Steven Joyce as Minister of Finance

Bill English is reported to have the numbers to become leader of the National Party and, thus, our next Prime Minister.  And if he does succeed in that quest he has indicated that Steven Joyce will become the Minister of Finance.

That news had me digging out a couple of posts I’d written this year on Mr Joyce’s comments and claims.  He has been Minister of Economic Development for some years –  years in which, as throughout the term of this government, there has been no progress towards closing the large productivity gaps with other advanced countries. In fact, over the last four years official statistics suggests New Zealand has had no productivity growth at all.

In a post in April I posed A Question for Steven Joyce after an interview in which as Science and Innovation minister he argued for even more migration to meet the needs of the tech sector.   He went on

“That’s one of the reasons I’m leery of calls to halt immigration – apart from the fact there’s not much reason to because of the economic gains,” he said.

I noted that

In the last fifteen years, we have had huge waves of immigration,  under both governments, and yet there is not the slightest evidence of economic gains accruing to the New Zealand population as a whole.  Tradables sector production per capita has gone nowhere in fifteen years, productivity growth has been lousy, and there is no sign of any progress at all towards meeting Mr Joyce’s own government’s (well-intentioned but flawed) exports target.

My question was (and remains)

“what evidence can the Minister point to suggesting that the very high rates of immigration to New Zealand in recent decades have done anything to lift productivity in New Zealand, or lift the average per capita incomes of New Zealanders?”.

….

Mr Joyce and the other MBIE ministers have huge resources, staff and budgets, at their disposal.  Surely they should be able to point to clear demonstrated economic gains for New Zealanders as a whole from such a large government intervention.  Our non-citizen immigration programme is already one of the largest (per capita) in the world.  Citizens might reasonably ask for evidence that such an outlier programme has benefited them before considering calls from Ministers for “even more immigration”.

A few months later Mr Joyce was on TVNZ’s Q&A programme defending the government’s economic record.   My post on it is here .   There was an attempt to defend the skills focus of New Zealand immigrants, all the time ignoring data from the same survey indicating that New Zealand already had some of the most skilled workers in the OECD.

TVNZ’s interviewer pushed Mr Joyce on the failure to make any progress in meeting on the centrepiece target in the government’s so-called Business Growth Agenda.

The goal, announced several years ago, was to lift exports as a share of GDP from around 30 per cent to around 40 per cent by 2025.  I thought the formal target was daft and dangerous, even while sympathizing with the intuition that motivated it – small countries get and stay successful by selling lots of stuff, competitively, in the rest of the world.

….

Here is chart of exports to GDP, going back to the start of the quarterly national accounts data in 1987. This time, I’ve also shown the average export share for each of the last three governments.

exports to gdp by govt

Plenty of things cause fluctuations in the series, and not many of them are under the direct control of governments.  Nonetheless, the average export share of GDP is materially lower under this government than it was under the previous government, and the latest observations are below even that average. Since the start of 2009, exports have averaged 27.7 per cent of GDP.  Under the previous National government –  one that first took office more than 25 years ago, that average was 27.5 per cent.  The government’s goal was to lift the export share by 10 full percentage points, and there is now only nine years left until the target date.  On performance to date –  and policy to date – we might be waiting several more centuries to achieve that sort of goal.

It is time Mr Joyce and his colleagues faced the fact that they are simply failing on this count.  A rather different approach is needed –  one which permits/facilitates a sustainably lower real exchange rate, orienting the economy more strongly towards investment in the tradables sector, and enabling more able firms to grow (and locate here doing so) by successfully selling to the rest of the world.  As I’ve noted before, per capita output in that vital outward-oriented part of the economy hasn’t increased at all for 15 years now.  It seems unlikely that that sort of reorientation will occur, all else equal, while we continue to bring in, as a matter of policy, so many not-overly-highly-skilled non-citizen migrants each year.

I haven’t written much about our export education industry and the huge increase in the number of student visas in the last few years –  a strategy championed by Steven Joyce as Minister of Tertiary Education.    In general, I’m keen on export education –  if New Zealand firms have good products that the rest of the world wants, good luck to them, and over time those additional sales should benefit us all.  But there has been more and more sign that most of the growth in export education in recent years hasn’t been about the quality of New Zealand’s educational institutions, but about immigration access.  We aren’t getting (many) top-notch students at all, they aren’t going to our best tertiary institutions, and in many cases they fund their stay here by competing directly in the labour market against relatively unskilled younger New Zealanders.  And there are more and more stories of rorts and exploitation –  well captured in the Herald’s series this week –  that really should leave New Zealand policymakers –  and perhaps especially the responsible minister –  ashamed of what is being done, and permitted and even encouraged, in our name.  It is all very well for officials and ministers to say they have now identified problems and are responding to them, but these sorts of rorts and outright exploitation were pretty predictable from that start.  And is there any sign that Steven Joyce cared?  Export incentives and lightly-disguised subsidies, all in pursuit of a short-term kick to economic activity, with little regard for any evidence of likely long-term gains to New Zealanders, or for the shorter-term damage to the good name of New Zealand and its institutions.

One could go on and talk about the dubious deal that MBIE and their Minister were party to, such as those around Sky City and the convention centre.

The prospect of Joyce as Minister of Finance isn’t encouraging.  Perhaps his Prime Minister will restrain his impuluses to intervene here or there, subsidise this firm or that, this industry or that.   But after eight years, isn’t it perhaps more likely that the purse strings will be loosened to pursue even more of these sorts of “smart active government” strategies that successive governments have pursued for decades, all the while watching New Zealand drift slowly further behind productivity levels in the rest of the advanced world.

At the end of one of the earlier posts, I wondered if perhaps Mr Joyce could point us to the evidence that guides his interventions (or those he favours).  Reflecting on that it reminded me of a seminar I was at some years ago.  Asked by one attendee why there was no cost-benefit analysis for some fairly expensive project, Mr Joyce responded “because I already knew the answer”.

The quality of regulatory impact statements, and associated cost-benefit analyses, emerging from Mr Joyce’s MBIE in the last few years have often been disturbingly weak.  Ministers and departments will do that if they can get away with it.  As Minister of Finance, Mr Joyce would have responsibility for Treasury’s work in trying to lift/sustain the quality of regulatory impact statements.   They have largely failed in that goal under Bill English.  It is not hard to see the quality of policymaking deteriorating again under a Treasury overseen by the activist Mr Joyce.

Mr Joyce is reputed to have troubleshooter skills –  he was, eg, the minister charged with sorting out the Novopay debacle.  But it is difficult to optimistic about the directions in which as Minister of Finance he would guide the overall approach to economic policy.

9 thoughts on “Steven Joyce as Minister of Finance

  1. Well said, Michael. I agree with you 100%!

    Keep up the good work.

    Were it to be offered to you, would you accept a post as advisor to and confidant of the new minister of Finance?

    I cannot think of a better qualified candidate!

    Liked by 2 people

  2. Oh, and given the nature of modern technology, you could easily work from home, with maybe a short commute by public transport to the beehive for an hour or three each week.

    Liked by 1 person

    • Thanks for pointing that out. I guess my concern is more about the quality of the analysis in support of regulatory/spending/legislative proposals, rather than the framework around regulation itself (which is broadly reasonable). The Minister of Finance plays a key role in setting those standards (and of course as minister with principal responsibility for Treasury)

      Liked by 2 people

  3. So what is the prescription for improving productivity? it is sure a gordian knot and much effort has been invested in trying to figure out this puzzle.

    I’m puzzled why lower immigration would improve productivity, as that is the sense i get from your comments… High levels of immigration are great for the domestic economy and I agree that higher immigration doesn’t necessarily mean better export performance, but what is the link you are seeing?

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    • There is no puzzle. Our top 4 export industries are

      1. Selling fresh air and picture postcards to 3.4 million tourists – $11 billion
      2. Milking 10 million cows – $10 billion
      3. Butchering and caring for 40 million sheep, goats and cows – $8 billion
      4. 115,000 with 90,000 in Auckland, International students – $4.5 billion

      These are all labour intensive and low productive industries.

      Where would our highly trained and highly skilled university trained New Zealanders work?

      1. Tourism needs chefs, waiters, prostitutes and cleaners. If we had theme parks then we could actually employ engineers to maintain and to keep the machinery running. Next year we will have 4 million tourists and the industry is aiming for 7 million tourists per annum with export sales of $25 billion. All of whom need to eat, drink and drop waste all day.

      2. Milking 10 million cows needs hearders, milkers, cleaners, electricians, truck drivers. 10 million cows need to eat, drink and drop huge amounts of waste every day, leaching into waterways, contaminating drinking water, messing up rivers and streams and incessant methan gas farting that wreaks a havoc on the ozone layer above NZ contributing to the significant skin cancer amongst people.

      3. Butchering requires, butchers and cleaners

      4. 115,000 international students need lecturers, retailer shop attendants, cafe waiters and of course cleaners, and course eat and drop waste everyday.

      It is a industry focus issue. Not a government immigration policy target. The type of industry focus drives the need for particular types of labour. Industry drives this target. Therefore the government needs to re focus industry into other more productivive type industries.

      You can’t target higher skilled migrants because we just do not have jobs for them.

      We have low paid, labour intensive jobs that local kiwis just do not want to do or can’t be trained to do. Cant expect a local kiwi to learn how to make a decent curry or Naan bread or Roti canai bread and who wants to be a cleaner?

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    • I suspect a much lower non-citizen immigration target is perhaps the single biggest thing the government could do to materially reverse the deterioration in relative productivity. There are two main channels:

      1. Much lower immiggration would lower real interest rates (relative to the rest of the world) and the exchange rate, enabling resources to be redirected from meeting the physical needs of a growing population to tapping world markets for tradable goods and services. Historically/empirically, rapid growth in exports tends to be the best basis for a sustained improvement in relative performance – not because exports are special, but because the rest of the world is a big place, and the ability to sell stuff successfully there is a mark of the successful ideas/management/rel prices of an economy.

      2. Natural resources are still the basis for perhaps 85% of our exports, and that share isn’t changing much. We aren’t getting any more natural resources, and there is little sign we need ever more people to take advantage of them (if anything, fewer on account of productivity growth in those sectors). Rapid population growth just spreads the benefits of those natural resources over more and more people, lowering – all else equal – GDP per hour worked

      The backdrop is of course the counterfactual – the story the pro-immigration people have told for 25 years that high immigration would enable eg Akld to get scale and lead our growth (in fact it has, per capita, grown more slowly than the rest of the country), and thru the productivity gains and international connections would boost competitiveness and enable more firms to successfully compete internationally (when in fact per capita tradables GDP has been unchanged for 15 years, and the export share of GDP has been flat, or even going backwards)

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  4. A certain irony in the export to GDP chart. The intuition would have National as the most likely to spur exports with their supposed ‘hands off’ approach to free enterprise. The opposite is true with more export strength under Labour. Interesting.

    Like

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