is a depreciated value.  Assume that all the capital was halfway through its life, and one could easily be looking at a per capita cost of putting in place the new public sector capital that new migrants require of $80000.    Some of the public sector capital is already financed by user-fees, but most of it isn’t.   I wonder if anyone is seriously willing to propose an $80000 levy for successful applicants for a residence visa in New Zealand  – even if, say, it could be paid as an income tax surcharge over the following 10 years?  In principle, it should raise the average skill level of the successful applicants to some extent.  It would certainly deter migrants with children.

I don’t have a huge problem in principle with such a scheme but, rightly or wrongly, I suspect most people would judge that it was almost a “repugnant transaction” –  they would prefer not to sell the right to become one of us.  Is it different in character from inviting migrants in on the hypothesis that doing so will enrich us all (the current philosophy)?  Perhaps not –  and definitely not to the economist in me –  but I can’t see it finding a great deal of public favour, among supporters or sceptics of the immigration programme.

The Initiative also seems to endorse proposals for New Zealand to sign reciprocal free movement agreements with any willing coountries, citing favourably ACT leader David Seymour’s suggestion to promote such agreements with Canada and the United Kingdom, complementing the arrangements we currently have with Australia.

Doing so with the UK in particular would, of course, restore the system that operated for more than a century after New Zealand was first settled.  It was only in the 1960s and 70s that free movement between the UK and New Zealand was no longer legally permitted.  At a political level, I find the idea quite appealing (but politicians in the two countries are unlikely to).  At an economic one, I don’t.  This simply harks back to my longstanding argument that the most important issue for New Zealand is the sheer number of immigrants we’ve been taking, not primarily what shills they’ve had or where they’ve come from.  Most of our migrants in the early post-war decades came from the United Kingdom.  At the time, material living standards here were better than those in the UK.  But even now, decades on, no one has been able to produce studies –  whether econometric ones or analytical narratives – demonstrating the productivity gains to New Zealanders from that large scale immigration.  Economists at the time was pretty sceptical.  Those now just seem uninterested in New Zealand economic and economic policy history, and the possible lessons it should offer.

These days, of course, New Zealand is poorer than the UK, but the UK is so much the larger country that even a small outflow from the UK to NZ  (as a share of the UK population) would be materially disruptive to New Zealand, and would further set back the chances of lifting productivity and living standards here back to those in, say, the top half of the OECD.  There is, additionally, the adverse selection problem, that the people most willing to migrate from a rich hub to a poorer, but perhaps more relaxed and spacious, country are hardly likely, on average, to be those with the greatest desire to succeed, and the strongest likelihood of offering the vaunted productivity spillovers.

The Initiative’s final suggestion for policy improvement is in the area of sponsorship for migrants.

A separate visa category could allow committed people to sponsor and support migrants in adverse circumstances, provided adequate checks and balances are in place. Canada allows community groups to sponsor refugees above the quota if they agree to be responsible for the basic care and support of the refugees, and New Zealand is laudably trialling this system for refugees here.

In principle, I’d have no particular problem with this suggestion.   As they note

Requiring bonds from sponsors could ensure the sponsors are held to their commitment.

But I think it is an approach mostly best operated on a relatively small scale.  Immigration policy is a collective decision about the number, and sort, of people we welcome to become future New Zealanders. I’m not sure we want motivated minorities  –  whether libertarians, evangelical Christians, Wahhabi Muslims or whatever –  trying to skew the population balance over time by fundraising to bring in lots more of their own.  Each group is, of course, welcome to evangelise and persuade, and perhaps if the libertarians ever persuaded enough of us we’d have open borders after all.  But make it a contest of ideas, not of the power to buy more imported supporters.

In the end, it is a pretty modest list of suggested reforms.  Much as they seem driven by a vision of open borders, in the end the Initiative is worried that New Zealanders might be getting uncomfortable with the grand Think Big experiment of New Zealand existing immigration policy over the last 25 or so years.  It has delivered us a large increase in the population, and a lot more ethnic restaurants and higher house prices (to take the most obvious gains and downsides), but with little or no evidence that it has done anything to lift our overall economic performance.  As the OECD noted again only the other day, for the last quarter century our productivity –  already low –  has just drifted a little further behind other advanced countries.  Perhaps it is past time to rethink this key dimension of economic policy.

My own preferrred model would probably have these elements:

  1.  Reducing the residence approvals target from around the current 45000 per annum to, say, 10000 to 15000 per annum.  In per capita terms, that would be about the rate of legal immigration the US has, and would be similar to the rate we had in the 1980s.  Not exactly closing the door, but certainly pulling it over to some extent.
  2. Within that reduced target I would look to focus much more strongly on demonstrably highly skilled people (who offer the best chance of fiscal and productivity gains) and thus would
    • revisit, reduce and potentially eliminate the current Pacific access categories,
    • permanently eliminate parent visas, except (and even then capped) where there is an enforceable, insured, commitment to full financial support from the parent, or their New Zealand citizen child.
    • leave the refugee quota as it is
    • eliminate the additional points provided for job offers in regional areas (a measure that is tending to lower the average quality of the accepted migrants)
    • eliminate additional points for New Zealand specific qualifications,
    • eliminate additional points for jobs in areas of “future growth” or “absolute skill shortage”
    • more strongly differentiate points in favour of higher level qualifications,
    • perhaps establish a category akin to the US visa for those with extraordinary ability
  3. Eliminate the provision allowing foreign students studying here to work 20 hours a week.  If New Zealand tertiary institutions really have a product worth buying –  and some probably do –  they should stand on their own feet, as other exporters are required to.
  4. Reshape the work visa system with a view to (a) reduce the scope for lobbying and influence peddling, (b) reducing the total number of people here on work visas at any one time, and (c) provide much greater flexibility for employers to utilise work visa people for short specific periods in highly-skilled and well-remunerated roles.    Since there would be many fewer residence approvals place open (see above) this path would in any case be much less popular with prospective migrants.   Specific features might include:
    • no one could have a work visa for more than two three year stints
    • use an age-based matrix in which in normal circumstances no work visas might be issued to anyone under 30 for a role paying less than, say, (an inflation-indexed) $75000 per annum, increasing by (say) $25000 in each five year age window up to a cap so that for a person over 50 to get a work visas they would need to be in a role paying $200000 per annum or more.
    • no doubt there would need to be some exceptions to this, and it would not apply to say approvals for roles of less than perhaps three months, but the point is to get the focus not on official judgements of “skill shortages” but on attracting people, if we do, who are capable of commanding high salaries (loose proxy for skill) on market.

Is it a perfect scheme?  No, of course not.  That isn’t a meaningful test for any human institution.  Is it a scheme for other countries.  No.  Some might find it useful, but for others –  where there might be clear evidence of gains to natives from large scale immigration –  it might be quite inappropriate.   But for the specifics of where New Zealand finds itself now, it would be a huge step in the right direction.   For a very remote place, in an age when personal connections seem to matter more than ever, it would give us a much better chance of finally beginning to close the income and productivity gaps, and offer New Zealanders –  the inevitably fewer number of future New Zealanders than under current policy – the chance of achieving world class productivity and living standard here in their own place.

 

 

 

Labour on financing new housing infrastructure

The parliamentary Labour Party has been showing signs of being serious about proposing steps that would, as they see it, unwind the structural impediments that keep urban land prices high and slow down the construction of new housing. Their housing spokesman (and campaign chairman) Phil Twyford has indicated that Labour wants to get rid of the artificial urban limits around cities, especially Auckland, and even managed a joint op-ed with the New Zealand Initiative on that.

Welcome –  and no doubt genuine –  as it all is, I’m still somewhat sceptical about what it will mean in practice.  Any Labour government is near-certain to require the support of the Greens, not known for their support for such flexibility.   And Labour or Labour-associated mayors lead our three largest cities, but there has been little sign of those Councils or mayors leading the way in freeing up urban land supply.  There is a great deal councils could do if they wanted to.  And even if they ran into legal challenges under current legislation, they could still be laying down markers as to the likely direction of reform when Labour returns to national office.

Last week Phil Twyford was out with another interesting idea in the same broad area –  very long-term infrastructure bonds paid back by targeted rates – which again garnered public support from the New Zealand Initiative.  Twyford sketched out his idea in an op-ed in the Herald, and also gave a substantive interview on it to interest.co.nz, who covered it in an article here.  A reader with ties to the Labour Party suggested that I might like to write about it.  My interest in the details of local authority finance is, sadly, quite limited, but I’ve been mulling over what to make of the proposal for the last few days.  Is it really a proposal that, if adopted, might make a useful difference?

One difficulty in reaching a strong view is that the idea is no more than sketched out at the moment, and many of the details could matter quite a lot.

Some have argued that New Zealand should introduce, or allow, the sort of model used in many parts of Texas –  Municipal Utility Districts –  where developers of new residential areas outside existing city limits can form an incorporation, with its own governance structure, which in turn borrows to finance infrastructure developments and the provision of utilities such as water, sewerage and even parks.  The bonds are then serviced by user charges and property taxes on the properties within the specific district.    The New Zealand Initiative has written favourably about them (reported here), and I found an interesting recent Texan newspaper article that captured some of the colour/flavour of these sorts of vehicles.    Whatever the merits of these schemes –  and there seem to be some downsides too –  they aren’t what Twyford and the Labour Party are proposing.

There are some real issues they are trying to address.  As Twyford notes

The council is up against its debt ceiling and last week put the brakes on large-scale housing projects in Kumeu, Huapai and Riverhead until more progress is made on roads, stormwater and the like.

When the population of a city is growing as rapidly as Auckland’s, the existing debt ceilings are almost certainly flawed.  There is a huge difference in the amount of debt, relative to (say) current revenue, that should prudently be taken on in a local authority region  with no population growth than in a region that is seeing 2 or 3 per cent population growth per annum.  We saw this at a national level when New Zealand and Australia were rapidly developing prior to World War One.  Overall government spending as a share of GDP was much lower than it is today, but debt levels (again as a share of GDP) were much higher –  in excess of 100 per cent.  It wasn’t a problem, and markets didn’t see it as a problem.

Some of the current problem then seems to arise from a reluctance to use targeted rates, to ensure that purchasers of the new properties bear the cost of the infrastructure involved in developing those properties.  Development contribution levies presumably go only part of the way.  If owners – present or future –  of the newly-developed sections bore the full cost of the infrastructure it isn’t clear what (economic) reason the Council could have for standing in the way of future residential developments. Planners’, bureaucrats’, and politicians’ visions as to what the city “should” look like are quite another problem –  and not one that Twyford’s proposal seems to address at all.

Twyford describes the problem this way

Developers under current rules have to finance infrastructure within a subdivision and are levied by the council for a share of the cost of connecting to the wider roading and water systems as well as parks.

Many developers struggle with the sums of money involved and it adds cost and delay to projects.

But it isn’t clear that the issue here is really infrastructure finance.  Developers need to finance all the costs of bringing properties to market, including covering both the delays that are perhaps inevitable in complex projects, and those brought on by the regulatory approvals processes.  The largest chunk of those costs typically wouldn’t be the infrastructure (I’d have thought) but the unimproved value of the land  (recall that urban and peripheral urban land prices are really what are sky-high).  And property development is risky –  even though the Reserve Bank’s LVR restrictions weirdly exclude new construction, new developments are where far and away the greatest risks lie.  Lend on an existing house in Mt Eden and the risks are far lower than lending on a new development in Huapai.  Sections might sit unsold, or undeveloped for years.  New houses might do so too –  there was plenty of that in Dublin after the boom ended.

There has been talk recently of banks becoming more cautious about lending for new construction –  perhaps partly from their own reassessments of risks, and partly at the prompting of parents, in response to APRA’s nudges.  Broadly speaking, that seems to me quite welcome.  Banks make their own credit judgements and sometimes they will be less willing to lend than the authorities might like.  It is, of course, the money of their shareholders they are putting at risk.

But Labour talks of central government becoming a fairly large scale provider of finance.

Labour’s plan is for infrastructure within a development, as well as the connections to the wider networks, to be financed by 50-year bonds.

Instead of the developer picking up these costs and loading them on to the price tag of a new home, the bonds could be issued by a government agency – perhaps a specialist infrastructure unit within the Treasury.

Bonds issued in this way would be the cheapest finance available, taking advantage of the Government’s ability to borrow more cheaply than anyone else.

The plan seems to be for the government to issue long-term bonds, with the government standing behind the bonds, and then to on-lend the proceeds to developers, tied to specific projects.  The bonds, in turn, would be serviced by targeted rates levied by local councils on properties within that development.

It all sounds fine when everything goes well (most things do), but here are a few of my problems/concerns:

  • should we be comfortable with Treasury officials making loans to individual developers, with all the risks of political cronyism in the allocation of credit over time?  At very least, lending would need to be done at much more of an arms-length from elected politicians (as, say, when the government provided loans through the Housing Corporation or the Rural Bank),
  • on what basis would we think that Treasury officials –  or even those of a more independent agency –  are better placed to evaluate and monitor residential property development projects than banks and other private providers of development finance?  Who has the stronger incentive to get it right?
  • isn’t there a high risk that the weakest projects will tend to gravitate towards the government provider of finance (strong projects, strong developers, will typically be able to get on-market finance?).  Isn’t that incentive greatest towards the peak of housing booms, when more conservative private lenders might start to pull back from the funding market?
  • how is cost-control ensured?  If developers can simply shift any cost blow-outs into mandatory targeted rates over the next 50 years, doesn’t that materially weaken incentives to bring projects in on time on budget?
  • what is the proposed legal structure?  Only Councils can levy and collect rates, targeted or otherwise.   Are they, or the developer, legally liable for the borrowing from the government?  Developers can and do go out of business quite quickly.  Councils don’t –  but then don’t the debt ceiling concerns cut in again? And can councils credibly (or legally) commit to maintaining a whole series of specific targeted rate for the next 50 years?    (And what are the protections for the property owners against arbitrary changes in these localised targeted rates?)
  • and what happens if the project fails?  If, for example, population growth slows up and a half-completed development lies idle for the next couple of decades.  Will the owners of the land have to pay the targeted rate anyway and, if so, how resilient is this likely to prove politically?

It seems to me that the proposal is meant to have two main attractions:

  • part of the development cost –  infrastructure costs –  are financed at a lower (government) interest rate, and
  • the headline cost of a new house would probably be reduced.

But in substantive terms, neither is really that much of a gain.   The cheaper government financing cost is only available –  in Twyford’s own words –  because the government’s credit risk is protected by the use of targeted rates.  But money that the government has first claim on isn’t available to service other obligations. The infrastructure bonds might well be rock solid, but the rest of any borrowing people had taken out to finance a new property would be just that much riskier.  Incomes don’t rise, and servicing the infrastructure bonds would have first call on what income there was.  Banks would presumably take that into account (including in deciding how much, and at what margin, they will be willing to lend).

And if the headline cost of a new house is reduced, so what?  If I have a choice between paying $700000 for a new house, or paying $600000 for the house and then having to service $100000 of infrastructure bonds issued by the government to cover the development costs of the house, it doesn’t make much difference to me.  If the infrastructure bonds really were 50 year ones, the annual servicing burden might be a little lower than otherwise.  Then again, New Zealand already has the highest real interest rates in the advanced world, so the notion of paying those high rates for that long might not be overly attractive.

And thus I suspect Twyford is wrong about a possible third benefit.  He argues

Reduce the infrastructure component of the price of a new home, and you’ll reduce not only new house prices but eventually prices across the whole market.

That’s unlikely.  If I’m looking at a $700000 house (with no targeted rates), and comparing it to that new house in the previous  paragraph, changing the financing pattern for the new house isn’t likely to change much about what I’d be willing to pay for the existing house.   Of course, if the policy really did increase the flow of new supply of houses and developed land, there would be benefit in lowering the prices of existing properties.  But simply lowering the headline cost of a new house (while loading an equivalent amount into infrastructure bonds) won’t change that.

In many respects, I’m sorry to reach a negative conclusion.  It is great that the Labour Party is looking for ways to make a difference to the housing market, not just for a few months but permanently  (and it is a disgrace that we’ve had 15 years of increasingly unaffordable house prices under both Labour and National-led governments).  And, of course, this isn’t the only (or probably even the main) component of their housing plan

Fixing the housing crisis and managing Auckland’s growth needs sustained reform on many fronts. Labour will build 100,000 affordable homes, tax speculators, and set minimum standards to make rentals warm and dry. We will free up the planning rules by relaxing height and density rules around town centres and on transport routes, as well as replacing the urban growth boundary with more intensive spatial planning.

But I’m sceptical that the infrastructure bond proposal is a suitable response to a serious constraint or that, even if the governance and monitoring concerns could be overcome, that it would make much difference to house and urban land prices.

If they wanted to consider a bold initiative, how about promising that any private land within 100 kms of Queen St could be built on to, say, two storeys without further resource consents?  With a similar policy –  perhaps 50 kms circles  –  for Hamilton and Tauranga, it would seem much more likely to make a real difference in lowering land prices –  the biggest financing issues not just for developers, but for ultimate purchasers.    There are other pieces of the jigsaw, but changing the rules that underpin expectations of future potential land values is probably the biggest component of the problem.

Throw in a sharp cut in the immigration residence approvals target –  not mostly to solve the housing problem, but because there is no evidence New Zealanders are gaining from the large scale non-citizen immigration  – and properties in or near Auckland would be much more affordable really rather quickly.

 

 

 

 

 

 

 

 

 

New Zealand Initiative on immigration: Part 9 The case for open arms

I’m getting a little tired of writing about the New Zealand Initiative’s immigration report, and readers may be getting a little tired of reading about it.   But when the best-funded pro-immigration advocacy group in New Zealand –  Treasury and MBIE aside –  produces a major report on the subject, then as a sceptic of New Zealand’s modern immigration programmes I feel a certain obligation to keep on to the end.  But I’m now down to the last five pages of the report.

Chapter 5 is headed “The Case for Open Arms”, which sounded a lot as if it was going to be making the case for open borders –  that libertarian idyll, not adopted anywhere, in which anyone who wants to can come, in any numbers.   Because the Initiative seems torn between the practical  (simply defending current policy –  which, liberal as it is, is not remotely “open borders”), and the idealistic  (let them come, let them come, in whatever numbers they choose, a policy that they know will never be adopted), the rhetoric and arguments often also aren’t that consistent in tone.

They start by making a fair point

To the original tribes that inhabited New Zealand, European settlers would have seemed more foreign than today’s migrants are to modern New Zealanders.

Different religion, different technologies, different governing institutions, and immensely richer and more productive.    As the Maori did, apparently, so should we, for in the next sentence we are asked

Can New Zealand keep on accepting people who want to make this country their home?

Which seems to have rather lost sight of the hugely expensive wars, and mass (subsidised) migration, that were required to secure the European position in New Zealand.  It was a power grab.   I’m not sure it is a precedent I’d be wanting to invoke.   And, as I keep pointing out, it isn’t as if there are cultures that are (a) immensely more economically productive than the existing New Zealand culture/institutions, and (b) people from those (largely non-existent) countries/cultures clamouring to come to New Zealand.  Recall that paper I mentioned last week suggesting that if there are economic gains from increased diversity, they mostly arise when people come to your country from richer countries.

I’d be inclined to simply dismiss much of this as content-free rhetoric, but so much of the case for large scale non-citizen immigration policy seems to be made at that level.  It certainly doesn’t seem to engage with the actual specifics of New Zealand’s economic underperformance, despite our fairly good institutions and talented skilled people.

The next piece of rhetoric is that “we are all immigrants anyway” line, as if it offers any insights on the current policy choices.

No matter how you slice it, few New Zealanders can trace their lineage to many generations before counting someone foreign-born. We are part of the New World. And we are a nation of migrants.

I presume the aggregate numbers are right, but my ancestors came in the 1850s and 1860s.  It might be a different relationship with “New Zealand” than some Maori may have, but it is also very different than that of people who have come in the last five or ten years.  This is “our place”, and it is a matter for the voters of New Zealand to decide whether, and to what extent, we continue to take lots more immigrants.  And there is nothing historically inevitable about it.  Thus  the observation that “we are part of the New World” is true enough, but meaningless for these purposes.  Australia and Canada also have pretty liberal immigration policies – although even Canada is bit less open than we are.  But the United States takes only about as third as many legal migrants (per capita) as we do.   And the countries of colonial settlement in Latin America are not now known for their extensive immigration inflows.  Perhaps the less said about South Africa – once often grouped with New Zealand, Australia, and Canada –  the better.    Newfoundland, once independent, was one of the first British colonies of settlement: these days, something less than 2 per cent of the population is foreign-born.  It is a choice.

The rhetoric then gets stranger still –  indeed, they invoke the Golden Rule (“do unto others as you would have them do unto you”).

It doesn’t often get brought up in debate but the golden rule applies well to immigration.  Treating immigrants the same way we would like New Zealand emigrants to be treated overseas is fair and sensible. Many New Zealanders benefit from travelling overseas to live and work. Some end up staying but many return, and there is value to New Zealand from both.

Which is a really strange argument to run when New Zealand has among the more open approaches to immigration of any country in the world.  We all know how difficult it can be for New Zealanders to get migration access to, say, the United Kingdom.   The number of permanent resident foreigners in China –  now a middle income country –  is staggeringly small.  And even relative to Australia –  where we have loosely reciprocal arrangements involving the ability of citizens of each country to live and work in the other –  we treat Auatralians moving here far more generously than they treat the (many more) New Zealanders moving there.    And OECD data cited by people like the Productivity Commission tell us that we have more short-term foreign workers living here than any other OECD country.

More generally, it has never occurrred to me that I should have pretty free immigration access to any country I choose.  There are plenty of fine countries out there, but I’ve never assumed I should have a right to live in them.  So how is this argument remotely relevant to discussions of immigration policy in New Zealand?   We could choose to be even more liberal than we are, or we can wind back immigration access quite a bit, and we would still be no less open than most other advanced countries –  and much more open than most middle income and poorer countries.

The Initiative then devotes half a page to what we might call non-GDP benefits from “diversity”.  I’ve made the point before that we don’t need lots of immigration to enjoy Danish butter, French wine, Iranian dates, British books, American i-phones or movies, or Bangladesh or Vietnam-made clothes.  We just don’t.  There are some products that are probably sold here only because immigrant communities are here, but if the rest of us had a taste for those products, New Zealanders could import and distribute them too.   I’m not going to quibble with the taste for ethnic food New Zealanders have developed –  especially as even the Initiative concedes that chefs (one of the more common skilled migrants categories) aren’t exactly “critical economic enablers” (MBIE’s description of our immigration programme).  And perhaps the number of foreign-born players in the All Blacks is a gain to New Zealand, at least for some.  Of their other sports stories, I don’t begrudge Lydia Ko her success, but in what way is it a gain to (native) New Zealanders?  And at least one of the other star cases they cite –  Scott Dixon – was born overseas to New Zealand parents who returned to New Zealand when Dixon was very young.  Two of my kids were also born abroad and came back very young –  but whatever they might one day achieve, I won’t be ascribing that to our immigration programme.

But about this point, they change tack again, with a sub-section headed “A Radical Idea”.

And what is their “radical idea”?

Often forgotten in the immigration debate is a consideration of the migrant as a human being. To borrow a phrase from the feminist movement, the strongest case for a liberal immigration regime is the radical notion that migrants are people.

I’m not sure who ever doubted it.  The Initiative don’t tell us. Rather there is the implied superior tone “only we care about the people”.

No one ever doubted (or at least not that I’m aware of) that immigration usually benefits the immigrant.  After all, they make a voluntary choice to move, and presumably do so because they think doing so will benefit themselves and their descendants.  The hundreds of thousands of New Zealanders who have moved to Australia made that sort of assessment.  (Of course, it doesn’t always work out as planned  –  100 years ago or more Latin America used to offer much higher living standards than Spain or Italy, and migrants flocked to South America.  They might, with hindsight, have been better to have stayed.   For that matter, GDP per capita in New Zealand is now less than that in the UK.)

And I’m also quite comfortable with the proposition that immigration is more effective than foreign aid as a way of raising living standards of people in poor countries.  Since, foreign aid is almost totally useless in that regard, it isn’t much of a comparison.  Immigration can help people in poor countries in two main ways.  The first is transplanting people into richer countries in which their skills can earn more than they would at home.  And the second is remittances –  migrants sending money back to families at home.    The Initiative seems quite keen on remittance flows (a big issue in some small countries).  I’m not.  They help individual families in the short-run, but they also tend to overvalue real exchange rates in recipient countries, and make it harder for those countries to develop themselves, including developing internationally competitive industries.

The Initiative quote one libertarian economist as saying

“Immigration is the greatest anti-poverty programme ever devised”.

I think that is a distinctly questionable claim.   In the short-term, and for relatively small numbers of people, it is probably the quickest such way.

In fact, that greatest anti-poverty programme ever devised is (a) for governments to stop doing stupid and evil stuff (one could think of the self-destruction of Chinese living standards for much of the 20th century), or the current Yemen war, and (b) developing market-friendly institutions and cultures that enable prosperity to take hold for the many, not just the lucky few.  It isn’t easy, it isn’t quick.  But it works.  If the pro-immigration advocates want to argue that these countries/cultures can’t do it for themselves, it is like some sort of 19th century case for enlightened imperialism/colonalism.  I lived and worked in two such countries for a while.  There is little real doubt that British control and administration did raise living standards, and improve prospects for future economic development, in Zambia.    It wasn’t a perfect regime by any means, but the story was often told that in the early 1960s GDP per capita in Zambia was around (or ahead) of that in South Korea or Taiwan.  But most Zambians chose independence, and never showed any signs of regretting that choice, even through 20 pretty disastrous years from the 1970s to the 1990s.    Very little about the prosperity of a society as a whole is down to luck, most of it is down to choices (conscious and unconscious) about how to organise society, what to value, what is taboo and so on.

Decades ago, while he was at the Reserve Bank, Don Brash used to get frustrated at various church leaders’ comments on economics, many of which seemed to reduce to (sometimes quite explicitly) “the rich are rich because the poor are poor”.  We ended up setting up a dialogue with a group from some of the churches to at least better understand where each other were coming from.   I’m not sure it ever achieved much, but it came to mind recently in thinking about immigration.  From pro-immigration people we often hear the suggestion that the relative wealth of our society and the relative poverty of, say, India is down to good luck.  It was a line run in The Economist just the other day

Americans and Europeans are not more deserving of high incomes than Ethiopians or Haitians.

But no one “deserves” a high income.  Rather societies develop in ways which enable many of their citizens/residents to generate high incomes.   European societies have achieved that to a remarkable extent over the last few hundred years, joined so far by a relatively small number of countries from other cultures.  It is a precious achievement, that needs to be nurtured and safeguarded (and no doubt evangelised too).   There is no suggestion that it is somehow genetic –  other cultures held the technological (and material living standards) lead in earlier millenia.  Does nature play a role?  Well, no doubt.  It seems unlikely that Saudi Arabia, Kuwait and Oman would have their current living standards without the good fortune of abundant oil.  Navigable rivers, animals that can be domesticated, and so on all helped in the past.  But Haiti’s problems aren’t rooted in natural resources, but in Haitian society.  The comparisons are particularly obvious in those pairs of countries that started not long ago with very similar backgrounds: China (no better than middle income) and Taiwan, or North and South Korea.  Again, a common line is that individuals are “lucky” to be born in New Zealand rather than (say) China.  But luck doesn’t come into it.  People are born into a culture and society, and fostered and nurtured in the values, institutions of that society.  That is how successful societies maintain themselves.  Sadly, it is how unsuccessful societies (at least judged in material terms) replicate themselves.   There is little random, or “lucky”, about it.

As they come to the conclusion of the chapter, the Initiative observes

If one accepts the notion that birth circumstance should not impose limitations on where people are  allowed to live, then the burden of proof should fall on those arguing against immigration to show a detrimental effect.

That is a very big “if”.  Very few people ever have.  Very few do today.  Humans are born within societies –  small, but vital, ones like families, but also neighbourhoods, religious communities, cities, nations and so on.  Often people can leave, but in view few cases is there any automatic right to join.   Some of the boundaries are quintessentially natural and others somewhat arbitrary.  My kids aren’t your kids and vice versa.  Each face advantages and disadvantages in their particular birth and upbringing.  But except in rare circumstances your kids can’t become mine, or mine yours.  In older or more primitive communities much the same limitations applied to tribal or village groupings.  No one thought that outsiders had an automatic right to make themselves part of that established grouping.  Boundaries of countries are perhaps somewhat arbitrary, but even if at times they are drawn in somewhat arbitrary places –  which isn’t the case for New Zealand –  groups of people within those borders tend to develop (or have had for centuries) a sense of a common identity, shared interests, and a willingness to undertake mutual support and protection.  We might choose to invite people in, but it is a choice.  We recognise that, for the most part, being born in New Zealand gives you the right to be here and move about here, and being born somewhere else does not give you that right.

In that world –  the real world –  where people do think that birth circumstances can, and should, influence where one can choose to live, when governments are thinking of running large scale immigration programmes, the burden of proof should really be on our governments (and those who advocate) such programmes to show that natives will be better off if the outsiders come in.  “Better off” doesn’t just have to mean in “economic” terms. It might be something as simple as responding to the compassion of natives, in the face of a natural or political disaster elsewhere.     But for an economics-focused programme, as the New Zealand immigration programme has been for decades, the case made is that natives are made better off by large-scale non-citizen immigration.   Sadly, in their report, the Initiative made little effort to show that, asa  group, we are indeed made better off or even that, if there are such gains, they are maximised at around the sort of current scale and composition of inflows.  If they really believe the story –  as distinct from just the ideology of something like “open borders” – applies to New Zealand here and now surely that is a missed opportunity?