The Government’s Industry Strategy

When I heard yesterday that the now-former Economic Development minister David Parker had made an encore appearance to launch something called “From the Knowledge Wave to the Digital Age”, I wondered why he would want to remind anyone of the Knowledge Wave, a conference held under the previous Labour government in late 2001. Of course, my impression of that event was somewhat jaundiced by the fact that my boss, then-Governor of the Reserve Bank Don Brash, had made a “courageous” and somewhat ill-judged speech at the conference –  against the advice of many of his senior staff, at least as to content – that with hindsight could have been read as an audition for his post-Bank forays with the ACT and National parties (although I’m 100 per cent sure it wasn’t intended that way).

But the bigger problem is that, for all the talk, all the ink spilled, at that conference and through the subsequent Growth and Innovation Framework nothing much changed for the better.  The productivity gaps (New Zealand vs other advanced countries) didn’t start to close, the economy didn’t become more foreign trade (outwards and inwards) oriented, there were no fresh waves of greenfields FDI.   Instead, we had a reasonably strong cyclical upswing (rapid house price inflation, general inflation showing signs of getting away)…..followed by a nasty recession and a sluggish subsequent decade.

David Parker gave a speech at the launch of what is supposed to be “the Government’s Industry Strategy”, and that is going to be my focus here.  I haven’t read the full 50 page document, but I’ve skimmed through it and will include a few observations drawn from that.

Perhaps how people react to “Industry Strategy”  is one of the ways one tells them apart.  I was a bureaucrat for a long time  (but in the era in which the Reserve Bank believed in letting markets work and eschewed direct government interventions as much as possible), but when I hear the words “Industry Strategy” my heart does not leap with excitement, rather I think of the Soviet Union, the eastern-bloc, the People’s Republic of China (that not-overly-productive middle income country), or even –  more mundanely –  New Zealand’s own past failures in this regard: plans and conferences and strategies, often with little to show for it (when we are fortunate) but often enough with white elephants to mark the landscape, or memories of money just poured down the drain.  But I guess it is different in today’s Labour Party, or in today’s MBIE –  the modern version of the Department of Industries and Commerce (too many in the National Party seem to have had the same inclinations).   The government has a plan, a strategy –  or a whole series of them –  not for the economy as a whole (getting the basic structures right etc) but for individual industries.  And, with little accountability and no market discipline at all, they are keen to use your money and mine to back those strategies, boldly going where private investors have, thus far, decided not to.

As often with David Parker, there are sometimes glimpses of recognition of real problems.

I believe there is no doubt we inherited an economy based on excessive property speculation and high rates of immigration driving consumption led growth. The latest OECD report on New Zealand confirms this.

The infrastructure deficit left behind – not just schools, hospital, roads and public transport, but also private and public housing – will take a decade to catch up.

This is serious, but the adverse effect on productive investment was also profound.

Low per capita investment in our productive businesses has inhibited the diffusion of technology, and the development of innovative new products and services.

I wouldn’t frame some of it quite that way (notably that Labour trope about “excessive property speculation”) but, broadly speaking, he isn’t wrong.   Perhaps a shame there is no mention of the real exchange rate, at all, but it isn’t nothing.

The problem is, though, that this is buried deep in a speech which is mostly full of breathless energetic accounts of great things already done and great stuff the government (and industry) are about to do.

The flip side of the enormity of the 4th industrial revolution on the future of work, is the correspondingly huge potential for business.
It is an exciting time.
A myriad of new ways of new products and services are being made possible.
Most improve productivity.
Many are needed to decarbonise the world to avoid catastrophic climate change, or to combat pollution of our rivers and oceans. Others will overcome debilitating disease, improving the lives of millions.
I believe that it is the duty of every government to address both the future of work, and to maximise the up-side by chasing down as many of these commercial opportunities as we can, so as to harness the new jobs and value.

(I’m still old-school enough to think of outrages when I see the word “enormity” but let that pass).

Notice that second to last line, it is the “duty” of governments to “chase down” commercial opportunities.   In part, presumably, because in the Minister’s view it is all some sort of zero-sum game.

It is a race. Others want the prizes that we seek. 

Which isn’t the way most economists think of economic growth and development, perhaps especially not in a country that start so far behind the global productivity frontiers.

And then it just becomes completely delusional

Since the 1970s successive governments have wrestled with our productivity challenges; how we add value, upskill and diversify our economy.

We should acknowledge the important milestones and efforts of yesteryear.

They show that when we together have a plan and chart a direction, our economy strides forward.

To repeat, there is no time in the last 46 years –  say, since the UK entered the EEC (the Minister’s reference point) –  when New Zealand has made any sustained progress in closing the productivity gaps to the other advanced economies.  Instead, as I illustrated in Monday’s post, they’ve kept on widening.  They are widening now, after five years –  both governments –  of no productivity growth.

Of course, the officials themselves know this –  even if they squirm in their chairs  –  and, to his credit, Parker didn’t stop them including this chart in the fuller document.

MFP parker

It isn’t the chart I’d have chosen myself, but it makes the point nonetheless.  And recall that all three of these countries were already materially richer, with higher levels of labour productivity in New Zealand, back in 1990.

In fairness, the Minister does have a place for the private sector

Government can direct investment towards the regions, and champion sectors where we see a comparative advantage, but it is the mobilisation of the private sector which delivers the jobs the big gains.

Better if they just left aside the picking winners –  or even propping up losers –  implicit in the first half of the sentence.

And this is where the Minister praises the Knowledge Wave and the Growth and Innovation Framework, going on to note

Our predecessors identified three priority areas. These were chosen because of their potential for export growth and because of the underlying importance that competence in the sector had to the wider economy. Spillover benefits.

The crucial sectors identified were ICT, biotechnology (with a food and beverage bent) and, thirdly, the creative sector and design.

They got it right and I am pleased to doff my cap to those who called it at the time.

Not that reference to export growth.   We get this guff

Our telco competence is a considerable achievement, and a prerequisite to the development of Xero, Vista, Coretex and a myriad of other companies that sell software as a service, which have flourished.

And the other sectors have boomed too.

Fisher and Paykel Healthcare. A2 Milk and a range of other food and beverage companies. Weta Workshops and its spinoffs. Now household names. Billions of dollars in enterprises that have helped build our country.

The Growth and Innovation framework is the GIF that keeps on giving. Computer gaming, robotics, customer service avatars, nutrient monitoring software.

The race is on.

Our TIN200 companies are growing strongly, with technology exports now our third largest export sector (after tourism and agriculture). New hires abroad as well as export sales growth are described in the TIN200 report on the table.

One can pick all sorts of holes in that  (massive film subsidies for example, or the fact –  as I’ve documented here before –  that on no proper statistical definition of exports are “technology exports” “our third biggest export sector.  But don’t worry about those sort of picky details.   Wouldn’t the Minister’s text lead an uninformed reader to suppose that the outward orientation of New Zealand’s economy had markedly increased since the early 2000s?   Nothing in the speech suggests otherwise, but (again) lurking in the full report was the sort of chart I run here regularly.

exports parker.png

It just hasn’t happened.   There are individual success stories, of course –  as there have been throughout our history –  but it doesn’t add up to much, when productivity growth has lagged further, and our export/import shares have gone sideways or downwards.     That, apparently, was the legacy of those earlier planners (actually I doubt all their words etc added up to much at all).

But the Minister is breathless in his enthusiasm and goes on

Kiwisaver and the Cullen Superannuation Fund have deepened our investment skills and capital markets.

New Zealand Trade and Enterprise has been important in helping many exporters sector navigate their risky journey into new markets.

Our seed or angel investment capital market has matured. The innovation ecosystem has strengthened as management capability and globalisation ambitions have both grown.

We still suffer a gap in series A and B capital rounds, which this slide shows – something we have addressed in our latest Budget.

The $300m boost, and lead being shown by our largest NZ investor – the Guardians of the NZ Superfund – will attract private sector investment and help our firms to achieve their potential.

This will help to directly fill the current ‘capital gap’, and draw in other capital from NZ and abroad.

Give me leave to differ.   National savings rates haven’t improved materially, whatever NZTE has done –  let alone all those preferential trade agreements, which Parker is trying to negotiate more of – exports haven’t become a more important part of the economy, more firms aren’t showing they can foot it globally.       And when you are reduced to lauding a government money-pot, with no market disciplines and little accountability, as your catalytic hope, it is all a bit thin, and worrying to boot.      And I have no real idea what that final sentence means –  but if he means low rates of business investment, in reasonably well-run countries, private firms will invest eagerly to take advantage of profitable opportunities, when they exist.

The breathless energy continues

There is no time for delay. The seemingly exponential growth in opportunities will within just a decade or two morph into the law of diminishing returns.

At one level its simple, if we want these innovative parts of the economy to grow faster, we have to apply more of our precious resources to the task.

Don’t ask me what it means, but it would certainly good if there was some serious recognition from the top of government that our economic performance has really been pretty lousy for decades and an evident determination to get to the bottom of why, rather than just trying to pick a few more “winners”.

The gush goes on, sector by sector (you can read it for yourself), but haven’t we heard it all before.  They were probably discussing such things, enthusiastically, at the National Development Conference 50 years ago.

The speech ends with a full page on “Industry Transformation Plans”. I’m guessing they probably won’t come to much, so perhaps little harm done, except that more years pass, and more energy is devoting to avoiding the real issues.  Here is a sample of the Minister’s great enthusiasm for what government can and will do with these plans.

These describe an agreed vision for the future of a sector, and set out actions required to realise this vision.

Industry Transformation Plans are in train across large sectors of our economy – in agriculture with the Primary Sector Council for example.

Our first Industry Transformation Plan was the Construction Sector Accord. It was co-developed by an industry Accord Development Group. Industry leaders working with the Government.

Our next Industry Transformation Plans focus on four other priority sectors: food and beverage, digital technology, forestry and wood processing, and – as I have said – agritech.

The Prime Minister’s Business Advisory Council and the Future of Work Tripartite Forum will provide strategic leadership.

Key components of each plan will include assessments of the opportunities and risks from digitalisation, the future of work and skills training.

Risk sharing between government, businesses and labour to enable skills training to upskill existing workforces will be crucial to avoid the rising inequality which will otherwise flow from the future of work.

Each plan will also set out decarbonisation pathways, ways to increase exports, as well as an assessment of capital constraints. Partnerships are needed.

Business, workers and government all have a stake in every industry and we need to partner to make a real difference for New Zealand.

It is almost literally incredible.  The hubris, the lack of any apparent recognition of the limits of government knowledge, the complete absence of any sense of the benefits of vigorous competition, of creative destruction even, or market disciplines and so on.  Bill Sutch might have been proud.

It is sad in a way.  I suspect David Parker is better than this, and knows that this sort of stuff just isn’t likely to be any more transformative than the last (or first) wave of goverment talkfests.  But when you aren’t willing to even think about tackling the real issues  – the real exchange rate doesn’t appear in the 50 page document either –  I guess you need a lot of sound and fury, lest –  just a year out from an election –  it look as if the government is doing nothing, has no ideas, or doesn’t really care.  Sadly, all the talk is likely to signify almost nothing, in making a real difference, reversing the economic underperformance, and even building (in the government’s own words) “an economy that is more productive, sustainable, and inclusive for all New Zealanders”.

 

Apocalypse Cow

That was the title of Wellington economist Peter Fraser’s talk at Victoria University last Friday lunchtime on why Fonterra has failed (it is apparently also a term in use in various bits of popular culture, all of which had passed me by until a few moments ago –  and a Google search).    Peter is a former public servant –  we did some work together, the last time Fonterra risks were in focus, a decade ago –  who now operates as a consultant to various participants in the dairy industry (not Fonterra).   He has a great stock of one-liners, and listening to him reminds me of listening to Gareth Morgan when, whatever value one got from purchasing his firm’s economic forecasts, the bonus was the entertainment value of his presentation.       The style perhaps won’t appeal to everyone, but the substance of his talk poses some very serious questions and challenges.

The bulk of Peter’s diagnosis has already appeared in the mainstream media, in a substantial Herald  op-ed a few weeks ago and then in a Stuff article yesterday.  And Peter was kind enough to send me a copy of his presentation, with permission to quote from it.

His starting point is with the misplaced belief among senior political figures 20 years ago that by allowing the creation of Fonterra –  using legislation to override the Commerce Commission – the door would be opened to the evolution –  in pretty short order –  of something equivalent to New Zealand’s Nokia.  In revenue terms, the promise had been

From a starting point of only $5B, they outlined a six-fold increase in revenues in only 10 years to $30B.

Critically, just under two-thirds of the $30B would come from what is euphemistically known as ‘value add’: specialised ingredients and biotech-heavy products.

So this was almost $20B of revenue from a starting point of ‘nothing’.

Actual revenue now, 17/18 years on, is about $20 billion (including a structural improvement in world dairy prices) and relatively little is from those vaunted specialised products.   The rate of return on that business, in turn, is barely higher than that on the bulk commodity business.

And

A much cited figure is the 2018 value report published by the International Farm Comparison Network (IFCN). This ranked Fonterra 17th out of the 20 companies in terms of value creation.

Its figures show while Fonterra collects the second largest amount of milk (and is the world’s largest milk exporter), its estimated turnover per kg of milk solids is only US60c.

By comparison, Danone is the 11th largest milk processor, but it turns over US$2.40 for every kg to make it the best performer. Nestlé is next at US$1.90 per kg. The average across the entire group is $1.00.

The “failure” is nicely illustrated in the share price (the non-voting shares were listed in 2012).   The comparison against the NZX index is stark, as is that against industry peers.

fraser 1

Apparently the share price fell further in June (and Peter told us that on Thursday the share price closed a touch below the initial valuation back in 2002).

Fonterra asset sales have been in focus this year.  They started when the market value of the company was much higher than it now is, and haven’t kept up, so that the ratio of market value to debt is now higher than it was.

fraser 2

For various reasons I don’t want to get into the fine details of DIRA, but as I understand the essence of Peter’s story is that:

  • farmers themselves never much cared about the added-value ideas (New Zealand’s Nokia and other dreams).  Why would they?  They are farmers, and their interests were primarily about a high price for their milk, and a high/rising price for their land.
  • between provisions in the legislation and in the constitution of Fonterra, the rules mean Fonterra has been paying materially too much (Peter says 50c per kg)  for milk purchased from suppliers,
  • dividends on the shares have been limited,  which doesn’t matter to (voting) farmer shareholders, but does matter to the outside shareholders, and retentions (or retaining earnings) –  now the main source of additional capital in a cooperative –  have also been low.
  • given Fonterra’s dominant market position, the too-high milk price also drives up the price of milk other industry participants have to pay.   That has encouraged more milk production – including “half way up Mt Cook”, and with associated environmental issues –  but also makes it difficult for firms to make profitable investments in other (value-added) products.

Peter again

…the idea of using the ingredients business as a springboard to a value creation business was part of the original concept and is actually a good one.

The problem is, it basically didn’t happen.  There are two reasons for this.

Firstly, Fonterra relies heavily on payout subordination so has very high gearing – something it seems the Board has failed to learn from after courting near disaster during the GFC.

This constrains Fonterra’s ability to borrow further, such as for acquisitions or to finance value creation activities.

The other problem is woeful levels of retentions, which are critical for a coop because without new capital from a growing milk supply, retentions are only other way of getting new capital.

So Fonterra remained a capital starved, deeply indebted and under performing farmer-owned cooperative.

That “near-disaster” ten years ago (his account here) was when I first met Peter.  Global funding markets was seizing up, world dairy prices had fallen sharply, land prices were falling, and lenders to dairy farmers were becoming seriously uneasy (including parents in Australia that hadn’t fully appreciated quite how much exposure, to a sector with very illiquid collateral, had been taken on).   In those days, struggling farmers had one buffer and Fonterra one exposure, that doesn’t exist today –  redemption risk (on the farmers’ own production-related shares in the co-op).

That particular risk has now been shifted back onto farmers, which probably leaves Fonterra’s own lenders a bit more comfortable (but in turn removed one discipline from the Board).  But there is still a hugely high level of debt (presumably largely from international markets and banks).

Peter argues that, unless something dramatic changes pretty soon, Fonterra is likely to run into crisis within the next five years or so (and, he argues, since the current government probably likes to believe it will still be in office five years hence, they really need to focus on this now).

I was among those at the presentation the other day who weren’t entirely sure how this mooted crisis would come about, or what form it might take.   After all, Fonterra isn’t a conventional company.  The traded shares –  the price of which has been falling away –  are not a direct stake in Fonterra.  The share price could go to zero (if, say, unit holders lost confidence there would ever be dividends, tied to value-added returns) without rendering the co-op itself insolvent.    The banks and bond markets that have lent to Fonterra are exceedingly unlikely to lose their money –  that is what (milk) payout subordination means –  but it is likely that quite a few of the existing facilities have caveats and covenants about financial conditions Fonterra has to meet.  And the asset sales programme of recent months seems fairly explicitly premised on the idea that the market price of the shares (and those the notional market value of the co-op) mattersa, including to lenders.    Presumably there has to be a risk that if Fonterra’s underperformance continues, lenders would become increasingly reluctant to renew existing facilities, and the costs of what credit they could still obtain would rise?

And, of course, there is only so much money to go around (perhaps rather less if commodity prices were to fall away sharply in a recession in the next few years), and what is paid to providers of capital (debt or equity) can’t be paid to farmers.  The dairy farm industry has an uncomfortably high, and rather concentrated, level of debt already. And dairy land values are underpinned, to a considerable extent, by the actual and expected milk price.  50 cents off the milk price for one year might not make much difference to land values, but if Fraser is right and prices are perhaps 50c too high generally, adjusting the milk price itself into line with that would severely impede the profitably of many dairy farms (as Fraser notes, on-farm costs have been rising, and much of any margin New Zealand dairy farmers had relative to the rest of the world appears to have been greatly eroded.  Fonterra also risks losing suppliers, and ending up with stranded assets.

The sketch outline of Peter Fraser’s story –  directional pressures – seems plausible to me, but here I’m mostly trying to tell his story rather than sign up to it all.  I don’t claim enough industry familiarity for that, and haven’t been exposed to serious alternative arguments –  if there are some, bearing in mind the repeated underperformance over a long time now.  The Fonterra statement to Stuff, in response to Fraser, didn’t instill great confidence

Fonterra managing director co-operative affairs Mike Cronin responded in a statement:
“Our focus right now is on the future of our co-op. We’re well down the path of a strategy review which will enable us to deliver on our potential and meet people’s expectations. We know where we want to go, but how we get there will take time. We will play to our strengths – our New Zealand provenance, our pasture-based farming model and our dairy know-how.”

Fraser’s presentation ended with these lines

fraser 3

That final line –  Westland as dress rehearsal –  is also where I want to end.    Fraser argues that, most likely, Fonterra will need extensive recapitalisation and that –  short of nationalisation –  there is no likelihood that the New Zealand market could provide the necessary capital, and thus that a foreign takeover is the most likely market solution.

Perhaps it would be the eventual market solution, but I struggle to believe that the market would be allowed to operate in such a case.  The politics of foreign ownership of Fonterra would be too much for any major political party –  in today’s climate – to swallow.  Most likely, we’d have government moneypots –  the New Zealand Superannuation Fund and ACC –  corralled to provide the new capital  (those two are already half owners of KiwiBank, and NZSF falls over itself to pursue politically-attuned projects).

If I read Peter correctly, he believes things could be turned around.  But that there is little sign of it from either Fonterra –  and no demand for it from their farmers –  or from the government.

 

40 years on

The almost-always-upbeat Herald “Business Editor at Large” Liam Dann had a column yesterday reflecting on the changes in the New Zealand economy  in the 30 years since he was studying 7th form economics in 1989.  “Studying” may be an overly generous term here: in Dann’s words

Let’s ignore the fact that I was a distracted surfer with a bad blonde haircut, prone to sitting with the most disruptive kids in the room.

As it happens, it is 40 years since I was studying 7th form economics (I was the nerdy kid).

In the 30 years since Dann’s 7th form economics teacher was bemoaning all that was wrong with the New Zealand economy then, inflation has come down, the unemployment rate is lower, and governments normally aim to run operating surpluses. We were in the middle of an extensive economic restructuring back then, and the full aftermath of the massive credit and asset price boom of the previous handful of years was just about to be felt (DFC, for example, failed in late 1989, while the second BNZ crisis was still another year away).    Net public debt in 1989 was about 40 per cent of GDP  –  not disastrous, but far from good either –  but (little recognised at the time or later) the government was already running primary surpluses (ie deficits were mostly financing costs, the real consequences of which were, in turn, overstated by the effects of inflation).

But I wondered how the comparisons looked with 1979, my 7th form year.   Inflation in 1979 had been even worse than it was by 1989 (when we were already well on the way to getting back to something like price stability), but on the other hand the unemployment rate in 1979 is estimated to have been (backdated HLFS estimates) only  about 1.4 per cent.  Quite a difference from today.     And, somewhat to my surprise when I checked the Treasury’s numbers, net public debt as a share of GDP in 1979 was much the same as it is now.  And if the financial sector in 1979 was still more regulated than it is today – I was regaling my kids yesterday with stories about how the last restrictions on current account foreign exchange transactions didn’t come off until 1982 –  at least at the time the policy changes were in the right direction (liberalising), not the wrong direction as we’ve now been for the past six years.

Some things are clearly better than in either 1979 or 1989 –  New Zealand’s terms of trade reached the end of a longrunning decline in about 1988 and (equally outside our control) have been quite a lot stronger since then.  For such small mercies we should be grateful (a 20 per cent lift in the terms of trade is roughly equivalent to a 6 per cent lift in average national incomes).

And I’m not here disputing that in material terms the average New Zealander is materially better off than our parents were in 1979 or 1989 (be it life expectancy, smartphones, cheaper cars, overseas holidays etc).  That is true of almost every country in the world (think Venezuela for the sorts of places that are exceptions.    And those also aren’t the arguments Liam Dann seems to be making when he says of the present –  the headline to his column  –   “The economic numbers that would have blown us away in the 1980s”.

Instead he talked about how hard it was (in prospect) to get a job as a young person in 1989.  Maybe, but as it happens the employment rates for 15-19 and 20-24 year olds are pretty similar now to what they were in 1989 (and, sure, more people go on to tertiary education now, but it will be a rare tertiary student now who doesn’t have a part-time job.

Now, in a way I have been a little unfair to Dann so far.  Despite the headline, I don’t think his intention was to be that upbeat.  Later in his column he notes high levels of private debt, and the incidence of homelessness (although weirdly he presents the latter as being in some sense the “price of economic stability” –  which is simply wrong.    But he avoids actually identifying the policy changes –  land use restrictions etc –  that have meant that whereas in 1979 (in particular, near the trough of a multi-year real house price slump) or in 1989, houses were relatively affordable, they simply are not today.  I’ve noted previously, that I bought my first house in 1989.  In today’s dollar terms, that house cost just under $300000, just down the road from where I live now.  The same house today would probably cost $850000+ (the median price now for this suburb is just over $900000).    It leaves me very glad I was 26 then, not 26 now.

Perhaps the worst of it is diminished ambitions.

Back in the late 1970s, people talked in terms of how we’d crippled out export prospects, recognising that a small country’s prosperity depended on lot on the ability to create a climate in which locally-based firms were taking on the world and winning.  People talked in terms of the tax on actual and potential exporters that tariffs and quotas represented, and looked forward to a day  when we’d stop tying two arms behind our back.  By 1989 many of these restrictions etc were well on the way to being removed, but everyone knew it took time for the gains to flow –  indeed, we had expert overseas advisers highlightin the significance of the real exchange rate (then temporarily boosted by the drive to get inflation down).

And yet 30 or 40 years on, the foreign trade shares of GDP (exports and imports) are much the same now as they were then.   There is still lots of talk about export-led growth etc, but no remotely credible story from our politicians or officials as to how this might –  at last – come to be.

And then, of course, there is the small matter of productivity. It isn’t everything, but (in words not original to me) when it comes to long-term average material living standards it is almost everything.

The 1970s were a disastrous decade for New Zealand productivity.  We slipped a long way down the OECD rankings in a single decade.

And here is an adaptation of a table I’ve shown here previously (I’ve just added a 1980 column), comparing average labour productivity in New Zealand and in the leading bunch of OECD countries.

Table 1: Labour productivity: New Zealand and a leading OECD group
GDP per hour worked
USD, constant prices, 2010 PPPs
1970 1980 1990 2017
New Zealand 21.4 22.7 28.5 37.3
Netherlands 27.5 40.2 47.7 62.6
Belgium 25 37.9 46.6 64.8
Denmark 25.1 34.8 44.7 64.9
France 21.6 32.0 43 59.8
Germany 22.3 32.2 40.6 60.5
Sweden 27.2 34.5 38.8 61.7
United States 30.9 35.9 41.8 64.2
Median of seven 25.1 34.8 43 62.6
NZ as per cent of median 85.3 65.2 66.3 59.6

We’ve lost quite a lot more ground since 1979/80 or 1989/90.  In fact, the period of worst relative performance on this metric has been in the last few years, when we’ve managed no productivity growth at all.  No individual year is disastrous, but cumulatively it represents as astonishing slippage, that should be alarming – and once seemed so to our elites.

(This table compares New Zealand with the OECD leading bunch now.  I also did the comparison against the seven countries in the leading bunch in 1989 (Italy was one of those countries).  We also kept on losing ground against them, although –  logically –  a bit less so.)

Relative to what might have been our potential –  the global advanced country productivity frontiers, in a countries none of which have anything like ideal policies –  we’ve done poorly on the economic fronts that really count.  Sure, we have achieved a much higher degree of macro stability –  and that is no trivial achievement, although most countries like us (small advanced) have done something similar.    But we’ve fallen further behind on productivity, and rendered the housing and urban land market seriously dysfunctional.  Firms don’t find it more attractive to trade globally from here.   And there isn’t much sign our “leaders”  –  political or bureaucratic –  care much, are interested in finding the answers or acting to bring about better tomorrows.

Liam Dann writes

It has struck me that were I to time-travel back and share New Zealand’s current economic statistics with Mr Shaw, he would be gobsmacked by the nation’s success.

To be honest, reflecting on what I’ve written here, if I could time travel back to 1989 and share New Zealand’s economic situation now with my 1989 self –  a young policy manager and economist at the Reserve Bank – the young me would have been gobsmacked by the extent of the failure and (more so) by the apparent indifference to it, the refusal to grapple with what it would take to make things better.  (Although I would have been pleasantly surprised by the inflation track record –  I recall in the early 90s casually offering a bet to one bank chief economist that inflation wouldn’t average below 3 per cent for the following 15 years.)

What is really depressing – with a son doing Year 12 economics this year (a year that focuses on macro) – is the thought that in thirty years time he might look back astonished at how poorly New Zealand has continued to do relative to countries that were once its peers.