Over the last couple of months I’ve lost track of the number of comments I’ve seen, from outlets that really should know better, suggesting that New Zealand’s economy at present is the envy of the world. Radio New Zealand’s Checkpoint seems a particularly egregious offender, but that might just be because I often have it on while I’m making dinner. But I’ve seen similar lines in the Herald, from Business New Zealand and a variety of other outlets.
The people running this line, when they aren’t just running propaganda, seem constantly to lose sight of just how much of our real GDP growth – itself not that impressive by the standards of previous growth phases – is accounted for by our very rapid population growth, in turn the result of our large (but fairly stable) inward immigration programme, and the reduction in the net outflow of New Zealanders.
Quarterly real per capita GDP data isn’t easily available for many countries, but the other day the IMF released its latest World Economic Outlook. I had a look at how New Zealand is estimated to have performed over 2013 to 2016 relative to the IMF’s set of advanced countries. Over this period, only two of these countries – Israel and Luxembourg – are estimated to have had faster population growth than New Zealand.
Of course, we only have hard data to mid 2016, and even that will be subject to revision for some time. But that is so for all these countries too. Take the last three years together and New Zealand just doesn’t stand out. It isn’t necessarily a bad performance (relative to other advanced countries over this period), but nothing much to write home about, absolutely or relatively. And recall that we don’t exactly have the highest level of GDP per capita among these countries – the aim, for decades, has been to catch up with the rest of the advanced world. Over this three year period, we’ve made no progress at all.
We’ve had things working for and against us over that period. The terms of trade have been high, but fell back quite a way from the peak, especially dairy. We’ve had a significant boost to demand and activity from the Christchurch repair and rebuild process. We’ve had a big (largely exogenous) boost to tourism, and a significant boost to export education. We’ve had no constraints (other than self-imposed ones) on our ability to use monetary policy flexibly. And we’ve had a massive boost to demand from the unexpected rapid growth in the population. And yet, once again, we’ve made no progress in closing the gaps.
And, of course, our productivity performance in recent years has been even worse.
No productivity growth at all in the last four years or so (even ignoring the last observation, where there is an unfortunate discontinuity in the HLFS hours worked series).
New Zealand the economic envy of the world? I think not.
croaking cassandra 
Maybe you are putting too much on the cognitive function at these various media outlets… They only look at the headline number and the first two lines of the press release that accompanies the GDP data… and they remember back to an earlier time and ‘boom’ there is the nice attention grabbing headline… job done..
The points you make about GDP data and economic growth are all valid – but it is too dull for a headline or any clickbait activity… Checkpoint should be investigating the productivity issue but they don’t because their policy is to complete with clickbait on smart phones…
Hard to shoot the messenger when the messenger is rapidly becoming dumber than a sack of hammers…
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I’m sure you are largely right, altho it isn’t too hard to work out that annual average growth (not even per capita) peaked above 7 per cent in the early-mid 90s, above 5 per cent in the early-mid 2000s, and about 3.5 per cent this time round.
Unfortunately the SNZ press releases still tend to have an upbeat bias.
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I have noticed a huge corruption element in the NZ workforce, contractors and businesses at least in the construction business and maintenance industries.
1. Kiwi workers use tactical delays to extract maximum dollars out of a job. They have hourly charges and travel charges. They provide fixed contracts that are subject to contingencies and it is amazing how the contingies add up to more than the original fixed price contracts.
2. Chinese migrant workers work fast but they make mistakes lots of them and they then have to charge to fix those mistakes
3. Indian migrant workers fix and complete a job fast but they break something else which you then have to call them back to fix
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Go Malta!
I feel like rehashing 538s argument about the incentives that newspapers have to never actually offer an accurate forecast of anything. The media has an incentive to constantly run their readers on a rollercoaster of news, where it’s great this year, but next year it’s a disaster, only to go back to heady success again some time later. Nobody is going to read a newspaper if its headline says:
“Current economic performance is immaterially different from yesterday, still poor by OECD standards”
Or if they did, the newspaper would read pretty much the same story as it did the day before. And so on.
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“New Zealand has among the highest rates of employees aged over 55 years of all OECD countries, which is expected to rise further in the coming years.”
New Zealand recorded the second highest employment rate of people aged 55-64 years in 2012 and 2013, and third highest of people aged 65-69 years in 2012 (OECD, 2014). In June 2014, 22% of workers in New Zealand were aged 55 years or over (Statistics NZ, 2014).
Government figures predict that this proportion will rise to 25% by 2020, with many likely to remain working beyond 65 years. Indeed, the proportion of the labour force aged 65 or over (currently 5%) is expected to increase to 13% by 2036 (Statistics NZ, 2012).”
Click to access 2015-Understanding-Ageing-Workforce-report,-FOW.pdf
Perhaps the lack of productivity is largely due to a aging workforce afterall our old folk is also the highest in the old folk doing their best to get their jobs done while sleeping most of the time.
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“By 2036, it’s projected:
Around one in four New Zealanders will be aged 65-plus
That’s 1.25 million people
It’s an additional 550,000 over 65’s, up from a total of 700,000 today
Or an 80 per cent increase”
http://www.superseniors.msd.govt.nz/about-superseniors/media/key-statistics.html
Houston I think we have a major aging population problem coming up within the next 20 years.
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Every country above NZ in Michael’s first chart (except Iceland which is similar) has an older age structure than NZ. The top six above Iceland (Spain to Malta) have significantly older populations and very low TFR. What are they doing right?
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Of course, many of those on the left have similar issues! I wouldn’t put too much weight on this chart – I prefer GDP per hour worked when I can get the data, and in any case if one takes the whole 9 years since 2007 (just before the recession) our GDP per capita performance has been a bit above average (the chart was just about the more recent period). But of course one thing that is impressive about NZ is the rapid increase in the proportion of over 65s still in the workforce. A good feature of our NZS system is that it does not penalize people over 65 staying in the workforce if they want to.
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Dave, perhaps workers in NZ has a better work and life balance. In NZ a 8 hour day includes an hour or 2 in traffic due to lousy transport infrastructure, an hour or 2 for lunch and tea breaks, an hour or 2 for a exercise break, plus an hour or 2 on Fridays to scoot off early to the holiday bach for some sailing or water jetting on high powered boats or scooters.
In Taiwan you can guarantee a 8 hour day is actually a 16 hour day because you just need to show higher productivity to just keep your job.
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Perhaps that’s why migrant workers get paid $9 an hour so that kiwi employers can afford to buy holiday properties, have long lunches in expensive restaurants and scoot off early for sailing, or fishing or water scootering.
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Another interesting post Michael – thank you.
Two things. I note China isn’t on your graph and I have heard that all their growth is ‘demographic’. Do you have a view on that? Also I see the UK is to the right of us (graphically as well as politically) and yet immigration is a far bigger political issue for them than it is for us. I feel you have commented on that previously. Could you remind me of your explanation for that?
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I’m surprised by the suggestion that China’s growth is “demographic” – their population growth rate has been falling very rapidly, and from memory working age population is now about flat. I know some have talked of a “demographic dividend” in that fewer resources have to be devoted to keeping up with a fast-growing population, and there may be something to that. Mostly China’s growth in the last 40 years looks/feels like catch-up, and even then its performance over say the last 100 years is pretty underwhelming (looking at other Chinese territories or East Asian countries) https://croakingcassandra.com/2016/05/16/chinas-continuing-economic-failure/
On the UK, as I said to another commentator, I wouldn’t put much weight on this chart for anything longer-term – it was just intended to make the point that even over the last 2 or 3 years (say one electoral term) there is nothing positive that really stands out about NZ’s growth rate (and if we had the cross-country productivity data, I suspect we’d be distinctly towards the bottom end of any such chart.
Re immigration, I’ve assumed it has more political salience in the UK for several reasons: (a) the fact that it is relatively new, (b) the fact that the issue is tied up in the unease many Brits feel about the EU anyway, and (c), perhaps, the much larger Muslim presence in the UK combined with all the issues around terrorism/ISIS/Iraq War.
Over a much longer period, NZ has managed to underperform UK productivity growth. Both countries have had v weak patches (NZ late 80s, UK around the 08/09 crisis), but we’ve lagged behind, and even Aus, with all that new mineral wealth, barely kept pace with the UK.
https://croakingcassandra.com/2016/07/02/nz-and-the-uk-strongest-performers-in-their-blocs/
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One eroder of productivity, is distortions in land markets. There is some good literature from UK economists on this – looking for causes of the UK’s productivity gap, the urban planning system would seem to be a major suspect.
Click to access Sub%20001%20Phil%20Hayward%20-%20Submission.pdf
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Phil
In principle I buy the argument, but I’m skeptical that it can explain much of the NZ relative underperformance story. After all, despite the horrors of our planning system over the last few decades our largest city has had the second fastest population growth of any OECD country’s major city.
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Population growth per se in a city does tend to increase productivity, but the numerous other mechanisms by which urban planning impacts productivity negatively, must be swamping the positive impact of the population growth in Auckland’s case.
I also think it is not entirely valid to argue using the measure that shows Auckland to have the “second fastest population growth of any OECD country’s major city”. In fact one of the papers quoted in my submission, suggested that “middleweight city” growth was more important to overall productivity outcomes than “major city” growth. It is a major advantage to US productivity that they have a couple of dozen cities with population levels between 800,000 and 6 million, which are growing on average twice as fast as Auckland, which kind of puts in perspective the other statistic that is no doubt comparing Auckland to New York City.
It adds to the productivity gains made in this way, that the growth is meshed with systemic affordability of housing, and supply of housing “at scale” to constant returns. There are numerous positive channels into productivity, from growth of this nature, as opposed to liquid capital being sunk into zero-sum capital gains in urban dirt instead of actual construction of anything, not to mention the infrastructure to support it. investment capital sloshing around the world does find its way to some extent, into the bond markets for funding of infrastructure for growth in pro-growth US cities with the right policy mechanisms.
Auckland also happens to be far smaller than other OECD countries “major cities”, all of which are not growing anywhere near as fast as they could be, due to restrictions on growth very similar to Auckland’s whether intentional or not. Most of the rest of the OECD outside of the USA, also lacks the very rapid-growth middleweight cities that the USA has, for the reason that they have growth restrictions very similar to their major cities. The UK would be far better off if it had one single “opportunity urbanism” city akin to a typical fast-growth middleweight US city, for the growth deflected from elsewhere, to go.
It also matters that many famous evolved “clusters” were sited at their commencement decades ago, on low-cost exurban land, and grew most rapidly as people with ideas but little capital, flocked to the presence of similar entrepreneurs who had made a promising start – but while there was still plenty of spare land and still low costs. Modern urban planning fads that insist on carpet-like incremental pushing out of an urban fringe with strictly sequential trunk infrastructure provision, forego any opportunity for anything like Silicon Valley to evolve. And we never know what we lost. We might have “preserved valuable farmland” and kid ourselves that our net tradables position is better as a result – duh.
Planners in the UK did attempt to set aside “high-tech industry zones” and surprise, surprise, the outcome noted by the Barker Review, was the same price-gouging as the owners of all other greenfields land, very slow actual development, and little observable grassroots entrepreneurial activity “priced in”. We get planners (eg in Vancouver) claiming victory for their so-called “attraction of high-tech” when someone like Microsoft establishes a presence in their city, but Microsoft is now very much “old money” and even “industry oligarch” status. The irony is that Bill Gates starting out, could never have afforded a small premises in such a city. I think it more significant that the fast-growth low-cost cities in the USA are now where the start-ups predominate. Google “San Francisco is Not the Queen of Startup Land, this Map Shows Why” (url does not seem to want to copy and paste).
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Interesting points Phil, but I’m still not convinced.
First, even if there were evidence that population growth increased productivity, there is no such evidence for Auckland. Sadly, we don’t have very long runs of data, but as I’ve illustrated here previously, for the 15 years for which we have data, Auckland’s productivity growth has been less than that of the rest of NZ, and the gap between Akld incomes and those in the rest of NZ is less than those gaps in other countries.
The fact that other cities in the US have been growing faster than NY also isn’t very revealing. After all, Tauranga and Hamilton have grown faster than Auckland. But they were very small places in, say, 1945, while Auckland was already our largest city.
On other OECD countries, remember that the OECD includes Norway, Finland, Ireland, Estonia, Slovenia, Slovakia, Austria, Luxembourg, Israel, Czech Republic, Sweden, Denmark, Portugal, Hungary, Czech Republic as well as the US. Germany, Japan,. It isn’t a big countries club.
Don’t get me wrong. I’m totally with you in wanting far-reaching reforms of planning law – not that sort of small scale statist stuff the Productivity Commission is talking of – and I also think NZ has a major long-term productivity underperformance issue. But in NZ’s case in particular, it would take a lot more evidence to persuade me that planning reforms, as far reaching as you like, offer a material part of the solution to the productivity problem. I wish it were otherwise, but at the moment the evidence isn’t there.
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