The Prime Minister gave what she billed as a “pre-Budget” speech yesterday to the leading business lobby group, Businss New Zealand. It was, I’m pretty sure, her first prime ministerial speech mainly on economic matters. In introducing her speech she indicated that she would
outline our plans for the economy and how we want to partner with New Zealand businesses to bring about transformative change for the good of all New Zealanders.
and a few sentences later she added
We are committed to enabling a strong economy, to being fiscally responsible and to providing certainty. We have a clear focus on sustainable economic development, supporting regional economies, increasing exports, lifting wages and delivering greater fairness in our society.
But in the rest of the speech there was almost nothing there. There were slogans, and feel-good phrases. But there was no plans for the economy. No plans to lift productivity – a point she touched on not infrequently during the election campaign – and barely even an acknowledgement of the problem, no plans to reverse the decline in the export/import shares of GDP in New Zealand, and no sign that she – or her advisers or her Minister of Finance – have a serious well thought-through story of how New Zealand ended up underperforming as badly as it has done, let alone how we might reverse the underperformance.
Governments of both political parties deserve credit for keeping the government’s finances more or less in order. As I noted yesterday, that is more than most large OECD countries have managed in recent decades. But it isn’t a substitute for policies that might finally offer a credible path out of the 70 years of relative economic decline – drifting a bit further behind even as every country is richer than it was – that New Zealand has experienced.
Instead, we get attempts to shift the goalposts, aided and abetted by The Treasury.
On that score how we measure our success is important. In the past we have used economic growth as a sign of success. And yet a generation of New Zealanders can no longer afford a home. Some of our kids are growing up living in cars. Our levels of child poverty and homelessness in this country are much too high.
We all want a strong economy. But why do we want it? What is it for? It is vital that we remember the true purpose of having a strong economy is for us all to have better lives.
Well, sure. GDP isn’t an end in itself, but it (and cognate measures) are a pretty important means to those ends, and a reflection of how well a society is providing for itself. And how does the Prime Minister suppose that the crushing specifics of (New Zealand) poverty 100 years ago – when New Zealand was the richest country on earth – became largely non-existent today? By achieving sustained productivity growth. And if we now score badly on some of the poverty indicator measures, it isn’t entirely surprising when productivity (real GDP per hour worked) isn’t even two-thirds of that in countries like France, Germany, the United States, and the Netherlands. When it now also lags well behind Australia too.
In her speech, she claims that her plans are already clear
We have already spelled out our ambitious agenda to improve the wellbeing and living standards of New Zealanders through sustainable, productive and inclusive growth. Now we want to work with business and investors to get on with it and to deliver shared prosperity for all.
and
We will encourage the economy to flourish, but not at the expense of damaging our sovereignty, our natural resources or people’s well-being. Our plans have been spelled out from the beginning, in the Speech from the Throne, in the first 100-days plan, and very soon you will see more detail in our first Budget. ……
You will see a clear plan to build a robust, more resilient economy. You will see a strong focus on delivering economic growth, on running sustainable surpluses and reducing net debt as a proportion of GDP.
There was little of substance on this score in the Speech from the Throne. And much as I wish it were otherwise, I won’t be holding my breath waiting for the “clear plan” for stronger sustained real economic (and productivity) growth in the Budget. There is nothing in anything the government has said so far that suggests they or their advisers really grasp the issues. Quite why simply wishing businesses would “get on with it” would now be expected to produce better outcomes than we’ve seen in recent decades is a bit beyond me.
Of course, there are nods in the direction of things Labour (or their partners believe in)
My Government is keen to future-proof our economy, to have both budget sustainability and environmental sustainability, to prepare people for climate change and the fact that 40 percent of today’s jobs will not exist in a few decades.
I’d love to see some data on what proportion of jobs that existed 40 years ago don’t exist today (the majority of the jobs that existed in the Reserve Bank I joined in 1983 don’t exist any more). But while the government worries about work – setting up a new tripartite forum involving the CTU and Business New Zealand – actual employment rates don’t seem to be the problem.
(Lack of) productivity is. It is productivity growth that underpins any long-term growth in real incomes and living standards.
There is talk of skills, when OECD data have shown that New Zealander workers have some of the highest levels of skills anywhere in the OECD (indeed, the chair of the Productivity Commission was retweeting an OECD chart to that effect just a few days ago).
There is talk that “no-one has the same job for life any more”. Perhaps, but there is data overseas suggesting that average length of time with a single employer is little different now than it was 30 years ago.
There is talk of “lifting R&D spending”, and the government has out for consultation at present its plan for new R&D subsidies, but no sense that the Prime Minister or her advisers have thought at all hard about why firms might not have found it worthwhile to do more R&D spending (or why, by contrast, firms in some rich countries with no R&D subsidies do a great deal).
There was lot of rhetoric
Business can be assured that this Government will support those who produce goods and services, export and provide decent jobs for New Zealanders.
But little substance, and nothing that shows signs of pulling it all together into a coherent narrative.
And, for all the mentions of climate change and related issues, nothing at all about how faster overall productivity growth – and a stronger export/import orientation – might be achieved in the face her government’s commitments to sharply reducing net emissions in a country with high marginal abatement costs. “High marginal abatement costs” has meaning: it costs to do this stuff, and the cost is likely to be reflected in lower levels of economic activity (and productivity) than otherwise. Perhaps the government disagrees – and perhaps her audience were too polite to challenge her – but there is nothing in the speech suggesting she has thought hard about squaring that circle. There seems to be lots of wishful thinking, and not much substance.
And then there were “the regions”
And the regions need not fear they will be neglected. We have committed $1 billion per annum towards the new Provincial Growth Fund and over coming months there will be more detail about how this spending will be targeted. After all, nearly half of us live outside our main cities and our provinces also need to thrive if New Zealand is to do well.
The Provincial Growth Fund aims to enhance economic development opportunities, create sustainable jobs, contribute to community well-being, lift the productivity potential of regions, and help meet New Zealand’s climate change targets.
There might be a bit of a lolly scramble, redistributing the current cake. But there is nothing from the government, or from the architects of the PGF – and nothing in the announcements to data (eg here and here) suggesting that the government has any concept of how overall productivity growth rates, nationwide or in the regions, might be lifted. (And not once was the real exchange rate mentioned.)
Perhaps defenders of the government would push back on one or another point. But there is no sign of any sort of integrated narrative – a rich understanding of how we got to our current sustained underperformance or, reflecting that, how might hope to reverse the decline. No doubt in an attempt to woo her business audience, there weren’t even any references to tax system changes (CGT and all that) in this economic speech.
Perhaps that isn’t entirely the government’s fault. The Treasury seems at sea as well. But we don’t elect bureaucrats, and we do elect governments.
Of course, I wouldn’t want to be misinterpreted as suggesting that the Opposition was any less bad. The new Leader of the Opposition also gave his first economic speech this week. There were a few bits where I was nodding my head as I read
Labour and NZ First are more focused on government intervention. They believe they know how to run your businesses better than you do.
Shane Jones’ $1 billion Provincial Growth Fund is a good example. It’s terrible policy.
Now I’m sure there are some worthy projects that will get funded. But it will shift businesses from focusing on becoming more productive to chasing a subsidy from Matua Shane.
That’s not how to drive long-term productivity improvements.
Couldn’t disagree, but what did Bridges have to offer
When I was Economic Development Minister, our plan for the economy was set out in the Business Growth Agenda.
The BGA comprised over 500 different initiatives all designed to make it easier to do business by investing in infrastructure, removing red tape, and helping Kiwis develop the skills needed in a modern economy.
Some of those were big, some were small. I’ll admit some weren’t as exciting spending a billion dollars every year.
But together they were effective.
New Zealand has one of the best performing economies in the developed world.
500 initiatives and we still had barely any productivity growth in the last five years. And, as I recall, one of the BGA goals was a big increase in the export (and, presumably, import) share of GDP: those shares have actually been shrinking. Productivity levels languish miles behind the better advanced economis, and the gaps showed no sign of closing.
He ends
New Zealand is a great country. And if we maintain our direction and momentum of recent years we can make it even better for our kids.
Moving into opposition is a chance for National to look at our position on certain issues, and understand the things that New Zealanders want us to focus on.
Although the one thing I hope you’ll take from my speech is we won’t be changing our focus on the economy.
If we don’t start seeing a lot more hard-headed thinking – and a quite material change of direction – from our political leaders and their advisers, a country that really was once the best place in the world to bring up kids, will increasingly be a country where wise parents can only counsel their kids that if they want first world living standards, the best option is to leave. In my lifetime, 970000 (net) have already done so. The Prime Minister and the Leader of the Opposition – representing two sides of the same coin when it comes to our economic failure – are younger than me, but in just the 37 years the Prime Minister has lived, a net 780000 of our fellow New Zealanders have left. Outflows of that scale – which, of course, ebb and flow with short-term developments in Australia and here – just don’t happen in normal, successful, countries.
croaking cassandra 
Two things on our supposedly high level “skills”.
1. I think we are going to see a fall in adult literacy and numeracy over the next 10 years. The expectations and standards in NZ schools have dropped significantly in my opinion. We certainly aren’t training the STEM innovators of the future with the Numeracy Project. I think international tests will bear that out over the next 10 years – not only in maths but also in reading and writing. I put that down to poor pedagogy and a dumbed down curriculum. Ever asked an 11 year old today to add two fractions with different denominators? Or multiply two two-digit numbers?
2. Although we have a well-educated population we simply don’t have the jobs that utilise that education. I know so many people – especially well-educated women – who can’t find a job that actually uses their skills and intelligence (in part because there aren’t enough part time positions in the professions). We have a lot of smart people serving coffee and doing low-level admin (or choosing not to work and forgo some income rather than do something boring and rudimentary). There is a skills mis-match as well. We need more STEM grads but our education system doesn’t have the rigour to allow enough to go into them. So we import them – ironically from much poorer countries like China and India that have better STEM education.
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I have some sympathy on your first point. Expectations schools have of kids do seem surprisingly low in many cases.
On the second I think it is a mixed story. A persistently overvalued real exchange rate holds back the development of outward-oriented industries. Re migration, those same OECD data show that the average migrant has slightly less good skills than the average native. Some migrants are very highly skilled, in specific sectors, but most aren’t particular so, and an increasing share of those getting residence actually got their post-school qualifications – often at a PTE or polytech – in NZ.
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They used to say “we educated young people for non existent jobs” now we educate people for low paid service jobs.
I remember unemployment when unions kept wages up. I remember a women coming around to a place I was at with a not very marketable daughter saying (defensively) “we’re just making enquiries”.
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The options for leaving are shrinking
Is NZ’s ‘special bond’ with Australia a thing of the past?
Kathryn Ryan
What is driving this?
Bernard Salt
There has been a fundamental shift in the Australian demography particularly the last 10 years or so preliminary results from the 2016 census released one month ago show something quite unique. The western half of the country (Western Australia, South Australia and the Northern Territories) had quite a strong Anglo base (we draw our migrants from Anglo countries). The eastern side of the nation (particularly Victoria and New South Wales) are more likely to be Indian and Chinese . So the ethnic base (the source from which we are drawing migrants) has shifted in the last decade or so. I will say also the flow of Kiwis has reversed (the earthquake and a renewed energy with New Zealand). So there seems to be an ethnic basis to t(not a parting of the ways) but a slowing of the bond which had been there literally since resettlement.
KR
What is driving the politics?
BS
Well I do think the demographics are important : our shift in focus towards Asia (with the Chinese and the Indians). I don’t think it is so much a rejection of NZ as a pivot towards Asia. There was a shift away from the UK when Britain joined the EU. In some ways you could argue the same is happening here a shift towards Asia: Asian migration, Asian students, Asian implantation [ ?] infarct. Our attention has been taken by South East Asia and as a consequence the politics may flow from that shift in thinking.
KR
The idea of New Zealanders being special is disappearing apace (and was only based on a handshake between Whitlam and Kirk in the 1970s) and was always a matter of goodwill.
BS
“politics pushing in that direction”
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201844412/is-nz-s-special-bond-with-australia-a-thing-of-the-past
It isn’t the gifted who bear the cost of multicultural policies it’s the plonker who wants to drive a digger.
Meanwhile a generation of poor Chinese have moved to the cities and now struggle with falling wages and not enough women (“No Wheels; No Deal”). We are told the world population will keep rising then fall as these countries develop – there is no concept of population outstripping potential? How does Adern see things? Present policies imply a more productive future based on a bigger population; these are the real issues?
https://www.economist.com/news/china/21741602-they-are-one-biggest-threats-countrys-social-stability-chinas-cities-young-people
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Given that New Zealand drafted most of the Australian Constitution and continue to exist as a state of Australia at least within the Australian Constitution just indicate this relationship is far more than just goodwill. Perhaps New Zealand should test its rights as provided for under the Constitution of Australia and whether some of the recent recent Australian law treating New Zealanders as pariahs is actually legal. Definitely unconstitutional.
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I wish I had written “” It isn’t the gifted who bear the cost of multicultural policies it’s the plonker who wants to drive a digger. “” I am sure I will.
Last time I looked at permanent residency data it was surprisingly balanced male/female for the larger Asian countries. Probably a deliberate INZ policy – they can get some things right.
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Recalling Aotearoa – Indigenous Politics and Ethnic Relations in NZ Spoonley and Fleras
A pavlova paradise?
Even Maori protest in the late 1960s and early 1970s did not openly repudiate what was previously accepted as a given. It would take a more concerted effort to pry open the realisation that New Zealand identity was inextricably linked with European culture, infused with colonialist assumptions, overwhelmingly White in orientation, and larded with self-serving myths. P.42
This is MBIE’s right hand man
http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=1CA55C48-D372-7F7D-9913-C5F6CA0FAE42
Andrew Sharp review
http://journals.sagepub.com/doi/pdf/10.1177/003231870005200114
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P.172 [Fleras chapter]
An immigrant-fed economic boom cannot be sustained in the long run, however (Bloch 1997). Exceptionally high economic gains are bound to diminish following initial consumer outlays and the adoption of routine expenditures. The dramatic decline in immigrants in general since mid-1996—business immigrants in particular—including a 45 per cent drop in immigration between the year to June 1996 and the year to June 1997 also contributed to economic stagnation according to the then Minister of Immigration, Max Bradford (Christchurch Press, 22 August 1997). Consider these figures: in 1995/96, migrant investment totalled $808 million; by 1996/97, this figure dwindled to less than $200 million (Gawith 1997). The New Zealand Immigration Service (National Business Review, 22 August 1997) pointed out that North Asians brought in nearly $168 million in the first quarter of 1996. This figure dropped to just over $11 million in the first quarter of 1997—a drop of 93 per cent—which contributed to a slump of an admittedly overheated real-estate market in Auckland. These declines are especially worrying for those who believe that a prosperous New Zealand cannot afford to be without affluent immigrants if it wants to overcome the disadvantages of economies of scale in a globally competitive environment (Morgan 1998).
An emphasis on economic benefits reinforces the importance of immigrants to the economy. Yet these benefits come with costs. Benefits brought by immigrants have not been shared equally by all New Zealan-ders, with the result that some have been disadvantaged, and others advantaged. Auckland may have been the prime beneficiary of affluent immigrants, but most parts of the country have remained relatively untouched. An immigrant-driven economy may be a bonus for some—for
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example, the construction industry or real-estate agents—but it may also prove a barrier for those who have to pay the price of living in an inflated real-estate market, such as first-time home-owners, especially in Auck-land.
//
At the core of this debate over benefits and costs is an unrealistic desire to have it both ways. New Zealanders appear receptive to immigration if it is accompanied by clear economic benefits; they are less enthusiastic about immigrants per se, suggesting a subtext that reads, ‘Don’t come; just send your money and connections’. Immigration creates benefits, but it also has costs, as is the case in Canada and the USA (Fleras & Elliott 1996). If we want the benefits of immigration, we must accept the corresponding costs, such as crowding, congestion, misunderstanding and conflict, reduced services in some areas, and lifestyle adjustments. If a relatively open and generous immigration policy is pursued by accepting the brightest and best, we had better be prepared for increased competition for scarce resources. If this country is something special and worthy of settlement, then we must acknowledge the possibility of illegal entry by those desperate enough. If we aspire to be a democratic and multicultural society, we cannot dictate what immigrants can do or where they must go, any more than we can tell other New Zealanders where to live, despite congested urban areas and a pronounced South–North shift in population.
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Nigel Latta concluded the benefits of immigration were a “no brainer” – what’s going on here????
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Recalling Aotearoa – Indigenous Politics and Ethnic Relations in NZ Spoonley and Fleras
(177)
Debunking immigration myths
Myth: New Zealand is swamped with immigrants. Even with proposals to attract a net migration gain of 10 000 new permanent residents each year in a country of 3.7 million, it would be an exaggeration to say that the ‘floodgates’ are being opened to ‘fly-by-night’ operators who are putting a strain on an overloaded infra-structure when we should be ‘looking after our own’ (Winston Peters, in Venter 1998). It would be more accurate to say that New Zealand is swamped by those wanting to leave (‘disapprovals’) rather than those who wanted to enter (‘approvals’). Between 1976 and 1995, the number of people who left New Zealand outnumbered those who entered by a worrying 49 089 according to Statistics New Zealand. In the period from 1984 to 1989, a total of 95 900 more New Zealanders left the country than entered as immigrants (Bedford et al. 1995). The contribution of immigration to population growth is not impressive. Even if the time frame is expanded to take in the period from 1971 to 1996, to account for surges in migration, the net gain in population by international migration amounts to only 85 980 (Pool & Bedford 1996). At 15 per cent of the total population, net immigration since 1945 has been a relatively small albeit constant component of overall population growth (Zodgekar 1997).
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Recalling Aotearoa – Indigenous Politics and Ethnic Relations in NZ Spoonley and Fleras
178
For example, Pacific Islanders appear to be disliked as immigrants because of a public perception that they contribute to higher crime rates and because they are perceived as not making a positive contribution to New Zealand society. Yet a relatively small proportion of these respondents would oppose a son or daughter marrying a Pacific Islander. In other words, people may be racist in princi-
179
ple, but they express this in different ways depending on the situation.
………
Put simply, the government embarked on an optimistic plan of social engineering to transform New Zealand into an ‘Asian’ country; unfortunately, it did a poor job of publicising its intent or rationale. Under the slogan that a global economy required global citizens, an ambitious plan was hatched to restructure society around an Asian axis. But these initiatives moved too quickly for most people, ignored the need to consult or convince people of the importance of any fundamental shift, and did little to monitor the impact of immigration on public perception (Heeringa 1996).
Amen to that
Ranginui Walker’s article drew a “sharp rebuke” (Palat 1996)
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in answer to the question in the title. An emphatic YES…
Sadly. All they have is in the realm of vacuous, vain, risible and bloviated verbiage… nothing of substance, nothing of worth… nothing really….
Tragic I’d say… nine years in opposition and 6 months in Govt and this is as good as it gets… ugh.
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and, on the other side, nine years in govt, and 6 mths in Oppn, and this (analysis) is also as good as it gets.
As you say, “ugh”
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Unfortunately aggressive RBNZ intervention in keeping interest rates higher than the rest of the world makes NZ manufacturers and industries uncompetitive. Recessions in NZ have been unnatural and mainly have been RBNZ engineered recessions.
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This should not be surprising. It was clear from the election campaigns that none of the parties had a clear vision for our economy. Nor were they especially attune to the dangers that lie ahead.
The long-term prospects for growth of an economy based on low-value added commodities and tourism are dim.
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I still don’t understand. So to do business and trade with asia, we have to have an asian population? Aim for an asian majority to secure our future? Future for whom?
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Not too sure why we have been so aggressive with signing Free Trade Agreements as we do not make much stuff anyway. Our export GDP is only $60 billion of which most of it is in agriculture and tourism. Tourists do not come to NZ based on any FTA anyway so the FTAs is to support our $15 billion milk and meat industry which we end up subsidising the food production costs of these asian countries as we export 95% of our food production. We wear the pollution, the dirty waterways, the contaiminated swimming and drinking waters, the decimated coastal fish stocks and algae bloom from nitrate leaching so that other countries get to enjoy cheap subsidised NZ product.
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