On Wednesday the Treasury, in conjuction with GEN (the Government Economics Network) hosted Professor Jacques Poot, from Waikato University, for a guest lecture under the title “Economics of Cultural Diversity: Recent Findings”.
Poot has been researching, and writing about, the economics of immigration and demographic change for decades. He was one of the co-authors of the influential 1988 Victoria University modelling exercise, which played a part in shifting the consensus of New Zealand economists away from a fairly longstanding and widely-shared scepticism as to whether large scale immigration to New Zealand was generating sustained economic benefits for New Zealanders. (I summarized some of that past scepticism here.)
These days Poot is Professor of Population Economics at Waikato. In that capacity, he leads a joint Waikato-Massey project, which is receiving large amounts of public funding through MBIE – the key public sector champion of current immigration policy. The title of the project reveals the presuppositions of the researchers: CaDDANZ, or Capturing the Diversity Dividend of Aotearoa New Zealand. The focus isn’t on identifying whether there is a dividend, or whether instead it might possibly be a tax, but simply on how “to maximise benefits associated with an increasingly diverse population”. Poot is a careful, thoughtful, and respected scholar, but his presuppositions are pretty clear.
I went along to hear him for all those reasons. I’m skeptical that there are such dividends, especially in the New Zealand context, but there is no point beating a straw man argument. I was interested to hear the case as articulated by one of the leading New Zealand academics in the area, who has published extensively abroad as well. I wrote here recently about a recent paper by AUT professor Bart Frijns (and co-authors) which found that cultural diversity – measured by the nationality of company directors – seemed to have adversely affected (or at best had no effect) the overall financial performance of listed UK companies.
It is worth bearing in mind that thinking about cultural diversity is not the same as thinking about immigration per se. In my own analysis, I’ve written skeptically about the impact of the large scale immigration programmes New Zealand has run since, at least, World War Two. In the early period, we had large scale immigration but not much change in measures of cultural or ethnic diversity – most of the migrants were from the United Kingdom, with a leavening of Dutch immigrants (Poot himself is an immigrant from the Netherlands). Poot’s lecture was on cultural or ethnic diversity. On aggregate measures he presented, that started to increase in New Zealand from the 1960s (with Pacific Island immigration) and has increased fairly steadily in more recent decades. The UK remains the largest single source country for immigrants to New Zealand, but the overall contribution of decades of immigration programmes is that New Zealand is one of the more culturally and ethnically diverse countries in the world. He quoted an aggregate index and summarized the current score as meaning that there is now more than a 50 per cent chance that if you encounter another person in the street that person will be of a different ethnicity to you.
As he noted, measurement isn’t necessarily easy. What do we mean by “cultural” diversity, and how should it be best proxied? After all, New Zealand had a considerable degree of ethnic diversity even decades ago (Maori and European New Zealanders) and to some extent there are real cultural differences between those groups (although differences within those ethnic groups may be at least as large on some other dimensions of culture – eg religion. Similarly, there is now a very large New Zealand born Pacific population. Poot showed some nice charts for Auckland localities, and for New Zealand regions, on how much difference it makes whether one looks at diversity measured by birthplace or by ethnicity. Areas around East Cape, or South Auckland, come up as highly diverse ethnically but are more homogeneous as regards birthplace. The North Shore by contrast shows a lot of birthplace diversity but much less ethnic diversity.
But, in fact, most of Poot’s presentation was an attempt to summarise the international literature, with no attempt to apply it specifically to New Zealand. After outlining various possible positive and negative effects that have been hypothesised, he attempted to summarise the literature on the impact of cultural diversity on various aspects of economic performance.
In the end, he couldn’t claim much for the effects of increased cultural diversity. As he noted, studies in the area are plagued with reverse causality problems. It is easy enough to highlight correlations in which more innovative regions are more culturally diverse, but which way does the predominant causation run? Innovative regions will be more likely to attract newcomers, from home and abroad. Poot’s reading of the literature is that immigration and diversity “shocks” affect innovation and productivity, but rather weakly. The quantitative gains are typically small, and difficult to identify, and are much outweighed by other factors (at a firm or national level). He appeared to have added a slide to his presentation in response to the Bart Frijns et al paper, but wasn’t quite sure what to make of the results. Poot regarded it as a very good paper, and offered no obvious criticisms of the approach or methodology, except the passing observation that perhaps the UK was different.
There were some interesting questions, to which Poot didn’t really have particularly developed answers. One economist asked about the relative economic importance of gender diversity and cultural diversity, while another – something of a bastion of liberal thought – asked whether we needed to think less about cultural diversity per se than about the differences in the productivity performances of different cultures, citing (eg) Weber.
How should we apply this to New Zealand? Poot didn’t attempt to in this presentation, but as noted we have considerable ethnic, cultural, and birthplace diversity, and that diversity has increased materially in the last few decades. And yet our overall economic performance, including on measures such as productivity, innovation, and foreign trade, have been among the worst in the OECD. One never knows the counterfactual, but New Zealand doesn’t look like a great place to start from if one is keen to illustrate the economic benefits of cultural diversity. There is a literature suggesting that increased ethnic diversity boosts foreign trade – although Poot was keen not to oversell this – but then New Zealand is one of the handful of countries to have had no increase in its foreign trade share of GDP in the last 30 years or more. Perhaps a heavily natural resource based economy is a little different?
Ian Harrison has noted some problems with some of the literature in this area in this note.
By coincidence, I got home from the Poot lecture to find a request from TVNZ to be interviewed on immigration issues for their Q&A show tomorrow. Apparently, they have also interviewed Professor Poot for the programme. In my recorded comments, I noted the difficulty of having a good debate about these issues in New Zealand, and noted that when I first began developing my thoughts about how our immigration policy might have affected New Zealand’s specific economic performance, there had been a lot of embarrassed silence among my then colleagues at The Treasury, with suggestions that I risked sounding like Winston Peters, and – in the case of one particular manager – outrage that the issue should even be discussed at Treasury. But Treasury’s guest lecture series remains a valuable contribution to discussion of policy issues, and I appreciated the opportunity to hear Professor Poot speak.