The little engine that could…and other fairy tales

“I think I can.  I …..think ….I…. can, I………… think……… I…………… can” said the little blue engine”

It was almost to the top.


It was at the top.

“I ———can.”

It passed over the top of the hill and began crawling down the opposite slope.

‘I ——think——- I—— can——I—– thought——I——-could I—– thought—– I—– could. I thought I could. I thought I could.¨ I thought I could.”

And singing its triumph, it rushed on down toward the valley.

“The Little Engine That Could” is a heartwarming childhood tale, about hard work and a willingness to give anything a go.    Perhaps the Prime Minister once read the story to his kids.  But…….it is a story.   Technical capacity, not willpower, determines whether engines can pull loads, get over hills etc.   However, the Prime Minister now appears to have adopted the storybook as the basis for his latest, rather desperate, defence of his government’s immigration policy.

At his post-Cabinet press conference on Monday, the Prime Minister appeared to be –  as NBR put it –  practising his election lines.

Answering questions about New Zealand’s capacity to handle current levels of population growth caused, in part, by very high net migration, English appeared to practice attack lines for the forthcoming election campaign, saying he believed the ability to cope with these challenges was “going to be a key issue in the campaign”.

“We believe New Zealand can adjust to be a growing economy with a growing population,” he said. “Our political opponents think New Zealand isn’t up to it, it’s too hard and the solution is to shut down the growth by closing off international investment, getting out of international trade, closing down migration and settling for a kind of grey, low-growth mediocrity where the best thinking of the early (19)80s sets our political direction.”

and, from another account (which I will draw on but can’t link to)

English said that National unashamedly believes in New Zealand’s capacity to be a growing economy and that its political opponents unashamedly think New Zealand is not up to it.

Belief is one thing.  Evidence is (much) better.    Winning elections might be a different matter, but whether, and to what extent, large-scale immigration is providing long-term economic benefits to New Zealanders isn’t something to be determined by whose swagger is most convincing; who can put on the most macho stance, or who is most ready to kick sand in the face of the weedy doubters.  Wishing for benefits won’t make them happen.   Instead, it is a matter of calm balanced analysis and an assessment of the evidence of New Zealand’s experience.  We’ve had plenty of experience.   And that must be a point of some difficulty for defenders of the current large-scale non-citizen immigration policy, presumably including the Prime Minister.

After all, 100 years ago, on the best available measures, New Zealand had among the very highest material living standards anywhere.   Some combination of abundant land, a temperate climate, dramatic reductions in transport costs, and refrigerated shipping had required more people to take advantage of the new opportunities, and enabled just over 1 million people to flourish in what was, by international standards, a highly-productive economy.  There were new opportunities here, and it took new people to take earliest and greatest advantage of them.

On some measures, even as late as around 1950 we still had some of the highest material living standards around.  There hadn’t been many more new opportunities specific to New Zealand in the previous few decades.  But, on the other hand, we’d avoided wars and revolutions at home.  It wasn’t much of a surprise that we were still wealthier than almost anywhere in continental Europe.

But mostly since then we’ve been slipping down the rankings, whether measured by productivity (the better measures) or average per capita income (which can always be boosted by working ever more hours).   After World War Two, large scale immigration, actively promoted by successive governments resumed.  Even then, leading New Zealand economists were sceptical.   All manner of arguments were run for actively pursuing increased population.  There were defence arguments, there were arguments about redistributing Britain’s excess population to the land-rich Dominions, there was the apparently-reasonable argument that opportunities and incomes were just better here.

But whatever the arguments, any economic gains just seemed to keep failing to show up.  Of course, we did lots of daft things during the post-war decades.  Trade protection meant that, for example, in the early 1960s we had twenty television factories in New Zealand, and we made or assembled here all sorts of stuff that would never have passed a market test.  In the late 70s and early 80s we poured money down the drain in the absurdly expensive energy Think Big projects (while being spared Roger Douglas’s ambition for 16 state-promoted carpet factories).   But strip all that stuff away –  as we did –  and we’ve still done badly.

Productivity growth lagged that in other advanced economies in the 1950s and 60s.  Since 1970, data suggest that among advanced economies only Switzerland and, perhaps Mexico, have done worse than us.  And even since all the reforms of the late 80s and early 90s, we’ve still brought up the rear when it comes to productivity growth.  On average, we just keep slipping further behind those other advanced countries we were once so much better off than.

My friends on the right will emphasise how high taxes are, how much wasteful government spending there is, and how pervasive poor-quality regulation is.  And I have a great deal of sympathy with many of their individual points.   But the median OECD country isn’t really any better or worse than us on those scores (on some we do rather better than the median, on others quite a lot worse).   We could all do better, but the explanation for New Zealand’s continuing disappointing performance simply can’t rest in those traditional pro-market verities.

A much more plausible story is one that recognises that New Zealand’s wealth was largely built on able people, and good institutions, making the most of our natural resources.    It shouldn’t really be controversial; you can see it in our trade data.    As it always was, so it is today – the overwhelming bulk of our exports are the fruits of the land or sea (and I’ll count tourism in those numbers, since that it mostly what tourists come for).   Of course, there is small number of successful outward-oriented firms in quite different industries, but strip away the subsidised ones (export education and the film industry) and the numbers are really pretty small.

And not only are no new natural resources being made, but in New Zealand for many decades there hasn’t even been any really large new discoveries of usable natural resources that were hitherto unrecognised (or idiosyncratic shocks that strongly favoured New Zealand production from natural resources).  It is, surely, the big difference between the post World War Two experiences of New Zealand on the one hand, and Australia and Norway on the other.  The prosperity of all three countries rests largely on the natural resource products their able people, with good institutions, can sell to the rest of the world.  Norway and Australia were able to bring to market whole new resources that, while always there, were previously unknown or uneconomic to tap.  New Zealand has had nothing similar.  No new land, no new sea and –  so far –  oil/gas and mining activities that are of fairly peripheral scale.    If we’d known that difference 50 or 60 years ago, few people (if anyone) would have thought it would make a lot of sense to import lots more people to New Zealand.   Combining many more people with a key fixed factor (“land”) is simply a recipe for making it much more difficult than necessary to support top-notch living standards for the people who were already there.    And that is so even if one can get lots of productivity growth in the land-based sectors.

Of course, the standard pushback is along the lines of “but that is all old economy stuff; ideas and new technologies are the way of the future, and one can develop those industries anywhere –  all that matters is the people, the people, the people”.  Which would be fine, but the evidence seems to be against it.  When it comes making physical stuff, global value chains have become ever more important, and it is really hard for many firms located at the end of the earth to be part of such value-chains (whereas it is quite easy if you are in Slovakia or Korea).  And when it comes to ideas-based industries, counter-intuitive as it might seem, personal connections and proximity (to suppliers, markets, specialist resources, clusters of knowledge) seems to have become more important than ever.    All sorts of firms can be set up by people in New Zealand –  or in Patagonia, Port Stanley, or Windhoek.  But those firms, and those people, will usually command more value relocated nearer those global centres –  be they in Europe, North America or East Asia.   Wishing it was otherwise –  like believing I can fly –  simply doesn’t make it so.

New Zealand’s strength is its people, among the most skilled in the world, its institutions (absence of much corruption, rule of law etc) and its natural resources.    The latter are crucial –  that isn’t something of ideology, or old-school thinking, but of hard numbers –  and are, for practical purposes largely fixed.  (Add in our (self-chosen) climate change objectives and those natural resource opportunities could almost be argued to be shrinking.) But our disadvantage, and it is a severe one, is distance/location, and at least before teleportation is mastered, that disadvantage isn’t changing –  it is a land so remote that until perhaps 200 years ago, there simply was no foreign trade.

Against that backdrop, it is simply crazy to keep letting the central planners (politicians and bureaucrats) try to drive up the population.   New Zealanders know it in their own choices.   There is nothing shameful about a fairly flat population, whether in a country – plenty of rich European countries have had them for decades –  or a city.  But it seems almost heretical in New Zealand.  It makes sense that cities, or countries, grow when new opportunities abound.  The evidence to date strongly suggests they aren’t abundant here.   Some might think that a shame –  in some ways I do too –  but believing otherwise doesn’t make it happen.

Is there 100 per cent conclusive evidence?  No, in this life there hardly ever is.  But lets look at some of the straws in the wind:

  • among the very worst productivity growth in the OECD throughout the post World War Two period,
  • an export share of GDP that has stagnated and even gone backwards (in a country that once had among the very largest per capita exports anywhere),
  • a major city that has incredibly rapid population growth over decades, and yet of which even Treasury now observes “we are not seeing the agglomeration effects we would expect from Auckland’s size and scale.”

I’m for evidence-based policy.  If we’d seen more and more New Zealand firms successfully establishing themselves in international markets, and the export share of New Zealand’s GDP rising (as it typically does in successful catch-up economies), if we’d seen a decade of productivity growth materially outstripping that of the other OECD countries so that we were finally catching up, if we are seeing evidence that GDP per growth in Auckland was consistently far-outstripping that in the rest of the country (as we find in many other countries centred on knowledge-based industries) then (a) we could all celebrate, and (b) it might make sense to think about whether we should open our doors to lots of migrants.   As it is, we see none of those things.  And that with one of the largest (per capita) legal immigration programmes anywhere in the world.   It is madness; ideology (“big New Zealand” more than theoretical arguments typically) over experience.

But the Prime Minister and the National Party still “believe” apparently.  Perhaps they could show us their evidence?

I don’t like to make too much of the last few years’ experience.  Apart from anything else, data revisions could mean that stories that look good today eventually disappear like the morning mist.     But, for what it is worth, the last few years don’t do much to instill confidence.

There is the dysfunctional housing and land supply market for example.  Sure, you can argue that it really has nothing to do with immigration policy, but if you can’t or won’t fix up the land supply market –  and neither this government nor its predecessors have –  don’t give us the nonsense that New Zealand can cope with his immigration policy.   Even if there aren’t large productivity costs from those land-use restrictions (I’m open-minded on that in New Zealand) the distortion to real house prices, that makes purchasing a home more and more difficult in our cities is a standing reproach to our leaders.

And then there is productivity.  I’ve repeatedly showed charts of real GDP per hour worked in New Zealand, where the data suggest we’ve had no growth at all in the last five years (even though the dogma suggests large immigration should be generating positive productivity spillovers).  It is often hard to get timely cross-country comparisons, but earlier this month the Conference Board released their latest annual estimates of real GDP per hour worked.    Here is how New Zealand has compared over the last five years (2011 to 2016) with a sample of 40 or so other advanced countries (the group I often use –  EU members, OECD members, plus Singapore and Taiwan).

2011 to 2016 growth in real gdp phw

And it isn’t just because those other countries were recovering from deeper recessions.  Our labour productivity growth also lags behind the median of these countries for the whole period since 2007 (just before the recession).  It is just the same old story of underperformance.   Are there mitigating factors?  Probably always to some extent.   The Canterbury rebuild inevitably dragged resources away from other uses.  On the other hand, relative to our worst decade of economic underperformance –  the 1970s –  the terms of trade have mostly been pretty good this decade.

With the export share of GDP drifting further backwards, it looks more and more like an economy that exists on building for each other.  Nothing wrong with that in one sense –  people need houses, offices, roads etc –  but it isn’t how economies successfully catch-up with those richer and more productive than them.  That typically involves finding more and better things to successfully take to world markets.

In his post-Cabinet news conference, the Prime Minister was also making much of the contribution to the net migration numbers of the decline in the outflow of New Zealanders to Australia.    That, he claimed. “was a vote of confidence in New Zealand”.   Perhaps it sounds good politically to say it, but lets face reality.  New Zealanders have gone to Australia is fewer numbers mostly because the Australian labour market is tough – the unemployment rate and underemployment rates linger high, and there is increasing awareness of how much on their own New Zealanders are in Australia if things don’t work out well.     And even though the labour market is tough, look at Australia’s productivity growth (from a much higher starting point) relative to ours in the previous chart.  It isn’t so much a vote of confidence, as an unexpected loss of an escape valve.   That makes things even tougher for New Zealand, especially when the government keeps on bringing in much the same number of non-New Zealanders as ever.   In the short-term it gives the economy a boost –  demand effects exceed supply effects in the short-term –  but in the longer-term it just keeps worsening New Zealand’s relative performance on the sorts of economic measures that matter.

The Prime Minister was also at pains to stress that he believed New Zealand –  government and private sector – could and would invest enough to handle the rapid growth in the population.  The evidence has long been against him on that one.  Despite having had one of the faster population growth rates in the OECD, we’ve long had one of the lower rates of business investment among OECD countries.   In a well-functioning economy with high productivity growth etc you’d expect it to be the other way round –  more people should need more investment, of all sorts.

My arguments are generally specifically focused on New Zealand –  opportunities in Ireland or Belgium may well be different than in, say, New Zealand, Tasmania or Nebraska.   But for what it is worth, here is a scatter plot, using IMF data, of population growth rates and investment as a share of GDP for the countries the IMF classifies as advanced.  I’ve used data since 1995, simply because that is the period for which the IMF has data for all countries.   Recall that one really should expect investment as a share of GDP to be higher in countries with faster population growth than in those with lower population growth, all else equal.


IMF scatter plot

There is almost no relationship at all – and certainly not the expected upward-sloping line.  If anything, the relationship is slightly negative.  And New Zealand –  the red dot above 30 on the horizontal axis –  doesn’t stand out from the pack.  Since people do have to live somewhere, it looks a lot like rapid increases in population tend to crowd out (rather more price sensitive) business investment.    Perhaps it isn’t surprising then that many of the advanced countries with the strongest growth rates in productivity also have flat, or even falling, populations?  But, whatever the wider story, there isn’t much reason in the international data to believe the Prime Minister’s wishful thinking that enough will be invested and all will be fine.  And when your country already has some of highest real interest rates, and a persistently overvalued exchange rate, it is probably safer to believe that all won’t be just fine.

I could go one, but I just wanted to make two final brief points:

  • in his comments quoted earlier the Prime Minister suggested that somehow the alternative to continuing very high immigration targets involved “settling for a kind of grey, low-growth mediocrity where the best thinking of the early (19)80s sets our political direction”.   Personally, I’d say the very best thinking from the early 80s –  that of reformers at Treasury and Reserve Bank for example –  was very much to the point.  But even setting that to one side, the Prime Minister’s attempted slur might well rebound.  I checked out productivity growth for the nine years to 2016, compared to the nine years to 1984.  In those 9 years of Sir Robert Muldoon’s stewardship, growth in real GDP per hour worked was (according to the OECD) 9.0 per cent.   Not great.  But on the Treasury’s preferred measure of real GDP per hour worked (and even correcting for the break in the series last year), productivity growth from 2007 to 2016, totalled about 5.5 per cent.    The Prime Minister was Minister of Finance for most of that period.   (Yes, sure there were plenty of other imbalances, bad choices etc then, as well as terrible terms of trade….but they still achieved faster productivity growth).
  • I could commend to the Prime Minister a column in The Australian yesterday from Australian labour economist Judith Sloan (there are extracts and commentary on it here).   Notwithstanding Australia’s stronger productivity growth, and overall higher incomes, she slams the Australian government’s substantial immigration target (just slightly smaller, in per capita terms, than New Zealand’s), noting in particular the ‘cynical charade’ in professing concern about house prices while doing nothing about immigration (land supply –  a major problem in Australia too –  isn’t under federal government law).  Sloan isn’t just any economist.  She led the Australian Productivity Commission 2006 inquiry into Australian immigration.  And in many respects, she is about as “right-wing” as they come (to the extent such slogans have meaning), so much so that she was nominated by ACT and the Business Roundtable, and then appointed by the government, to serve on our own 2025 Taskforce a few years ago, where she was instrumental in ensuring that that Taskforce did not champion New Zealand’s immigration policy.   She doesn’t write about New Zealand these days, but it would be surprising if her conclusions about our policy were les stridently expressed than those about Australia’s

The Prime Minister can “believe” all he wants. He can attack Opposition parties all he wants (and we have yet to see specifics of what either Labour or NZ First propose), he can diss a former leading figure of the business and economic establishment, Kerry McDonald, he can ignore the counsel of someone as able in this area as Judith Sloan.  But what he seems unable to do is offer any evidence that his immigration is, or ever will, work for the benefit of New Zealanders.

39 thoughts on “The little engine that could…and other fairy tales

  1. I’m old enough to be instinctively skeptical of fluent plausible people. So I’ve searched for something to disagree with and this is the result.

    Maybe and I mean maybe, you overstate the problem with NZ’s location.
    Transporting goods is ever cheaper (surely even in the last 30 years that you concentrate on we have developed new exports dependent on air transport such as prestige fish and fresh cherries) and video conferencing is free. You say Korea had an advantage with its supply chain – I would have guessed Korea has had little assistance from its two large neighbours while developing its industrial exports, I would also expect Korea as having more difficulties with the ‘who knows who’ interpersonal aspects of developing export trade since Korean is a language almost unique to Koreans whereas English is almost a universal language.

    Sadly and more importantly because I would love to be wrong I can’t completely agree with your statement “NZ strengths is ….. institutions (absence of much corruption, rule of law etc).
    Someone once said a University’s reputation is always five years out of date and that seems true. Maybe it is true of NZ as a country – we have a reputation we do not deserve. We know the People’s Republic of China thinks we are a bolthole for its economic criminals. Filipino newspapers expose corruption in our use of Filipino dairy workers. There is grumbling in Auckland that the Maori representatives on the council are unelected – it will only take one controversial vote to get accusations of corruption flying however undeserved. And in today’s paper Mr Patel who “went 73 weeks without being paid, saying he was too afraid to make a complaint for fear of losing his job and eligibility to live in New Zealand”. You may say well all the NZ institutions acted honestly but I doubt any of his relatives in India will see it that way.

    Overall another great article – I will be emailing the link to my local National MP. I think your economic case looks solid as a rock but I would even accept a doubling of immigrants if we could guarantee zero Corruption/Rorts/Exploitation and fair wages for Kiwis and jobs for the one in eight young unemployed.


    • Thanks Bob. You’ll notice that I did slightly qualify the corruption comment (“not much”). I think it still remains true by international standards – eg the Transparency International index – even if we aren’t what we once were. I remain outraged – on your Chinese economic criminals point – that Donghua Liu remains a citizen and resident.

      On your other point, yes it isn’t always a fully easy story to tell. International value chains weren’t anything like the thing they are now when South Korea, or Japan, were getting going. but the data are pretty clear that mostly firms that are part of these value chains are operating either in Europe, North America, and East Asia. Even though shipping costs are modest, shipping times aren’t. And a great new book I’ve just been reading by an economics professor focused on international trade makes the point that flying/train time still matters – physical meetings still matter, inspection visits still matter and so on. NZ is a long and tiring flight from almost anywhere, and has few advantages over other closer places – other than its location-specific natural resources.

      It may not be the full answer, but it is certainly the experience – we just haven’t seen non natural resource exports develop here on any great scale. A lower exchange rate – a key distortion at present – would make some difference, but we’ll struggle to match Slovakia or Denmark. Again, my point is not that we are doomed to poverty, just that top-notch incomes probably can only be generated here for quite a modest number of people. Getting policy stopping continually adding to numbers would be a place to start. We might still find there was an exodus of NZers (as for the last 40 years), as they assess prospects for themselves and their families.

      Liked by 1 person

    • As a born and raised native I object to your comment:-

      “You would accept a doubling of immigrants if we could guarantee zero Corruption/Rorts/Exploitation and fair wages for Kiwis and jobs for the one in eight young unemployed”

      As you are an import class “03” not sure you are qualified to make such an offer to double imports
      The corruption we are experiencing is imported

      Liked by 1 person

      • As a returning kiwi, you are a migrant under the PLT definition and have contributed to the Net migration gains that is putting people into cars and garages.


      • Left as sole provider for two children when her partner passed away last June, she went to Centrelink “to see what I am entitled to – it was nothing”. Because she is a New Zealand citizen her children are disadvantaged – even though they are Australian.

        “I still had no options,” she says. “I even asked for a widow’s benefit: I didn’t qualify for that because I am not over 65.”

        There has long been anger among New Zealanders at being treated like second-class citizens in Australia.

        An estimated 600,000 New Zealanders are in Australia, most of whom are doing well, enriching their adopted country. Rights activist David Faulkner says there is “overwhelming evidence” that New Zealanders are being subject to “endemic discrimination”.

        Perhaps in the interim but increasingly dirtclass New Zealanders are going to want to return to NZ.


  2. Depends on whether business investment is funded by equity or by debt. In NZ, businesses have a tendency to fund their businesses from residential property debt which is cheaper than business commercial debt. As NZ businesses are small, they tend not to be equity funded as equity funding is more expensive than debt funding. The cost of equity includes loss of ownership control to equity partners plus you need to meet equity partners demand for dividend payments.


  3. Hello Michael,

    As a migrant from Eastern Europe that I am, I am so delighted to read your articles every day. It did happen when I was living in my country to hear different opinions from the expats. I could see that it was easier for somebody from outside to see the big picture than for the people who live inside the walls. I have the same feeling when I read your articles. Most often I see them closer to reality than how the ordinary Kiwis see it.

    I am a skilled migrant with high skills (university degree and lots of certificates in IT plus over 10 years of experience working in multinationals – Ericsson, Dell or ING Bank). One thing I am sure of since I have relocated to your country: you don’t have the right people in the right place. Go out in Auckland Centre or try to make a call to Customer Service as a customer of one of your mobile phone operators. You’ll see that nothing is working well and that is mainly because you don’t have the right people in the right place. I can tell you that the high paid jobs still belong to Kiwis but that doesn’t happen because of proven skills or any outstanding results achieved in their careers but mainly because of another issue. An issue that my first boss in New Zealand, an Irish man that I will always be grateful, has taught me: it doesn’t matter what you know but who you know in this country. He’d been living here for 7 years. So rest assured the good money still go to Kiwis.

    On the other hand I agree, there are so many low-skilled migrants that have entered the labour market. And I’ll give you an example: a service desk agent in the biggest telecom company used to earn 60 to 70K per year. That wage has gone down in the past three years to 40K per year. And yes, I am talking about Auckland. Ah, you may be wondering: how can you make a living in Auckland with that money? My answer: oh, well, when you have an 8 members family renting a 2 bedroom house then everything is possible. Conclusion: point taken here – those low migrants have put a high pressure on ordinary Kiwi wages.

    Long story short: I can see it, as a high skilled migrant, that the Immigration policy in New Zealand is totally wrong. It is those low skilled dodgy migrants that make the majority of the numbers. And, by the way, are deteriorating the aspect of the country as well – e.g. the rubbish that they leave behind them. I had my plans before relocating here (3 years ago) but now I am disappointed. And I am not the only one. I know several other high skilled people that are eager to leave any time soon. And this may help to improve your stats in the future 

    Liked by 3 people

    • Thanks Daniel

      Out of curiousity, what led you to move to New Zealand? At present, the prospects of many of the eastern European countries look better than those of NZ (albeit with threats to democratic norms in Hungary and Poland)?

      (Having asked the question, I should stress that I say to all high-skilled migrants that now they are here, I do hope they choose to stay.)

      Liked by 1 person

      • Good question. I have got it multiple times. Living in Bucharest – Romania, working in telecom field as a service manager, I had a salary 5 times the average Romanian. So my standard of living was not good but very good. So I didn’t move to New Zealand for the money. I had visited lots of countries from EU before relocating here but I didn’t want to relocate to a country in EU because of the adversity towards migrants that had already bubbled up there.
        I had read a lot about New Zealand before making the decision as I was not willing to pay for a trip here.
        First three reasons:

        1. I am an anglophile hence I wanted to live in a country close to British culture (so British, not American)
        2. I wanted to live in a city by the ocean.
        3. It was a beautiful country and good for raising kids.

        It took me 2 years to get to the standard of living that I had in Romania. I had to step back a little in terms of career aspirations. That was something that all the recruiting managers advised me. Which frustrated me but I had to do it. I have ticked all the 3 boxes above. But now:

        1. I can see corruption flourishing. Even the immigration process itself is corrupt (I can send you an article if you would like to).
        2. Auckland is rapidly becoming a slum – congested, crowded, more polluted
        3. There aren’t that many opportunities for the highly skilled people. And that is mainly because of what you said: lack of investment.


    • Hello Daniel, I am a retired IT guy, also an immigrant (class of ’03).
      There are plenty of good Kiwi IT guys if you are looking in London or PNG and I’m guessing almost everywhere else; maybe not so many actually in NZ. I think you have hit the nail on the head about it being a low skill, low class -v- high skill, high class immigration debate. It is the root of all my objections to worker exploitation. It is hard to exploit some one like you or me since we had skills that were in demand internationally – we would just move on.
      I have not read as much NZ history as I should have done so I wonder if the anti-Catholic issues of Victorian times were actually prompted by the poverty of the Irish refugees from the potato blight rather than their religion?
      NZ has plenty of room for Indians, Chinese or any other country with PhDs from the best universities. We just make it rather difficult for them to come to NZ with all the bureaucratic delays and nit-picking of our Dept of Immigration. The same dept also makes arbitrary changes such as freezing the parental reunion category last year; a college teacher from my son’s ex-school is reported to have resigned to return to Scotland to look after his aged parents; I do not know if he would have stayed if his parents could have joined him in NZ. Now who would like to take his place as a teacher in North Shore Auckland where houses average over a million dollars?

      Liked by 1 person

      • Try another city? Auckland is getting less and less like NZ. Dunedin has plenty going for it and I’m told Nelson is very popular. A move from Auckland would cut you salary but just browse the homes for sale and what you pay in rent here will buy you a solid house with a walk to work and maybe a coastal bach too. I have my own favourites but with plenty of children and grandchildren and a working wife I’m not able to move. And then again being retired is the best way of living in Auckland so long as you can harden you heart to those who are unlucky enough to be young with no inheritance.


      • Thank you for the advice Bob. If you depend on having a job to make a living then there should be opportunities to follow up on in the places where you want to relocate. Unfortunately that is not the case. Wellington may be the only one doing better than Auckland in terms of opportunities but I have already visited it and didn’t like it.
        However, there might be a solution for some others that would like to leave Auckland and work (mainly in IT) from a different location, remotely, for the companies that have their headquarters in Auckland. That is called “working from home”.

        And @Michael too, that is food for thought for the matter regarding the prices of the properties in Auckland. There would be thousands of IT Specialists that would love to leave Auckland and work remotely from… Timaru for example. That would take the pressure off Auckland shoulders in terms of prices for renting or housing. The problem is that most of the companies have not adhered to this practice. Why is that? Well, to explain my opinion would be too long for a post here but in short terms: it is an Old Boys club that rule them and they don’t like this approach.

        Liked by 1 person

      • At Xmas I met a young family where the father was an expert in computer backup and his employer would let him work from anywhere in the world: his wife was trying to decide betweenTahiti or Bali. I wonder if British Airways would be looking for him.


      • Daniel, not too sure about old boys club as I have not encountered that problem personally as a migrant that have now been in NZ for 30 plus years. My pay scale have always been competitive with any local with the same qualifications and experience and is currently at $200k plus CBD carpark. What I do notice is that NZ has a preference for administrators and sales orientated people. Highly skilled technical people tend to struggle in NZ on the pay scale. If you are a manager of technical people then you will get the top pay but it means developing people management or selling skills.

        The first thing you need to progress in NZ is to forget about the old boys club. The opportunity to enter that club is open to all parties including new migrants. It is about fitting into the culture of that club. When you fail to progress in NZ it really means that you have failed to understand the culture. Many new migrants try and blame colour, or race or religion and in your case, having all the right colours and race you blame the old boys network. That is a cop out. It is easy to blame something or someone else for your failure to adapt. But to be successful, you must look at yourself and ask if you have adapted. It is easier to change yourself to fit the group than to change the group to suit you.


  4. I agree, sadly it seems nobody is listening in the National Party. I wonder if they really believe what they are saying, or is it just that their core constituency benefits from the redistributive properties of immigration (cheaper labour makes the business owner better off, more demand for housing rewards the property investor/speculator etc). By the way is Professor Belshaw’s pamphlet out of copyright ? Maybe someone can share the complete pdf.


    • Re Belshaw, he only died in 1962, so his pamphlet is well inside copyright still. Yet another example of the insanity of copyright law much beyond the author’s death. I’d happily pay his descendants a modest royalty to scan the thing and make it available, but I doubt I could find them even if I tried.


    • Not all New Zealanders want fewer migrants. Many do want more migrants into their localities. It is a catch 22 situation. Damned if you do and damned if you don’t change immigration entry threshold. Those small changes so far are having a dramatic impact on locals and their businesses.

      Glenavy School principal Kate Mansfield said the changes would affect the school immensely, as about 80 per cent of its pupils were the children of migrant dairy workers.

      Winchester Rural School principal Tre Sylvawood said, “As our staffing and operational grant is determined by numbers on our roll this change could potentially impact on both.”

      Federated Farmers South Canterbury president Mark Adams said he believed South Canterbury had one of the lowest unemployment rates in New zealand, which made the region reliant on immigration and immigrant labour. The lack of skilled labour currently available in South Canterbury was one of the biggest limiting factors in business growth, Adams said.


  5. Great summary. One thought: while GDP per capita might go up with less people (possibly aided by a lower NZD), it would seem those owning land producing export quality product – with much less labour than days gone by – would receive a greater share of the additional bounty. Nothing wrong with that – it’s a free market (albeit less so when it comes to land….).

    But if distance/location is really a major hurdle to non-resource based business exports, “top notch living standards for the people” could still be elusive. How does public policy change that? Housing supply and education / apprenticeship investment seem relatively obvious areas but I’m not sure all the people would end up driving away in a new Land Rover….


  6. “Conclusive evidence”? On the basis of simple correlations that (i) suffer from a severe omitted variables problem and (ii) mix up levels and changes, I’d say not even remotely close. Here’s another one that at least doesn’t suffer from problem (ii): NZ’s labour productivity has indeed slipped over the last 20 years compared to the previous 20 years — but by much less than countries such as Belgium, Denmark, Finland, France, Germany, Italy, Japan, Korea, Luxembourg, Norway, Portugal and the UK. Have all these countries increased their immigration rates significantly more than NZ? If not, your story starts to look a bit sick.

    And then, more importantly, there’s the vast literature, which doesn’t suffer from problems (i) and (ii)), that finds almost-universal gains from migration. A literature which also finds no evidence that NZ is somehow different to this general rule.


  7. Um, I think i explicitly said there wasn’t conclusive evidence, highlighting only what I described as “straws in the wind” As it happens, you don’t address any of them. I’m not sure your (specific) point about levels and changes in this context. I’m also not that sure of relevance of your (ii) – the argument isn’t that NZ productivity growth has slowed more or less than that of other countries, it is that on average it remains well below that of other advanced countries (and actually in particular, than other poorer advanced countries).

    Re the literature, there is actually quite a small literature on these matters, and much it around 19th C quite strongly of the view that immigration led, as one would expect, towards factor price equalisation. However, my general point is not about global immigration, but about NZ specific immigration, and there is very little empirical or analytical economic historical research/evidence on those policies of recent decades. (Incidentally, you will recall the piece the IMF put out in their NZ Article IV a couple of weeks ago, suggesting possible losses of labour productivity and TFP from immigration)

    I know you (clearly) really really don’t like my arguments in this area. That’s fine. But I would be interested in your alternative narrative of NZ’s continuing economic decline, including how NZ’s immigration policy experience fits within that story.

    Liked by 2 people

  8. If you want to consider if immigration is of value, you need to include the benefits to the immigrants. The fact is no one is being forced to move here, and no one is being forced to trade with the newcomers,p. What we have is voluntary action of free individual and I am quite happy that heavy government intervention isn’t going to improve aggregate welfare relative to the status quo.


    • Yes, benefits to the migrants themselves are certainly real benefits. But they are a different issue. My focus is on the benefits, or otherwise, to NZers, and am careful to (almost) always spell that out, reflecting the common proposition that our government should be working mostly in the interests of NZers, including in deciding how many people, of what sort, we should allow to settle here.

      Some do favour an open borders appraoch. No country practices it, probably for rather good reason (being a conservative, my prior is to respect the wisdom embodied in widely-followed practices).

      Liked by 2 people

      • I find the immigration debate interesting with most assertions on either the economic or the social advantages and disadvantages not meeting the criteria of ‘proved’ that we used when doing my BSc. However who can disagree with the statement that “there are benefits for the immigrants”. Ignoring refugees who may be unable to return all immigrants can fairly easily return to the place of origin. I have a child who did so and so did the Turkish family who used to be my neighbours. It is not like Victorian times where a return required an expensive journey in the bottom of a wooden ship.

        So logically opening the door for all immigrants until they out number native born Kiwis would result in 10 million people with more than half benefiting; a utilitarian goal. But it just doesn’t feel right. Is it similar to saying “I live in a comfortable house in Auckland considered by some as “the world’s most liveable city” yet there are families living in cars and garages – should I open my home to whoever wants to come in? My answer to that is (a) my house is owned in my name but it is a family house so the decision to make the offer should be decided by us all (b) if there was a natural disaster such as the Kaikoura earthquake I hope we would be as generous as some of those inhabitants on a temporary basis but on the other hand I couldn’t imagine our making an offer for permanent accommodation.

        My conclusion “NZ First” which wouldn’t sound so bad if neither Winston Peters or Donald Trump hadn’t said the same. Maybe I need to listen to the Christians in my household,


      • I imagine there were similar arguments in favour of slavery back in the day too. I’ve always struggled to find a moral basis for caring about people differently based on which side of a border they are on.


      • Maybe, altho I care about my kids more than my brother’s kids, more than my neighbours kids. Granted the national boundaries are in some sense arbitrary or conventional, but they are the basis on which I moderately happily pay taxes to support someone in NZ in need, but not someone in say the UK.


      • I don’t really buy the analogy around letting people into your home. In fact the opposite is true, we violate property rights when we don’t let people transact with others because one side of the transaction is banned from the country.


      • Drawing a long bow there Mathew. There is nothing stopping you or anyone else caring about others, regardless of where they are. We clearly can only be of very limited assistance to the vast numbers of people in poorer countries and, if you believe allowing them to come to our country in large numbers is any sort of a solution you are seriously mistaken. Your efforts would be better spent helping them re-configure their own countries social, political and economic structures. Success is not a mystery.


      • My suggestion was that when you assess the benefit or otherwise of immigration you need to include the benefit to the immigrants. Hardly a long bow. To do otherwise would be akin to assessing the value of crop farming without accounting for the benefits to the consumers of that food.

        No doubt that a large influx of immigrants sufficient to destabilise our economy would be detrimental, but that isnt at all what we are discussing.


  9. I agree that NZ’s wealth is mainly derived from the land. Based on that premise, increasing population will decrease per capita GDP.
    I think it is unfortunate that you seem so pessimistic of NZ future, albeit understandable based on past performance.
    I would like to juxtapose that with Singapore. At partition in 1965 from Malaysia there was a sense of despondency, the loss of the hinterland that underscored its prosperity. The impending loss of foreign income from the loss of military bases from commonwealth countries. A small population with no resources, produced nothing, in a region that was desparately poor and cut off from the world.

    From this sense of despondency came, action. Light manufacturing (based on low wages) then ports, education and a financial centre came later and none of this was inevitable.

    How does Singapore situation related to NZ? Their model for the last decade was attracting foreign talent to build financial, biomedical and educational service industries. Their population increased from 3.5 to 6 million people with one of the highest per capita GDPs in the world.

    This era is not the same was previous eras, through the internet, we can trade services just as easily with the UK, HK, Singapore and the US. Where our time differences and English language capability may be an advantage.

    Main issue holding NZ back, isn’t immigration or location; it’s the mindset. Being comfortable, laidback does not lead to innovation and competitiveness. Especially in an environment where only the paranoid survive.


    • Interesting angle on the issue. Perhaps “mindset” really could make a difference, even given location. I’m a bit sceptical of that proposition, or even of how much the internet really facilitates (not in theory, but in observed practice). But even if mindset is the problem, it isn’t obvious why large scale migration is even part of the answer. it doesn’t seem to have been much help for the last 70 (or 30) years.

      Even though there was despondency in 1965, Singapore actually had a lot going for it. Same was true of Ireland which – while richer than Singapore decades ago – had languished for a long time.


      • If Thailand’s new king gets his way, then the Kra Canal between Thailand and Malaysia would certainly make Singapore redundant. Wonder how they would cope economically when that happens.

        Also, met a new Singapore migrant to NZ and his complaint was that for the very first time he has had to pay tax in Singapore and that makes Singapore now less attractive for investors because of the new Anti money laundering sentiment around the world has resulted in money flows more transparent and therefore taxable. Looks like Singapore has in the past been a hub for hot money.


      • I agree that large scale immigration on its own is not an answer. Nor is it a chain that necessarily drags performance.
        Singapore has used immigration to build industries that was not substantial previously, bringing talent and drive (finance, biomedicine).

        Immigration is not a pancea, bringing in types of people with no skill, drive or prospects will dilute performance.

        I think sometimes we are guilty looking through the rear view mirror. The biggest barrier to international trade is what? Tarriffs have largely small, communication is easily.
        Denmark and Switzerland have large pharmaceutical industries, despite having small populations. The cost of shipping medicines is neglible proportional to value.

        Countries like Singapore, South Korea made their industries because they had to and not because nature gave it to them. Objectively they should be as wealthy as Sudan and Cambodia if one looked at natural resources and advantages. Why should Singapore have a financial center with a population of 6 million and a small domestic market. South Korea have high tech manufacturing.
        South Korea (samsung biologics) is now moving into biomedicines.

        There is no predetermination of outcomes in today’s world. Countries have the ability change destiny.
        NZ does not have enough people with ambition and talent.

        C.f National champions (telecom NZ) versus Singtel(Singapore). Telecom NZ ventures to Australia (APTT) and fails and does not seek further overseas markets. Singtel is successful in Australia (Optus) and also invests throughout south-east asia to leverage their expertise.


    • The word is “Talent” – how talented are the immigrants you meet and in case you think I’m being racist just restrict yourself to the Brits like myself: some are pleasant and friendly but very few are talented.
      “Being comfortable, laidback does not lead to innovation and competitiveness.” – neither does excessive stress. There has to be a balance.
      Knowledge of the ways others do things is valuable – it can be obtained by meeting tourists or temporary workers or OE or permanent immigrants. This discussion is about immigrants and if they are really diverse it can be great (as an example visit my local Birkenhead shopping area) however Prof Spoonley is now warning us of “Ethnic Precincts” where say Korean shops sell to Koreans with everything in Korean, that does not stimulate the economy it merely forms a small colony. OK it is easy to say that doesn’t sound like the NZ you know and my reply is look at the England I grew up in – things change very quickly.
      We should slow down the rate of immigration and start searching for true talent where ever it can be found.

      Liked by 1 person

  10. National’s Bill English unashamedly believes in New Zealand’s capacity to be a growing economy and goes on to say His political opponents think NZ isn’t up to it, it’s too hard and the solution is to shut down the growth by closing off international investment …

    There is growth and growth … Bill considers uncontrolled growth a success … emphasis on uncontrolled … cos he is not controlling it

    Should he look it might be or become a cancer

    Cancerous growth … extra cells divide without stopping and form growths called tumors. Many cancers form solid tumors, which are masses of tissue. Cancers of the blood, such as leukemias. Cancerous tumors are malignant, which means they can spread into, or invade ….

    Liked by 1 person

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