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.
croaking cassandra 
I recall reading that Harvard’s Robert Putman held off publishing the results of his work because they essentially showed that there is reduced social capital, trust, civic engagement and charitable giving associated with increased diversity. There’s an argument here by Richwine that this can be ameliorated by screening for highly skilled people, who tend to be more cooperative and trustworthy (ie. traits that can boost social capital).
https://www.aei.org/publication/a-smart-solution-to-the-diversity-dilemma/
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The guy raises some interesting issues. Nonetheless, I would put on the record that there have been a number of reasonably serious concerns raised in the US about Richwine, and I would caution readers to read his arguments bearing that in mind.
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Yes, I recall there was some controversy about his Harvard PhD thesis on “IQ and Immigration Policy” which touched a raw nerve. A very sensitive topic in the US. Nonetheless, the dissertation committee was composed of well regarded academics Richard Zeckhauser, economist George Borjas,, and Christopher Jencks. I don’t think there was any real substantive criticism of his work.
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Thanks Julian for the link – very interesting. And Michael, thank you for your continued effort to encourage a reasoned and evidence-based debate on NZ immigration policy.
Michael, as you noted, defining cultural diversity is difficult. My family (nuclear and extended) is very ethnically diverse, yet we share sufficient cultural commonalities to enable cohesiveness. Without such common values, ideals and understandings, it would be very difficult for us to work together for the common good of our family. I think it is axiomatic that same is true for society.
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Winston Peters pointed on the Q & A program this morning that the 120,000 migrant arrival should be cut. This is Winston Peters at his best. Of course migrant racism has no real logic. Of the 120k there are only 14k who are actually migrants, 30K are returning kiwis and the rest made up of international students, foreign workers and long staying tourists. But so what, it helps the xenophobes to make a point.
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Why not stick to facts and say let’s cut the 14k real migrants a year and let’s cut the foreign students and tell them not to come study in NZ .
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I haven’t yet seen the political interviews on Q&A, and I don’t usually comment here on Sundays, but I am not having people called “xenophobes” or “racists” on this blog, no matter how unsympathetic the person so attacked might be in some eyes.
I’m calling for a thoughtful evidence-based discussion on immigration policy, and good debate is rarely advanced by labelling people – and on this issue perhaps more so than most. Get to understand the strongest arguments people have, and then engage with the arguments/evidence. There are arguments for immigration producing economic benefits for New Zealanders, and arguments against. Most people on both sides of the issue want the best for their country.
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Then let’s be clear what you are trying to cut which is 14k real migrants and 36k international students a year instead of loosely referring to 50k migrants which just riles up anti migrant sentiment. But I guess 50k gets headlines.
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Michael, the reasons why there is sharp increase increase in immigration is overseas students looking for work and employers unable to find suitable skilled people locally. If Immigration is going to be curbed it will have a serious negative impact on the productivity of NZ employers and on the economy.
Bruce P
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Hi Bruce
I’m not really focused on the largely cyclical increase in immigration, but in the trend permanent level of residence approvals (45 to 50K per annum).
But as it happens, I am skeptical that there is much gain to NZ from the students – for many it seems to be an expensive way of getting a right to apply for residence (and typically thru second tier PTEs, which suggest that they are not extremely highly skilled).
As for access to skills, the labour market has a way of taking care of the issue – higher wages!
Michael
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You are referring to two different things – net migration vs PR approvals. Michael does not ‘loosely’ refer to 50k migrants, he specifically discusses the policy of 40-50k PR approvals (on Q & A) and has done so for a number of years. He is advocating reducing 40-50k PR approvals PA to 10-15k. Net migration would still fluctuate.
Your statement of riling up anti migrant sentiment is false. He is trying to do the opposite by engaging in reasoned and evidence-based debate. Stifling such good debate will only play into the hands of the small minority who may hold anti migrant sentiments.
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It makes little difference even if the government drops the policy target to 20k from 50k because Statistics NZ does not measure PR approvals. They measure Permanent and Long Term migrants which includes 14K real migrants, 30K returning kiwis, international students, foreign workers for ChCh rebuild and long stay tourists. Michael continually mixes up the 2 separate definitions quite loosely neglecting the impact of a high churn rate in international students as they are here in NZ for only 3 to 5 years for the work experience before departing for their home countries.
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MBIE measures, and controls, residence approvals. I don’t mix up the definitions. I constantly focus on the residence approvals numbers.
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When you draw on Statistics NZ for your various analysis you are mixing in PLT numbers.
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well, yes, that is true to some extent. If one wants, eg the flow to/from Australia, or the flow of NZers one has to use the SNZ data, and of course the SNZ data are available monthly, while the MBIE data are available only annually. But my policy focus is clearly, and has been for years, the residence approvals target. There some other issues around student and other short-term policy approvals, but to my mind they are secondary to the approvals target, the centerpiece of our immigration policy strategy.
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The absence of real data leaves the door open to conjecture which often leads to false conclusions
Inherent in the repeated claim that true annual migration is only 14k is the assumption that all international students return to whence they came at the end of their studies
You might be surprised … this might be hearsay … in the absence of any better evidence I will go with it ..
On the way to the airport last week, got talking to the taxi taxi driver who happened to be sub-continental .. asked him why, when the auction rooms were chock full of chinese people, where were the Indians, why weren’t they in there buying and bidding and competing …
and his surprise answer
Indians will be mainly building new, they go and buy sections and commission new-builds to their own specifications, consequently by buying sections and building new they don’t appear on the radar
And that’s the difference between asking questions and guesswork
They might even be responsible for a lot of the new consents
http://www.interest.co.nz/property/78385/aucklands-housing-shortage-worsening-new-dwelling-consents-still-falling-well-short#comment-832611
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You neglect the impact of 3.2 million tourists and the lack of new hotels driving the Air BnB into residential accomodation. With really only one international airport, tourists are increasingly staying in Auckland before moving to other parts of NZ. I am considering removing my rentals from weekly rentals to Air Bnb. I have 5 Mt Roskill properties adjoins each other which could make a excelllent BnB with 16 rooms available. Hotels are starting to charge $300 plus a nite in Auckland due to shortages. So making my rental rooms available at $150 a nite on Air BnB is looking more and more appealing as John Key aims for 4 million tourists.
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Frankly as a property investor I do not really care if you guys keep worrying about 14k real migrants and who cares about the 36k foreign fee paying students get their PR or not. I am more interested about 4 million tourists target and the $150 a nite rents.
The reason I write is when I read stuff like 2 top maths professors get their PR accepted but immigration rejects an autism child of theirs and as a result they have to leave NZ. This is what this silly anti migration rhetoric does. It makes sensible people make stupid decisions.
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As is often the case in highly-charged debates, the data/evidence on immigration seem to be, shall we say, somewhat messy. Resorting to anecdote makes me wonder about the ‘counter-factual’ though.
• Without immigrants from all over the world, NZ universities as we know them would cease to exist (ok, some might say that’s a good thing!)
• Would the ABs have won the last two RWCs without an influx of pacific immigration?
• What would NZ’s food options look like without Asian immigration? (life without decent curry is a dark and depressing place, as I discovered when I returned to NZ 26 years ago)
• Without European immigration, what would NZ’s beer and wine industries be like? (think Lion/DB monopoly…)
• Lydia Ko?
One could go on and on in this vein, citing examples of ever-decreasing seriousness, but there is an underlying serious point: that while immigration may not show up beneficially in short- to medium-run GDP-type statistics, it unquestionably makes NZ a more pleasant place to live. Imho, of course…
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Not being much of a beer drinker or rugby fan, not all those resonate much. But, in general, of course I take your point. Perhaps there is a question of what rate of immigration we need to achieve those sorts of gains, and whether there might also be some costs in terms of social capital (Putnam and all that), but my main point is simply an economic one – our immigration programme is sold as an “economic lever” and it doesn’t look to have delivered many worthwhile results on that score.
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Michael, for a change television and Q & A. provided a reasonably balanced piece on immigration. Your contribution was a moderate, rational and objective summation of the background and assessment of the subject. It would be nice to think that future discussion could continue in the same way. It worries me that, even in this forum comments become emotive rather than being based on constructive debate.
You did an excellent job.
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Thanks. I was also pleasantly surprised by the moderate comments of the panelists TVNZ had. That said, as I’ll note in a post later today, the programme did tend to focus on the short-term issues (eg house prices), rather than the longer-term ones of NZ’s long-term declining relative economic performance. I guess the former are easier for non-economists to make sense of, but the latter are at least as important (i’d argue more so).
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Disappointed in a University Professor quoting OECD stats as the basis for her view that immigration is good. I expect much better than that from academia – I expect them to get out of their cloistered environment and go and see for themselves
The other 2 panellists expressed common sense coal-face views
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Many years ago I attended a week long live in seminar by Canadian Professor Graeme Fogelberg, now Otago University, relating the story of the introduction of panty-hose and teams of university students performing pre-release and post-release surveys and interviews. The results of the interviews were extra-ordinary and unexpected, so much so the entire teams had to go back and conduct repeat interviews with more penetrating question. They certainly found out
That was then. This is now. Dont universities get their hands dirty anymore?
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While the PM and the wider Government are singing the praises of immigration and growth, gaining traction on the short term benefits from lower immigration levels may be the way to achieve longer term goals. Pragmatism over idealism.
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