No fix for the flawed fundamentals

I’ve had fairly low expectations of what a change of government might mean for overall economic policy, but at present the new government seems to be charting a course to under-deliver even those low expectations.

The Minister of Finance yesterday gave his major public speech since taking office, explicitly selling it as an outline of the government’s economic strategy.     Sadly, there wasn’t very much there, and much of what was there focused –  as his speech title did –  on sharing and redistributing, with very little on reversing the decades of dismal economic underperformance.   Simply cutting the pie differently is no long-term solution to the sort of failure that has seen almost a million New Zealanders (net) leave New Zealand for a better life, for them and their families, abroad.

During the election campaign I was somewhat critical of Labour for simply accepting the National government’s narrative that the economy was basically doing fine.  But at least then I could sort of understand why they might do it –  something about not scaring the voters in the centre ground and not coming across as alarmist when they didn’t have much of a solution.    It is bit more surprising, and much more disappointing, to see that narrative carried over into office.

Here is what the Minister of Finance had to say this morning

While the fundamentals of our economy were, and are, strong, the purpose of it had become lost.

Again, perhaps after some bad business confidence numbers he doesn’t want to scare the horses.  But (a) you don’t produce better outcomes without actually facing what has gone wrong in the past, and (b) it is starting to seem as though the Minister of Finance actually believes the story on some level.

Grant Robertson was born in 1971.  Even by then, our economy had been in relative decline for a couple of decades –  and all the contemporary experts knew it.  But if we were no longer among the most productive and wealthiest of the then advanced economies, at least we were still in the middle of the pack.  Since then, we’ve just lost further ground –  the relative decline was particularly bad in the 1970s, but there has never been a sustained period since then when we’ve looked like reversing any of the relative decline.  Not under National governments, and not under Labour government’s either.    When Grant Robertson went off to university, eastern and central Europe was still Communist-run, with highly inefficient poorly-performing economies.    These days, the better performing of those countries –  Slovakia, Slovenia, the Czech Republic – are closing in on New Zealand levels of productivity/income, and places like Hungary and Poland aren’t that further behind.   Turkey is on the brink of going past us.   They’ve done quite well, but still have a long way to go to catch up with the West European leaders.  We’ve just done really rather badly; mediocre at a (generous) best.

Economies that are performing well  are typically ones in which the tradables sector of the economy is growing.   Local firms are finding more products and services which they can sell to, or compete with, the rest of world.   But we’ve had no growth in real per capita tradables sector GDP since around 2000.  Exports are a share of GDP are, as I illustrated the other day, now at the lowest level since 1976.

Over the last quarter century – even after the economic reforms –  our productivity growth has been among the lowest in the OECD (and we started from a bad position).  Most starkly –  and this a point that Robertson does mention –  we’ve had no productivity growth at all for the last five year.

And then, of course, there is the disastrously dysfunctional housing/land market: a country with so much land nonetheless has some of highest house price to income ratios anywhere in the advanced world.

Frankly, the “fundamentals of our economy” are pretty poor, especially if what we care about is the ability to support high incomes (fairly shared) for all of our people.  Yes, there are some things we can chalk up on the other side:  we’ve largely avoided a domestic financial crisis, our government accounts are sound, our people are pretty highly skilled (we’ll come back to that one), and our unemployment rate isn’t too bad (even if it is still above a NAIRU).   But mostly those are ‘inputs”: the “outputs” and “outcomes” don’t look very attractive at all.  And that makes it all the harder to deal effectively with some of the pressing social (and environmental) issues.

You might think an incoming government was well-positioned to point this stuff out.  But I guess there is no point in doing so if you haven’t got a strategy that is likely to be (a) materially different from what went before, and thus (b) likely to produce material different outcomes.

Instead, they seem to want to play down the dismal economic data and follow The Treasury down the not-particularly-well-grounded path of the Living Standards Framework (which I wrote about a couple of weeks ago)

I have asked the Treasury to further develop and accelerate the world-leading work they have been doing on the Living Standards Framework.  This focuses on measuring our success in developing four capitals – financial, physical, human and social. These give a rounded measure of success and of how government policy is improving our well-being.

This is a far better framework for judging our success.

As I’ve suggested previously, it looks more like a way of avoiding confronting our really bad long-term economic performance and the very large trend outflow of our own people.

The Minister of Finance claims they will keep a focus on productivity.

Low productivity has been a cloud over the New Zealand economy for decades and previous governments have failed to tackle this issue – this government will not.

Which sounds okay, perhaps even momentarily encouraging.  But how are they going to do this?  The Minister identifies only two areas.   The first is skills.

Lifting the skills of our people is critical to solving the productivity challenge.

In fact, there is not the slightest evidence for this proposition, which would lead the reader to suppose that skill levels in New Zealand lagged behind those in other, more economically successful, OECD countries.   No doubt we can do better (and there are specific pockets of underperformance), and there have been some disconcerting developments in the PISA results in recent years.  But the OECD produced data only last year suggesting that New Zealand workers were among the two or three most highly-skilled in the OECD.      They used three measures and this was one of them

oecd problem solving

As I summed it up at the time

Looking across the three measures, by my reckoning only Finland, Japan, and perhaps Sweden do better than New Zealand.

Increased subsidies for tertiary education (the policy Robertson then advances) will, no doubt, serve a redistributional function (even if one of questionable merit –  and I say that as a parent with three kids likely to go to university in the next eight years).  But there is little evidence they will do anything to close aggregate productivity gaps –  which, in New Zealand, aren’t about the skills or energies workers bring with them, or even about our legal institutions, but about the profitable business opportunities firms can find here.

And the second strand to Robertson’s response to our productivity failure is R&D.

Also critical for lifting productivity is increased investment in Research, Development and Innovation. The first step in this is the introduction of an R and D Tax Credit.  Beyond that we will move to work smarter, adding value to change the mix of our exports and using and creating new technologies.

I’m not aware of any serious observer, even among supporters of R&D tax credits, who believe that such credits are likely to make a transformative difference.

This is the data from the national accounts (March years) for research and development spending as a share of GDP.


It would be interesting to know quite what was going on in the 1970s, but really ever since then there hasn’t been much change in the share of GDP devoted to R&D (as captured by Statistics New Zealand).  Interestingly, the most recent year saw the highest R&D share in the 45 year history of the series.

Many observers point out that New Zealand is relatively unusual among advanced countries in not having an R&D tax credit.  There are various other countries, including Denmark and Switzerland, but on the extreme far end of the OECD’s chart of a summary indicator of such matters are New Zealand and Germany.

And yet here is the OECD’s data on R&D spending.  For this particular series they don’t have data for New Zealand for every year, but the picture is still clear enough.

R&D 2

The New Zealand R&D spend (as a share of GDP) is well below the OECD total, and Germany’s has been consistently above (as are those in Denmark and Switzerland).   And neither country has R&D tax credits.  In fact, when the OECD totted up all the different sorts of government support for business R&D, the New Zealand government was considerably more generous than Germany.

It suggests, as I’ve argued here for some time, a need to stand back and think about what it might be in the New Zealand economic environment that means so little R&D occurs here.  Firms typically take the risk of investing in R&D when they think the opportunities for profitable businesses are good.     That doesn’t appear to have been the case in New Zealand (in contrast, say, to Germany), and consistent with that overall business investment as a share of GDP in New Zealand has been low by advanced country standards, for decades, even though our population growth rate has been much faster than that in the typical OECD country (more people will typically require more business investment if living standards are to keep pace).   This is not the place for a lengthy discussion of factors that might discourage firms from investing here, but high interest rates (relative to those abroad), an out of line real exchange rate, and being the most remote advanced country on earth (at a time when personal connections, value-chains etc seem to have become more important) might be things to think about.  Not one of them appears in the Minister’s speech.


Perhaps the closest he comes is in a summary of the government’s approach

In other words, we’ll be swapping out population growth and the buying and selling houses to each other as our two main growth drivers for much more sustainable ones. That sounds like a good description of our plan.

But they aren’t changing the medium-term immigration targets at all (and various media report that the Prime Minister isn’t even keen on implementing Labour proposed changes re student and work visas),  and simply buying and selling houses has never, of itself, been a “growth driver”.

There is the beginning of an idea here, but sadly nothing in government policy –  as outlined so far – is likely to represent any sort of fix.  After all, a key thrust of government policy is to build lots more houses, and they plan to just keep on keeping on issuing 45000 residence approvals a year for people to settle in such a remote, unpropitious (from an economic perspective) location.  Perhaps worse still, they seem keen on continuing, and beefing-up, the previous government’s misguided approach of trying to steer migrants to places other than Auckland (which is, on my telling, to put the cart before the horse).

One gets to the end of the speech confident that the government knows how it wants to redistribute more/differently than what went before (much the same could be said of Phil Twyford’s housing speech yesterday), but without any sense of a compelling strategy that is likely to do anything to reverse New Zealand’s long-term economic underperformance, to fix those flawed fundamentals.  I hope they really care about fixing the fundamentals and are just keeping quiet because they don’t have any compelling ideas –  and aren’f finding them in The Treasury’s post-election advice.  I fear that, a bit like their predecessors, it is some mix of putting the problems in the too-hard basket, and of no longer really caring that much.

38 thoughts on “No fix for the flawed fundamentals

  1. ”In other words, we’ll be swapping out population growth and the buying and selling houses to each other as our two main growth drivers for much more sustainable ones. That sounds like a good description of our plan.”

    Those were the words that took my eye too.
    I would like to believe that the measures they are taking on immigration below the parapet may be going to happen.
    If the Government have the guts, they should bring in the head of Immigration and ask for a review of the rorts to get students to work permits and then to residence and then to bringing families, to give them an amnesty to admit what they have done and tell them that their own permits to act will be revoked if they then get found out. The whole Immigration industry has too many foreign sourced people who may have residency or even citizenship themselves but have not left behind them their native behavioral attitudes to interpretation of rules.


    • Wouldn’t it be fairly simple to track permanent residents for say the first five years after their applications are approved? Simply matching income declared to IRD with original residency application.
      I’m fairly confident most of the skilled immigrants would be earning and paying more tax than receiving benefits but the exceptions would be interesting. For example the residents arrested for smuggling drugs last year – they had had no income for nine years. Some exceptions would be acceptable such as maternity leave, ill health or leaving NZ.
      Being of a suspicious mind I suspect that many chefs, bakers and retail managers may be earning less than anticipated for ‘skilled’ workers. If so it would support the research by Prof Christina Stringer into worker exploitation. It would explain low wages in service jobs. It would also explain why so many honest businesses are unwilling to invest: they believe some of their competitors are corrupt.
      It is quite possible that immigrants are as beneficial (ie substantial net payers of tax) as many believe. However if they start this simple data match now they can prove it one way or another. If they find evidence of significant rorts and corruption then they can blame it on the previous government.


      • In general, fiscal aspects aren’t the best measure of whether immigrants are a net economic benefit to NZ (and NZers). Often there will be a short-term fiscal gains (immigrants are typically working age people) but you really have to assess fiscal effects over a lifetime (or even intergenerationally). Over those time frames, there probably isn’t much there – as with natives, some will be big net contributors, others significant net drains.

        The productivity effects – positive or negative – are more important, and even harder to measure.


      • My suggestion was not to resolve the issue of whether immigration is a net economic benefit to NZ; I leave that to economists. It is merely a simple means of checking that the system is achieving its stated aims (that skilled are skilled) but mainly a means of eliminating fraud.
        Living in the 3rd world is a quick lesson on how the fraudulent drive out the honest. Kiwis are spoiled; they have been living in a culture where business honesty was ingrained (maybe from both Maori and Presbyterian roots). Integrity is a virtue easily lost.
        A simple example would be my local Indian restaurant that was prosecuted for paying workers $3 per hour for 80 hour weeks. During the couple of years that restaurant was breaking the law it had a distinct advantage over the couple of dozen other restaurants within the same area. Those other businesses would have had less incentive to invest to increase productivity.


  2. Exploitation Central – Immigration NZ is broke

    In a briefing, the incoming minister, was told that in 2015/2016 Immigration New Zealand (INZ) only had the capacity to investigate a third of cases that met its criteria. But in 2016/17 that number plunged to just 18 percent after the number of reported cases almost doubled/ That’s only6 those that met its criteria – which wasn’t explained

    Liked by 1 person

    • Also from that link, Lees-Galloway said this;

      ““I’m going to have to have some very frank conversations with the Minister of Finance but unfortunately all of us are finding this in all of our portfolios, we have huge unallocated capital spend, promises made by the previous Government that they just didn’t set aside any money for.”

      Ardern mentioned this same problem across portfolios today in her post-Cabinet press conference.

      I really think they should increase their projected borrowing to whatever level is needed to plug these under-funding and unallocated capital holes. It’s just insane to carry on with this sleight-of-hand method of operating that National did. Compliance and enforcement across many government sectors was the first thing to be cut under the austerity budgets that National were running. Lot’s of up-scaling and repair work needs to be done in that regard.


  3. Cassandra: a repetition of your persuasive argument. It reminds me of my families involvement with British Railways – growth from 1830 until my birth and then decline and more decline. We had our minor hopes for example high speed trains and computerised signalling but basically management was managing decline. Maybe they were brilliant managers but profits and customers and freight kept going down.

    Facing the truth about NZ’s economic performance is essential otherwise governments will just keep repeating the same errors. So if the Minister of Finance is reading your article and nodding his head in agreement are there any solutions to this problem?
    I am interested in seeing immigration at a rational rate (more like a healthy shower of rain rather than a flood) but I cannot see controlling immigration making any drastic difference to New Zealand’s economic future. I do not understand the economics but if the half trillion dollars (guess) of property land values was redirected to business investment would that help?

    Liked by 1 person

    • On your final sentence, yes and no. If our population growth rate were much slower, many fewer real resources would need to be devoted to building houses (and all the stuff more people need) and more could then be used for “capital-deepening” business investment. But simply lowering house prices won’t change that picture very much at all: we could have (say) an Atlanta housing market (growing population, flat house prices), and it wouldn’t change the real economic imbalances: we are in a poor location, don’t save much, and so the pressures of rapidly growing population just make things worse.


      • Labour is finding that trying to act on the promised drop of 30,000 is not that easy as just removing the migrant target of 45k. Labours policy has been starkly confused. Andrew Little wanted to cut 30,000 out of Foreign Workers but Jacinda Ardern found that to be nonsense when you are trying to build 10,000 houses a year. But all that foreign labour under a work Visa are already in jobs. As a Sri Lankan migrant found that falling ill and not working in NZ is not an option under a work visa. Her entire family gets the big boot out of NZ. Phil Twyford now wants to bring in even more immigrants to built houses. Also add another 1800 for police officers and the Salvation Army has come in and indicates another 18,000 old age care workers.

        Jacinda Ardern is now targetting 30,000 international students but again finding out that is not a viable option.

        Winston Peters has gone awfully quiet because he knows the regions are screaming for more foreign labour not less.

        Therefore Michael, a lot of rhetoric but you have not offered a viable way out of this productivity issue. Just indicating cutting migrant targets is not a solution. More like trying to wallpaper a water stain with more wall paper.


      • I think the government’s problem is a degree of internal incoherence, combined with a Prime Minister who (rightly or wrongly) doesn’t agree with the policy Labour went into the election on (adopted by her predecessor). But as I’ve consistently pointed out, Labour’s proposals were mostly tinkering at the margins and did not even seek to address what I regard as the structural flaw (and centrepiece) of immigration policy.

        The only bit of Labour’s policy I supported was the student visa work rights etc bit. That still seems a sensible way to go – but of course it will be unpopular with vested interests, just as getting rid of other subsidies in the 80s was.

        Liked by 1 person

  4. ….seems the theme up ‘investing in skills’ is churning within many policy circles across advanced nations: begs the question – if we all become highly skilled, who does the low skilled jobs? and that seems all the more relevant in NZ as the service sector grows; will a lower NZD help? sure but is NZ really endowed with the industrial base/location that can compete in high tech widget markets? hard to know but my guess is the barista is likely to remain a frequent part of the labour market for a while yet….


  5. Seems that Robbo doesn’t have any original ideas at all… we are skilled but poor… so increasing our skills is not a solution to the productivity problem.

    R&D tax credit? As Michael points out, it is not the tax position that matters, it is the ability to turn R&D into useful products and services that we can sell. There are few scalable opportunities in NZ it would seem given the low levels of R&D across the NZ economy.

    I suspect that if the Gross Fixed Capital Formation series is adjusted to remove house construction (I’m not sure if it is there or not) I expect that we will see an equally weak trend. So do we need ‘nation building’ to lower costs? I seem to recall a Productivity Commission report in the trade-able good sector saying there was some $4 billion per annum of costs that could be removed? That would surely help?

    Productivity is a hard problem to solve, but the longest journey starts with a single step…


  6. This is a cynical view: The politicians are just sitting on their hands thinking “let globalisation happen. Some Kiwis will see their living standards fall but all those migrants will be better off. We will be o.k – and we are worth it (fat salaries).

    Paul Spoonley RNZ Smart Talk at the Auckland Museum

    The thing which really annoys me at the moment is the way immigration is framed as a problem. It goes to Alis point [the arguments against immigration are unsustainable] It’s a very simple and inaccurate response to what’s happening in the world. We are globalising; we are part of a new era of globalisation and this country is actually transitioned into that, particularly with it’s connections to the Pacific and Asia in a way that is quite impressive in many, many ways but at the same time we really need to reframe what is happening or *provide* an understanding and that’s what frustrates me at the moment.
    The media are supposed to ask questions. I sent Kim Hill an email today

    When is Kim going Round Two with Greg Clydesdale? Last words were
    (something like) “but you don’t do you?” regarding peer review. He has
    written The Politically Correct Economy where he assesses what has
    happened versus politically correct view points.


    I agree with Don Brash. Who the hell are the media to impose Maori in
    mainstream programs. It is forced feeding. Guyon Espiner admits he
    “enjoys winding those sorts up”. People are not designed to take on new
    languages except at an early age. You at RNZ and TVNZ benefit from
    learning Maori; what do the public get?
    She read out “I agree with Don Brash. Who the hell are the media to impose Maori in
    mainstream programs. It is forced feeding.” plus another email and commented “there is an explanation on the webpage .. if all you want is to become enraged”. Admittedly she can’t read out everything but it demonstrates how the media can pick and choose/exclude.
    She got stuck into Don Brash about it being in the charter of RNZ to promote Moari, but if so they are selective in that they gave no airing to such things as the late Ranganui Walkers complaint about how Maori were sidelined over immigration.
    They are tyrants.


  7. Growing Pains – the chase for unskilled labour

    By the 1960s, the policy of excluding people based on nationality yielded a population overwhelmingly European in origin. By the mid-1960s, a desire for cheap unskilled labour led to ethnic diversification. In the 1950s and 1960s, New Zealand encouraged migrants from the South Pacific. The country had a large demand for unskilled labour in the manufacturing sector. As long as this demand continued, migration was accepted from the South Pacific, and many temporary workers overstayed their visas. From 1974 to 1979 dawn raids were carried out by police to remove overstayers, most of whom were Pacific Islanders.

    Post World War II migration


    • The “points based system” assumes migration is a matter between governments and qualifying migrants. It sounds fair unless you assume that governments don’t own the country and it’s resources, the people do. Under the “points based system” New Zealanders are loosing their privileged position regarding living in Australia, as Eastern Australia is receiving migrants and students from India and China. As the demographics change they are “looking more in that direction”. For the average New Zealander that is a loss.
      The “points based system” was also the death knoll to New Zealand society as we know it: the old “one people; one country”. Has anyone measured the emotional effect of that diluted sense of belonging? Is it reflected by social cohesion? Local government NZ say moving from a neighbourhood of high cohesion to low is “as bad as taking up smoking”.
      Population growth was perceived to threaten the very survival of some Pacific societies; indeed one of New Zealand’s most eminent demographers (and an early Trans -Tasman migrant) W. D Borie went so far as to say in 1965 that: “to a demographer these Islands represent populations, however idyllic they appear to be at the moment, nearer the brink of overpopulation in the Malthusian sense than almost any other groups of peoples”
      Only in this century has the world’s population attained an average annual rate of growth in excess of one per cent. In mid-century it has climbed to about 1.6 per cent per annum. But in Polynesia growth rates exceed three per cent per annum; in some territories they have exceeded four per cent per annum. Projections have been made of future rates of population growth in the next two quinquennia for all the territories under review. 1 Excepting only French Polynesia, all groups have predicted future growth rates which exceed the recorded rates of growth in the last quinquennium. They range from 3.20 per cent to 3.60 per cent per annum (but in the case of the Indian sector of the population of Fiji they reach 4.25 and 4.20 per cent per annum) for the five-year periods 1962-66 and 1967-71 respectively. These last figures approach the theoretical physiological maximum.
      Kenneth Cumberland


  8. Forgotten about Clydesdale – he disappeared after being excoriated and crucified – question is – is he right or not

    It is a myth that migrants are more entrepreneurial.
    The former Labour Department’s own figures show that migrants have a poor rate of entrepreneurship.

    The reasons are the migrants do not understand the NZ business environment. They frequently bring business models based on cheap labour and
    large markets. Those models do not work in New Zealand, so the entrepreneur ends up, for example, buying a pre-existing cafe, which does not result in new economic activity


  9. Any discussion of productivity in NZ must address house prices. I am disappointed to see that the new MoF is falling back on old arguments.

    Productivity means making more with less. Perhaps I am wrong, but there are very little potential productivity gains from agriculture and tourism.

    That means we must look to the industries that are found in cities if we want to do better. Cities exist for a reason: they can be very productive places. But high house prices make it hard for workers to live in places where their labour is most productive. Restoring affordability in our cities (especially Auckland) is the first order of business if we want to enhance our productivity.


    • Searching for info about Greg Clydesdale’s ‘The Politically Correct Economy’ online I found this quote: “”…more populous cities do not equal richer cities and adding more people does not create wealth. It is the capabilities that people in a city possess, not the number of people in a city. Secondly, people are not just workers, they are voters and can create political barriers to growth. Thirdly, we need to more carefully discern between the different types of foreign investors.””. This describes Auckland growing fast but not especially productive other than sucking in Fonterra’s head office, loads of lawyers and the well recompensed ATEED management.

      I think you are wrong. Even with rational house prices Auckland would still be too congested and its infrastructure crumbling. Tauranga port would remain more productive than POA. Those clever IT businesses would still move abroad to be nearer their customers when they achieve success. Look for productivity in NZ’s small towns and cities and related to adding value to Agriculture and Tourism.


      • > Look for productivity in NZ’s small towns and cities and related to adding value to Agriculture and Tourism.

        Please, tell us how we can eke productivity gains out of these sectors. There are a few existing labour-saving technologies that we could adopt in dairy that I know of. But pinning our hopes to these sectors is a sure-fire way to ensure we slide further down in the OECD when it comes to incomes.


    • In general I agree with you, although I’m sceptical that there are many good opportunities to be found in our (really remote) cities, and thus I put more emphasis on not using immigration policy to drag in ever more people. We aren’t in the situation San Francisco and NY are in (viz Hsieh and Moretti) where productivity in the city is hugely higher than in the rest of the country but housing restrictions make it unattractive for people to move to those places (Akld GDP per capita – for similar participation rates, thus probably GDP per hour worked – isn’t much than that in the rest of the country).


      • Yes, AKL GDP per capita is not impressive. But the David Mare paper suggests that Auckland firms are more productive:

        Labour productivity is measured as value added per worker, which is 30 to 50 percent
        higher in Auckland region than in regions outside Auckland. The premium is even
        higher for Auckland CBD (120 to 150 percent higher). Industry composition
        differences account for about half of Auckland’s higher labour productivity. The
        remaining premium reflects a combination of technical efficiency (producing more with
        the same inputs), allocative efficiency (receiving higher output prices or paying lower
        input prices), and unmeasured inputs (e.g.: capital intensity, labour quality).

        Click to access Labour%20productivity%20in%20Auckland%20firms%20-794%20kB%20PDF.pdf

        My inclination is to prefer such micro-level papers when thinking about agglomeration; so much of GDP is housing, health, other forms of govt, etc.


      • It is a while since I read the Mare paper, but I think there is a useful role for both sorts of analysis (eg if one is looking at cross-country comparisons, often the only accessible data will be GDP per capita numbers)). I remain a bit wary about the micro-based conclusion, partly because of the absence of much of a tradables sector in Akld. Wherever the biggest law and accounting firms centre, average output per hour is likely to be higher than in much of the rest of the country, but if they just centre in Akld because (eg) immigration and past protectionism has made it the biggest city (rather than say because there are lots of other dynamic outward-focused industries) it may tell one nothing about the intrinsic possibilities of the place (or what might be gained, all else equla, by freeing up housing).


      • What do you classify as tradables? Goods and services that *can* be exported? Or G&S that *are* being exported?

        Much of the accounting and law services produced in AKL (to which you refer) are exported to the rest of NZ. In theory these can be exported internationally too, although services from other industries are more likely – particularly in IT.


      • I typically use as an indicator a definition of tradables – that the IMF first came up with – of output of the primary and manufacturing sectors plus exports of services. NT is the rest. But the basic proposition is actual or potential exposure to international competition.

        Yes, the law and accounting etc services are in a sense exported to the rest of NZ, but their presence in Akld is just an artefact of the high population there, combined with a national boundary. Make NZ a state of Australia and there would, I’d assert, be fewer of those services in Akld (or NZ).


      • Michael, you have got it the wrong way around. Auckland’s 1.5 million population exists mainly to service the 19 million people that use the Auckland Airport. When the Egyptians built the pyramids, they brought in hundreds of thousands of workers. They did not build the pyramids because there already exists the hundreds of thousands of workers. Similarly we do not have 1.5 million people to do law and tax. Its because we have brought in workers to service 19 million people that we have people in Auckland in law and taxes.


  10. I’ve been pondering the question as to why/how “all the evidence” (overseas) is that there is a net benefit from migration. It just seems too simple and if so why isn’t it felt by a large proportion of people? I was imaging Samoa. A Samoan has a house worth X. Chinese arrive. Chinese come to dominate. The Samoans house is worth 2X but the Chinese persons house is worth 3X. And Samoa is more diverse/developed/interesting/buzzing/racist/less ambient/densely urbanised. The Samoan now has a lower status.
    What price a lower status? Evolutionary psychologists say humans are status obsessed and low status men aren’t as attractive to women. [What Do Song Lyrics Reveal About Human Nature? (THE SAAD TRUTH_548)]


    • We have plenty of evidence of countries that have shut their doors to immigration and the inevitable is decline. China in the past, North Korea currently would be prime examples of shutting shop to the outside world which meant that they became isolated from information and skills sharing which breeds fear and insecurity.


      • You’ll recall that I have long argued to cut the residence approvals target to 10-15K pa, which would give us a target inflow, in per capita terms, similar to that in the US and higher than those in most OECD countries.

        And, altho it isn’t my model, you could as well consider Japan or Slovakia as places with very little immigration that do just fine. Britain at its peak – over say 1750 to 1950 – had very little immigration (other than the movement of Irish people, mostly within the then larger UK. Countries can flourish with and without immigration: it depends on the specifics of the case/country/time.


  11. There is a degree of synchronicity across your articles and the current topic

    Your article on “The Underwhelming Top 200” caused some reflection on the following facts and figures

    The Capitalisation of the ASX is $2 Trillion
    The value of the Australian Compulsory Superannuation Scheme is $2 Trillion

    The following list is the top 12 components of the ASX 200 where:-

    The Top 4 components are the Big 4 Banks
    The top 12 companies make up nearly $1 trillion of that $2 Trillion

    Ten years ago the top 2 were BHP and RIO
    Ten years ago the top 10 did not include the 2 retailers Woolworths and Coles (Bunnings=Wesfarmers)

    Some comparisons worth making are as follows
    Australian News Media are constantly full of articles about the banks and miners
    The top NZX 10 include the 4 power companies
    New Zealand Business News Media hardly comments on the top 10
    Rarely see any business research or investigations into the power industry in spite of it having such dominance
    Again, following the business News Media one would be forgiven if one came to the conclusion the banking and wealth management sector was squeaky clean, had totally clean hands, and the NZ financial sector is quarantined from the travails of the AU financial sector. I for one don’t believe that. Perhaps I have been prejudicially conditioned by living among all the chicanery in Australia. I noted your interesting article documenting the failure of Tricontinental Bank in Victoria. I was there at the time. The more interesting aspect of that case was what brought Tricontinental down was the collapse of its largest creditor the “National Safety Council” run by John Freidrichs a German fraudster of huge proportions – an interesting historical read.

    Given the total silence of the NZ News Media on all things regarding the finance sector I do wonder what the RBNZ actually does. The only reportage on these matters is yourself as croakingcassandra. Nobody else seems interested. Obviously there is a cone of silence.

    It troubles me that your main area of interest has been the governance of the bank

    In 1986 the size of the NZX was 3 times larger than it is today. Two thirds of all listed companies have gone.

    Five years after the 1987 Market Crash all markets around the world had recovered – except New Zealand – New Zealanders have a reluctant relationship with the Local Stock Market – until that stigma disappears, kiwis savings will be continue to seek succour in the Housing Market

    Where does the NZ wealth management sector place its funds other than shift the money overseas into the ASX200 benchmark index and elsewhere? If they are doing that (and I suggest they are) then they are making a mockery of the constant government mantra on NZ’s desperate need for foreign funds to be invested into New Zealand

    If Adrian Orr can produce 20% pa return on funds our Government could set up an Adrian Orr run government backed fund that ordinary NZ’ers can deposit their savings into while he invests overseas where he creates jobs overseas rather than locally here in New Zealand


    • Squeaky Clean – Clean Hands

      Here is a reveal on how the Big 4 Banks deal with client funds held in Managed Funds run by their Wealth Management subsidiaries. This article was published in December 2013 – 4 years ago – can anyone point to any corresponding reveal in New Zealand – and ask yourself – is this happening in New Zealand – of course it is


      • Actually I looked at my Kiwisaver and I have nominated a balanced growth fund with ANZ. As you can see 35% are in cash or Fixed deposits. 15% is in the NZD cash/deposits.

        Target Investment mix as at 30 September 2017

        Cash and cash equivalents 6.0%

        New Zealand Fixed Interest 9.0%

        International Fixed Interest 20.0%

        Australasian Equities 16.0%

        International Equities 39.0%

        Listed Property 10.0%


    • Even NZSF only boast pre-tax returns of 10.5% – by taking huge risks in a really big global equities boom.

      Not sure where you get the idea I’m mainly interested in governance issues around the RBNZ. They get some focus at present because Labour is promising changes in that area, but there have been plenty of posts around monetary policy, LVRs, stress tests, capital requirements. Perhaps unsurprisingly, my interests tend to be quite similar to RBNZ interests themselves (eg not much interest in things like AML or the (mis)treatment of customers).

      Can’t write about everything, and as it is I probably write too much anyway.


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