The economic plan that wasn’t

I’m not much into the notion of “economic plans” –  all too redolent of Communist states, known mostly for their consistently underwhelming economic performance.  But at least most of those old “plans” purported only to be five-year plans.  By contrast, earlier this week the current New Zealand government  –  with one year left of its three year term –  released a 30-year “Economic Plan”.    It was released under the signatures of Grant Robertson, Minister of Finance, who has shown no sign of understanding or caring much about New Zealand’s economic challenges, and Phil Twyford, now Minister for Economic Development, but best known for Kiwibuild.

I guess the government must have known there wasn’t much there.  It was, after all, released –  to little fanfare –  while the media were all concentrating on the Prime Minister’s progess in New York.

It is sold this way

The Government’s Economic Plan is set in the context  of our wellbeing agenda and is designed to build a  more productive, sustainable and inclusive economy  to improve the wellbeing and living standards of  all New Zealanders.

All lines and words we’ve heard endlessly now for two years.   The introduction goes on

The Plan identifies eight key shifts and policy action related to each shift that will tackle the long-term challenges the New Zealand economy is facing. They signal our goal to balance outcomes across financial, human, natural and social capital, and will act as an overarching guide for government departments designing economic policy  [er…don’t elected government’s set economic policy, not government departments?]

These shifts and initiatives will deliver on the four economic priorities in Our Plan: to grow and share  New Zealand’s prosperity, support thriving and sustainable regions, transition to a clean, green and carbon neutral New Zealand and deliver responsible governance with a broader measure of success.

New Zealand has a unique opportunity to build on our strengths, and use these to lead the world on standing up to the economic challenges of the next 30 years, turning issues like climate change and the technological revolution into economic opportunities.

You might have thought that a good place to start would be recognising that we’ve trailed the advanced world for 70 years now, lagging behind on the productivity growth that underpins material standards of living and many other choices, rather than making idle and empty claims about “leading the world” in the next thirty.

Instead, there is the same complacency with which Labour went into the last election

New Zealand is recognised as being one of the best places in the world to live. Wellbeing is high for New Zealanders overall, but the benefits of economic growth have been unevenly distributed.

Nothing wrong with the growth performance really; just a matter of sharing the cake differently.

In fact, they sort of know that isn’t true. Get 10 pages into a glossy 30 page document and you do finally find this

Our productivity challenge is complex and long-standing.

But with no sign that they have any narrative explaining how we found ourselves in this position, or how the grab-bag of initiatives (there were 76 on one table –  including Kiwibuild) they list might make a sustained and significant difference.  (All governments for decades having had long lists – the previous government’s Business Growth Agenda as only the most recent, ineffectual, example.)

economic plan.png

In fact, top of the list of their proposed ways to see economywide productivity lift are yet more plans

Industry Transformation Plans – adding value to  key sectors of our economy and leveraging new opportunities.

Substance-lite.

The standard cliches are trotted out among the glossy photos

New Zealand is a trading nation and we want all  New Zealanders to benefit from trade. We are building stronger international connections so that Kiwi businesses get greater access to markets around the world – not just for goods, services and investments, but also for people and ideas. At the same time, we are supporting businesses to get the most from trade and grow the value and reach of our exports.

And yet, foreign trade (exports and imports) as a share of GDP is less now than it was at the start of the century, but there is no hint that the government (or its advisers) understand why.  No mention of the real exchange rate in the entire document.

And it sort of goes downhill from there.  Predictably, corporate welfare –  aka the Provincial Growth Fund –  tops the list of things that are going to make a favourable long-term difference to regional economies.    The top two initiatives that are supposed to “enable a step change for Maori and Pacific economies” (whatever they are) are

Te Arawhiti – Office for Māori Crown Relations – fostering strong, ongoing and effective relationships with Māori across Government.

Government procurement – working to provide opportunities for Māori and Pacific New Zealand businesses to access contracts from the $41 billion we spend each year in Government procurement.

Both might be sensible steps in their own rights, but they simply aren’t commensurate with the challenge.

And there are old, and still silly, lines

We know that New Zealand’s high house prices have diverted capital into the housing market and away from more productive uses. We need to redirect this capital to help businesses to innovate, invest in new technology and pursue growth opportunities.

I’m not sure how many times one needs to point it out but, given the the population, isn’t the conventional understanding that too few houses have been built, not too many?  More real resources –  on the government’s own original plans (Kiwibuild anyone?) – were supposed to be encouraged towards house-building.  And not a mention of actually getting house prices down again.

In fairness, one might acknowledge that the first item on their housing/productivity page sounds okay

Urban Growth Agenda and RMA reform – working to get our urban markets working so they can respond to growth, improve urban land affordability, and support thriving communities.

The problem is that it sounded good two or three years ago, buried deep in the Labour Party manifesto, and it still does.  But there has been almost no action so far, and no indication in market prices (eg of urban land) to suggest anyone much believes the government will act in ways that make a meaningful difference.

And it all ends with three pages of alternative “wellbeing indicators”, continuing to distract attention away from the decades-long failure on productivity.

There just isn’t much there. And nothing at all, for example, about the inevitable tensions (between, say, zero carbon goals and vague aspirations –  and that is all they are – to higher sustained productivity growth).  But, as ever, MBIE does well with the glossy heartwarming photos (from the family playing cricket on the beach at Sumner onwards).

But the Prime Minister must have wanted to suggest there was something there.   The Herald managed to secure an op-ed from her about the plan, as part of their “Mood of the Boardroom” publication.  Perhaps she didn’t choose the title but it (“My hope: a rising tide that will lift all boats”) didn’t suggest much agency, or hence much responsibility and accountability.

It was pretty vacuous piece, but as ever with her you get the sense that (a) she is more interested in sharing the pie that creating a climate conducive to rapid growth in the size of the (per capita) pie, and (b) that she has only a very limited understanding of the economic issues.  That mightn’t matter much if she had a strong team of senior ministers who did. But there is little or no evidence of that.

A good chunk of the article was devoted to make-believe stuff about just how well the economy is doing at present. Perhaps, knowing no better, she takes lessons from the creativity around the facts on display from the Governor of the Reserve Bank?  She seems unaware that growth has been slowing (from never particularly fast rates), that leading indicators are poor, that productivity growth is almost non-existent, and she continues to parrot lines about how good our growth rates by international standards in ways that simply take no account of the rapid population growth rates here (just this week revealed by SNZ to have been even faster than they previously estimated).  For someone focused on “wellbeing”, you might suppose that recognising that per capita GDP growth counts a lot more than the headline number would be a good first step.  But I guess not.

The underwhelming text continues

We need to invest in infrastructure, because it’s the springboard for future growth. This Government is investing record amounts in hospital and school building programmes, alongside large investments in transport safety, regional roads and public transport

Perhaps you will agree with her on the first sentence (although it is striking how few of the touted projects seem to pass robust cost-benefit assessments), but whatever the merits of building more hospitals and schools those aren’t the sorts of infrastructures likely to make much difference to our woeful productivity performance (there might be other good reasons for such spending).  Same goes for spending on “transport safety” –  it isn’t exactly decongesting bottlenecks is it?  And if you went for congestion pricing, existing infrastructures could be used much more efficiently.

And so it goes on.  What about housing?

We’ll also keep tackling the long-term challenge in housing. Our economy works for everyone only when everyone has a warm, dry home, and a decent standard of living.

Well, no.  A strongly-performing economy helps ensure/enable widely-spread decent standards of living.    And her policy solutions are all about symptoms not causes

That’s why we’ve stopped the state house sell-off, stopped offshore speculators from driving up house prices, and built over 2000 state houses in the last year.

and

Business leaders agree that growth in New Zealand has been predicated too much on capital returns, and not enough on productive investment. To build an economy that works for all of us, we need to focus on productivity and innovation, especially through small businesses.

“Capital returns” sound like good things –  good business make money for their owners –  but I’m guessing she was trying to suggest something about capital gains on property. Except that no serious economic analysis really supports that sort of story –  consumption as a share of GDP, for example, not having changed much for decades.  And where she gets the bit about small businesses being particularly important, goodness only knows. I suppose it sounded good.

The vacuity goes on, limited only by the length of the column.  She talks about how “we’ve always been an exporting economy” and having an “ambitious trade policy” but seems to have no idea that exports/imports as a share of GDP are (a) shrinking, and (b) small for a country our size, and somehow thinks that reforming the polytech sector is going to revitalise our services exports.  Well, maybe…..

I don’t suppose Prime Ministers write this sort of nonsense themselves, but capable governments, really interested in reversing the decades of underperformance, would have a lot more substance to put in the mouths of their leaders.  And capable leaders, with a serious understanding of the issues and imperatives, would simply demand much better.

I’ve shown this old cartoon before.

richardson

It ran a generation ago now.

For some years, I had it pinned to the wall in my office –  the sad procession of successive Ministers of Finance who for decades (this cartoon implies back to the 1950s) had promised that New Zealand’s decline would be reversed (made worse in this case in that Ruth Richardson must have said something along these lines in February 1991, just as the severe recession of that year was taking hold).      Since then, we’ve had Bill Birch, Winston Peters, Bill English, Michael Cullen, and Bill English again, and although we’ve had plenty of cyclical ups and downs, never at any time have we looked like successfully or sustainably reversing our relative economic decline.   It saddens me every time I look at this cartoon –  so many decades, so much failure.

And nothing about Jacinda Ardern or Grant Robertson suggests we’ll manage any better if their policies were adopted than we have for the last 30 or 60 years.

 

 

17 thoughts on “The economic plan that wasn’t

  1. I hadn’t noticed Ardern’s op-ed so thanks for linking to it. The most significant “rising tide” is the tsunami of non-citizen immigrants. I guess more of the same influx is what the “30-year plan” really rests on.

    Liked by 2 people

  2. I don’t mind a good plan. For a laugh I went back and checked out the Taiwanese economic plan of 1959-60, which presaged a period of stunning economic growth.

    Key features:
    land reform (actually this happened in the 1940s).
    rationalisation of the money system to promote savings and investment
    encouraging export processing business and removing red tape for same

    I’m not saying that these three elements are all you’d need for NZ 60 years later, but it would be a good start.

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    • The difference with Taiwan and NZ is that when they refer to investment encouraging export processing, they are talking about building high tech factories. We have done the same initiative only difference is we think more about exporting more milk and growing our herds and more tourists.

      Liked by 1 person

    • Thanks. Interesting note. In Australia’s case allowing for ToT fluctuations just reinforces the point: there were big falls over 08/09 even tho real pc GDP didn’t fall for two successive qtrs. Real per capita national income fell quite a bit.

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  3. It’s hard to know who this vacuous piece of fluff was intended for. It certainly wouldn’t arrest plummeting business confidence. Perhaps it is meant to reassure the coalition’s supporters that the two ministers, Robertson and Twyford, know what they are doing when they plainly haven’t a clue. Anyone who believes the PGF will contribute to improving productivity in any meaningful way is clearly bereft of common sense, let alone an understanding of this economy. It is a pork barrel intended and operated as New Zealand First’s re-election fund as Jones apparently made clear recently to a forestry gathering. I really don’t like to think about the future of this country because it is just too depressing.

    Liked by 1 person

    • Yep… I was looking for the name of the Govt agency this was published by… but I couldn’t see one… so this waste of time, effort and resources seems to have come from the Minister’s offices only.

      The carton Michael shows really sums it up… a pointless document

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  4. Any migrant arriving in NZ in the last 30 years from another place could be misled

    In 1984 when Labour replaced National, Roger Douglas began implementing his plan from day 1. He didn’t drop everything on the populace on day 1. There was a weekly flow of changes for many months. He had a plan, all ready to go from the day they got control of the levers of power.

    The Douglas plan and the way it was implemented should have been the benchmark for Robertson/Ardern

    Perhaps they had a plan which depended on having sole control of the levers (in their own right). The construction of the coalition and the negotiations that led up to it probably threw the Original Labour plan out the window. How do you navigate around Genter and her thought bubbles

    That’s the price of power

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    • I’m afraid there was never a plan iconoclast. What Labour had was slogans like promising 100,000 houses under Kiwibuild which was apparently dreamed up in the back of a car by former deputy leader Annette King. To cap it off they have a leader who hadn’t got a single solid achievement to her name after nine years in Parliament, someone who confuses PR and press releases with policies. We are also seeing how a group of people chosen for their race, gender or sexual preference rather than competence are incapable of delivering a single positive achievement beyond tossing taxpayers’ money around like drunken sailors, having discarded any meaningful targets for performance in major sectors like health and education.

      Liked by 1 person

  5. Years ago, one of the things that struck me about New Zealand is the extent that large numbers of people (especially in the media) expect the government to have a major economic role and look to the government for positive leadership. Ministers of Finance (and senior bureaucrats) seem to believe they will be able to do good, because there is a lever they will be able to pull in the right way. Central Bankers (and ex-central bankers) often encourage such beliefs as they, more than most, see their job as improving welfare by fiddling with the levers. (It has always amused me that there are two economists in NZ who have such immense faith that an economy can be fine-tuned by an appropriate fiddling of monetary policy that they designed a computer game around the principle; and it amused me further that one was subsequently appointed at the Governor of the Reserve Bank.) And perhaps there lies the demand for government plans. When people believe that governments are responsible for good economic outcomes, they will ask for plans. Of course governments can play and do play a positive role in an economy, not least by tempering some of the problems of markets; but they can also cause no end of problems.

    What seems missing amongst many people in NZ is the recognition of how important it is to have good firms. Possibly this is because we don’t celebrate good firms (although we often celebrate the leaders of firms that seem able to make good profits, irrespective of whether this ability comes from wonderful inventions, decent management, or simply the ability to price gouge); and we don’t look to them for leadership. The contrast with the U.S. is substantial. When I lived there, amongst the small circle of people I knew the view was that clever people in the private sector would solve the problems and push society forward. I don’t know anyone in the US who believes the government will solve climate change, but as far as I can tell it is widely believed that the private sector will develop the technologies that will enable people to substantially reduce their carbon footprint. There seems much more faith that businesses will improve the world in the US – and correspondingly, much less demand for government plans to improve things. Sure, the US has a business hall of infamy, but its hall of fame dominates. “Whatever will they think of next” is an attitude about the private sector that goes back for at least a century, and one which has made the idea of government plans slightly ridiculous. (That said, I wouldn’t want to minimise the role of innovation in government owned or funded agencies in the US). It might also be the case that in a large competitive market like the US, a greater fraction of the benefits of highly productive and innovative good firms are passed on their customers.

    Perhaps if there was more news (and not just PR gumf) about NZ firms that have done wonderful things we would have less demand for government plans, and more progress. As you continually note, the evidence of the last 25 years makes it difficult to believe that governments of either stripe have the talent, ability or interest to even want to diagnose the problem let alone seek solutions.
    Andrew

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    • interesting thoughts (as always) thanks Andrew. I guess one material difference now between NZ and the US is that the US is typically close to or at the productivity frontiers. Given how far behind we’ve drifted, I think there is still a pressing need for powers that be to develop or accept a narrative about how to stop the drift. Of course, the temptation for such people is to look to positive things govt can do or invest in, whereas I suspect the answers lie nearer to stopping deeply flawed govt interventions that stymie any of the sort of really successful firms you talk of.

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