Still a country New Zealanders leave

In one of his weekly columns over the holiday period the Herald’s John Roughan, a touch sentimental perhaps that his grandchildren were just returning home again to Singapore, made the case that the post 1984 economic reforms have made New Zealand “a place worth returning to”,  “a place that can hold its own in the world”, and so on.

It is a nice story.  It is certainly one that I hoped would come true.  It is just a shame that the facts don’t really support it.

What have New Zealanders been doing?  Well, the last time there was any sort of sustained net inflow of New Zealand citizens to New Zealand was when Sir Robert Muldoon governed:  seven consecutive months in 1983.  It probably wasn’t greatly to Muldoon’s credit, since by mid 1983 Australia’s unemployment rate had risen sharply to just over 10 per cent.    There were also two months in early 1991 when there was an inflow of 90 people:  and again Australia’s unemployment rate was rising rapidly.    Even in the last 12 months a net 4800 New Zealand citizens have left.  Sure, plenty of individuals leave and come back, but in net terms the data tell us the flow is outwards.  It is a volatile series, and the outflow at present is less than it has often been, but we’ll need several years more data before there would be any reason to think the pattern of net outflows –  in place since the mid 70s – is ending.  There has been a net outflow of New Zealand citizens of 680000 since the reforms began.

net plt flow of citizens

And even if the outflows were to slow, it isn’t necessarily a mark of our own success.  Australia has long been the natural place for New Zealanders to seek better opportunities for themselves and their families.  For a long time, access to Australia was largely unrestricted –  it was easy to go, pretty easy to adapt, and if things went wrong the social safety net buffers in Australia were there for the immigrants.  New Zealanders can still easily go to Australia, but they now have a much tougher time of it –  for new arrivals, access to the Australian welfare system is available only for those arriving on permanent residence visas (typically not New Zealanders).  And their children can find themselves in a legal limbo.   In boom times, only the most risk averse pay much attention to factors like that  –  and those who choose to migrate aren’t generally the most risk averse –  but tougher times in Australia, and just the passage of time and the reporting of more stories of the difficulties some have faced, is reducing the attractiveness of Australia, even as the income and productivity gaps between the two countries have continued to gradually widen.  It is too early to tell how large any structural change in the willingness of New Zealanders to go to Australia has been –  the cycle dominates –  but if it has happened it is neither a benefit to New Zealanders or a reflection of any success on our part.

Roughan glides between the talk of New Zealanders coming home and celebrating the overall net immigration statistics.  But again, large net inflows of non New Zealanders aren’t a sign of economic success, just a sign of one strand in economic policy.    A relatively rich country never has too much difficulty getting migrants if it wants them –  there are always many countries that are worse off.  Indeed, a violent middle income country like South Africa attracts lots of (mostly illegal) migrants –  most of Africa is even poorer.  This isn’t the place to resume debates about whether New Zealanders will benefit from our immigration policy over the long haul, just that inflows –  however large – are not themselves a sign of our economic success.

I’m one who thought –  and thinks –  that most of the reforms of the 1984 to 1993 period were in the right direction, and generally needed to be done.  But we need to face the fact that even if many of those reforms were beneficial –  and I think they probably were –  New Zealand’s productivity performance has remained pretty woefully bad.  And absent huge new natural resource discoveries, productivity is the basis of sustained prosperity.

Roughan talks of finishing school at the end of the 1960s and having then been pessimistic about New Zealand’s prospects.  And New Zealand did very badly in the fifteen or so year after that.  Between some of the bad choices we made ourselves (Think Big for example), oil shocks, slumping commodity prices and the UK entry into the EEC, it perhaps wasn’t surprising that between 1970 and 1984 we had the lowest growth in real labour productivity (real GDP per hour worked) of any OECD country for which the data are available.  I was one of young (and probably naïve) who looked at that record and thought that there was no real reason why it couldn’t be reversed with a couple of decades of decent economic management.

real gdp phw 70 to 84

But it just hasn’t happened.  Here are the same data (growth in real GDP per hour worked) for the 30 years since 1984.

real gdp phw 84 to 14

We’ve managed to match growth in Spain and Canada –  both countries that in 1984 had higher levels of productivity than we did –  and we’ve done better than Greece, Switzerland, and Italy.   Better than in the earlier period, but thin pickings really, especially when one contemplates how bad things in Italy and Greece have been in recent years.

Our story isn’t all bad, of course.  We reversed a really bad track record of high inflation, and government’s accounts look pretty good by most (but not all) advanced country standards).  The rapid accumulation of overseas debt (as a share of GDP) also came to an end.  Without those improvements, perhaps the productivity picture would have been even worse.

Individuals generally don’t make choices based on macroeconomic data, but on their perceptions of the opportunities for themselves and their families.  But in this area, the flow of people and the macro data seem pretty well aligned.  New Zealanders just keep on leaving –  in smaller numbers right at the moment, but with little sign of any structural reversal of the flow –  and our productivity performance continues to languish. Yes, to pick up Roughan’s words, New Zealand is a “lovely” place and I enjoy the “temperate warmth of our summer”, “the deep blue sky” and the “beaches and bays” as much as anyone, but…..the beaches look pretty good in Uruguay too, one of the few (then) advanced countries to have done even worse than New Zealand over the last 100 years.