And so another term passes and nothing changes for the better

A couple of years ago I had my arm twisted and agreed to write a chapter for a new book on New Zealand public policy being edited by a couple of Victoria University academics. My chapter was to be on the economy, and although the general tone of the book was to be rather upbeat, about the public policy and governance frontiers New Zealand had marked out, there wasn’t very much to be upbeat about in the longer-term New Zealand economic story. And so I wasn’t.

The published book finally turned up in the mail last week and I’ve started reading it (there might be a post later about some of the other chapters). In my chapter (a slightly longer version of which is here) I’d highlighted the continuing relative decline in New Zealand’s economic performance. I’d forgotten that I’d ended the chapter this way (emphasis added)

Looking ahead, if New Zealanders are once again to enjoy incomes and material living standards matching the best in the OECD, policy and academic analysts will have to focus afresh on the implications, and limitations, of New Zealand’s extreme remoteness and how best policy should be shaped in light the unchangeable nature of that constraint (at least on current technologies). Past experience – 1890s, 1930s, and 1980s – shows that policies can change quickly and markedly in New Zealand. But with no reason to expect any sort of dramatic crisis – macro-economic conditions are stable, unlike the situation in the early 1980s – it is difficult to see what might now break policy out of the 21st century torpor or, indeed, whether the economics institutions would have the capacity to respond effectively if there was to be renewed political appetite for change.

That must have been written 18 months ago and finalised later last year. We were a couple of years into yet another government that, while perhaps perfectly competent at overseeing some macroeconomic stability, was quite uninterested in – and had no serious ideas about – reversing the continuing decades of relative economic decline. And that was even though the better of them surely knew that productivity was the best, and only reliable, long-run path to widely-shared prosperity. Another government and, of course, another Opposition. To which one could add, a Treasury – self-described premier economic advisers to the government – that had little to offer and seemingly little interest in the issue, and a Productivity Commission that now seemed less-equipped to offer much of value either.

Since then, of course, we have had a rather dramatic crisis – not economic in origin, but with major and ongoing economic ramifications. Best forecasts – in this case, Treasury’s PREFU numbers such as they are, and no one really knows – suggest it will be years before even the cyclical losses are behind us, and that the economy (ours and others) may just settle on a lower path of real income and productivity. We’ll be poorer than we previously thought, and even if others are too, we would still be lagging a very long way behind the advanced world’s leaders. That means real lost opportunities – whether consumer fripperies, or the health and education preferences that get so much attention.

Faced with a backdrop like that perhaps one might have hoped for an election campaign in which a major theme involved confronting the decades of economic underperformance. Note that I’m not suggesting that it should be the only issue of importance – of course not, there is the government-made housing disaster, and the handling of Covid itself (where to from here) as just two other examples.

But what is striking, sobering, and sad is that – even amid a serious economic downturn, with no end in sight – the decades of economic policy failure seems to command no attention at all. I think it was Matthew Hooton who in a column a few weeks ago suggested that focus groups and polling suggested that the public wanted to hear that parties had “a plan”, but there is little sign any of the parties is offering us one. They use the word often enough, but there seems to be little or no substance behind any of it – even the immediate Covid stuff, let alone the economic failure.

One listens in vain to the debates among political party leaders, and there is no hint of any serious interest in addressing the structural issues at all, no suggestion (of course) that they’d done the hard work and settled on a compelling narrative of what had gone wrong, and what they’d offer that might make a real difference.

In the Herald’s election supplement this morning there was a double-page “Policies at a glance” feature, with a line for economic policy.

Labour seemed to have no clue, and no interest. There were policies for the short-term. They might create jobs in the short-term or even limit immediate jobs losses. I don’t have any particular argument with that – although monetary policy is better and cheaper. But then there were the longer-term policies which – whatever their merits on other grounds might be – are all likely to make us a bit poorer not richer (higher top tax rate, higher minimum wage, higher sick leave). But that is par for the course: even at the last election where Ardern occasionally mentioned productivity, there was never any energy or compelling ideas behind it.

National also has its shorter-term policies (the temporary income tax cut, grants, and depreciation provisions), but the longer-term ones seem to come down to not much more than new roads. Of their claim that they would save $1 billion per annum in Auckland congestion costs I wrote

I guess $1 billion per annum is supposed to sound like a big number.  In fact, it is about 1 per cent of Auckland’s GDP.   Fixing the problems is probably worth doing, but 1 per cent of GDP is tiny in the context of either Auckland’s gaping economic underperformance, let alone that of New Zealand as a whole (recall that the productivity leaders are more than 60 per cent ahead of us).

Perhaps welcome. Certainly not transformative.

And yes, we heard a bit about the technology sector, but the numbers were so modest that no one supposes it was going to be transformative either. But Opposition parties have to have a little bait to throw towards the fish.

Of the other parties, and with productivity in mind, I guess ACT seemed to lean in the right direction in places, while the Greens mostly offer measures that would make us poorer and less productive (then again, no one votes Green for productivity etc concerns). To my surprise, NZ First seemed to a have a few sensible lines – offset by wanting to “ramp up” the PGF – but who cares any more?

But, at best they are all just playing, suggesting doing stuff at the margin and offering no real leadership.

It isn’t just the politicians. Somewhat surprisingly, twice in the last few days I’ve seen media invite several economists to offer their thoughts on what should be done about economic policy. Saturday’s Herald’s contribution was under the headline “What’s the next big idea” in which “Liam Dann asks independent experts what tough policy changes are needed for a fairer, more productive economy”. The six economists they consulted seemed to cover the spectrum from Ganesh Nana (BERL) on the left to Prof Robert MacCulloch (who co-authors papers with Roger Douglas).

Their ideas?

Ganesh Nana: a) tax reform (“taxing income and goods and services, but not property/wealth – is not working and is not fair”), and b) a rent freeze and the government as last resort buyer of houses.

Robert MacCulloch: Saving. (“NZ should introduce mandatory savings accounts for all workers which cover health, retirement, housing and risk (like unemployment)”

Cameron Bagrie: “an unflinching commitment to microeconomic reform…..the little things”. More funding for the Commerce Commission and RMA and Overseas Investment Act reform.

Oliver Hartwich largely agrees with Bagrie, adding in a desire to see “a return to a more rigorous approach to cost-benefit analysis”, and a renewed focus on education (the NZ Initiative has a new report on education failings out shortly).

Christina Leung (NZIER) emphasises equality of opportunity with a particular emphasis on education.

Brad Olsen (Infometrics) wants tax reform “to ensure that investment is directed into productive areas”, and also wants a National Skills Plan and a Digital Business Investment Fund “to accelerate the movement of New Zealand businesses into the digital age.

I happen to agree with some of those points – generally the Bagrie/Hartwich line – but even if some of those proposals would be steps in the right direction almost inevitably they would mostly be pretty small beer (others would mostly likely represent small steps backwards). Some of these economists – notably MacCulloch – really do seem exercised, in other writing, about the shockingly bad economic performance. But none seems to have a model in mind for how the ideas they are proposing would make the scale of difference that the productivity failure – material living standards failure – calls for. One can’t hold people too much to account over a few quotes in a newspaper article, but I’m not aware that in other writings most of these economists have even tried to tell such a story.

That was one lot of economists. Then the latest issue of the new Listener turned up this morning offering the views of nine “leading economists on the way forward”. Leung and Bagrie were in both groups, and the Listener added the bank chief economists, Shamubeel Eaqub and David Skilling.

Mostly the bank economists are focused on short-term data flow and perhaps inevitably their focus was on relatively short-term stuff, about traversing the difficulties the virus poses for the next few years, so I’m not going to focus on them, but Westpac chief economic Dominick Stephens had a comment that caught my eye.

Covid-19 will eventually pass and we will still be a country with solid economic institutions, a highly-educated workforce and First World infrastructure. It won’t be east, but our economy is flexible enough to adapt to the challenges and opportunities. 

Sadly, to the extent that those descriptions are accurate they have been so for 25+ years, and yet we’ve still been drifting slowly further behind, even as other poorer OECD countries have begun to converge quite rapidly.

Of the remaining two economists, Eaqub rightly observes that New Zealanders seem to care about “housing affordability, inequality, climate change, health, education and justice”, noting that many of them are areas in which New Zealand is getting worse, but does not hint at what big things he thinks might be done differently to lift our economic performance. David Skilling has thought a lot about economic performance issues – and I’ve written about some of them including here – and on this occasion emphasises his view that the government should focus on spending on R&D, training and enterprise policy (I think this last relates to his idea of promoting – and picking – a few big companies). There is material worth debating in what Skilling writes, but it is still difficult to see a credible model, or narrative, for catching up again.

Now perhaps – it is just barely possible – that The Treasury has been beavering away from months and is about to deliver to the incoming government some really persuasive analysis and advice on the importance of the productivity failure, and what should be done about it. But it isn’t at all likely. Not only has their capability been degraded, but most of their energy will have been going into short-term Covid stuff. And, realistically, they know that neither party – but notably including their current minister, almost certain to be reappointed – has any appetite whatsoever. On economics they are conservative to the core – in a few good ways, but mostly in dreadful ways, simply preferring not to rock the boat, whatever the long-term cost.

I find it all pretty deeply depressing – even if, and yes I can be a detached observer too – not overly surprising, given the torpor into which policymaking and thinking in and around government has fallen (not just in New Zealand of course, but our long-term economic failure is much more serious, and idiosyncratic, than the situation in most other advanced countries). Of course, the cynics approach would be to observe that the public seem to care much, and that a definition of leadership is finding out what the followers want and getting in front of them. But real leadership – courageous, even costly, leadership is something quite different. It is about the perceptions to recognise real problems, and the drive and energy to find and promote solutions, championing answers, making the case and seeking to take the public with you. That sort of thing seems deeply out of fashion in today’s New Zealand- where holding office seems more important than what you want to do with that power. And such is our economic plight – once affordable housing, once the highest material living standards anywhere, but no longer – that is inexcusable and really rather shameful.

As for me, when I write posts like this I always get asked what my answers are. I don’t like to champion them too often, as writing frequently here I probably can come across as a bit of a stuck record. My “big idea” is, of course, a permanent and substantial cut in the rate of non-citizen immigration, so that public policy is not worsening the disadvantages of being in the most remote corner of the earth. But I’ve articulated other strands of story of response in, for example, this speech, this Covid-contextual paper from early in the year, and in this post from a couple of years ago with a fairly long list of things I’d do (some to boost productivity or fix housing directly, some to free up fiscal resources for better-focused and aligned policies, and some to help support some cohesion and legitimacy for our political process through what would, inevitably, be a difficult and contentious transition.

It is easy for things to drift. One year is (mostly) much like another, but before you know it am electoral term, decade, a generation, or even a lifetime has passed, and nothing has been done to fix, and reverse, the decades of relative decline. Our so-called leaders – whether political or official – really are without excuse now. And yet….nothing.

12 thoughts on “And so another term passes and nothing changes for the better

  1. I agree with you Michael, a moderation of inward migration and an renewed emphasis on education and skills would help. As would policies designed to make the NZD more competitive.

    Freeing up land use and reform of the RMA to ease property prices and property price inflation would help. As would a strong focus on competition by our authorities. A focus on the competition – or lack of – in a range of oligopolies (banking, insurance, supermarkets) etc.

    I’d like to see Tiwai Point closed and that electricity re-routed into the network.

    And we need to have a clear policy path back to fiscal sustainability and low public debt/GDP as we are a small commodity-intensive economy with significant credit vulnerabilities.


  2. Instead, I fear we will lurch from a social-Democrat government you a socialist one post-election with the Green tail wagging the Labour dog. Centrist Labour voters will be increasingly uncomfortable with the increasingly vocal and aggressive Hard Left attempting to reverse what they see as the ‘neo-liberal’ policy consensus that’s more-or-less held since 1984.

    Wealth taxes, increased marginal taxation, increased and broadened income tax, high fiscal deficits and spiralling debt will lead to increased economic and social conflict.


  3. Ask ourselves whether Neoliberalism has worked for New Zealand and the answer is a definite “NO”
    People have been sold all of the greed as being beneficial but in truth the ‘Few’ benefit.
    Both major parties seem to have succumbed to the concepts and it would seem to me at least that carried on as it has in USA it is getting closer to a Fascist regime which always finally results in a nasty ending.


    • Ask ourselves whether socialism worked. We slogged at that from 1935 until the debacle of 1984 when it was a Labour Government that finally abandoned it.

      If you want socialism, then good luck to you….


    • When Douglas introduced GST in 1984 I was involved in installing GST systems that enabled businesses to calculate their obligations on a monthly basis. Prior to that, most small businesses in NZ fulfilled their tax obligations once a year, turning up to their accountants office with a sack full of cheque butts 6 months after the close of the financial year. They would be advised they had made a full-year loss for the previous year and frantically jack up their prices to get into profitability. They had no idea when they had moved into a loss situation. The feed-back we got was the introduction of a GST – it was the greatest thing that could have happened. GST forced them to know what their margins were at the end of each month. What their profitability was. And act accordingly. Particularly managing costs.

      Liked by 1 person

  4. Thanks for this, an interesting read.

    I think the paradox is that New Zealand essentially is, and can only ever aim to be a nice and pleasant place to live with a lot going for it, but (and we certainly need to think about not falling further relative to other countries catching up) a middling country economically. We are however governed by and our public service is full of people who refuse to admit this and instead go on about and print masses of documents about how this is the most innovative economy on earth, how if you measure X factor on a per capita basis by cherry picking Y countries and squinting with one eye we are on some measures actually near the top, or if you put economic measures to one side we’re the most beautiful country on earth, best place to raise a child, blah blah blah – it’s all nonsense.

    Unless New Zealand can figure out a way to become a lot richer very quickly, that nobody else on earth picks up on, I think an element of realism is needed in the national conversation. Every country in the world wants to be richer and they are all fiddling and tweaking the micro levers, making this application easier for firms or rolling out some more broadband there, add in an innovation grant or whatever – it’s all the same thing. What we do is no different and I think the focus should be more on trying to make the best of it – starting with the honest examination of immigration you propose – as that’s something which would probably make clear that population growth for the sake of it makes it a worse place overall on many measures.

    For what it’s worth personally since leaving New Zealand my household income has more than doubled. I’m under no illusions that if/when I return a second round of the Business Growth Agenda, or trying to attract/keep startups through rural broadband or whatever won’t stop a considerable pay cut on arrival.

    Liked by 2 people

  5. NZ’s future is to be a vassal state of China. China guarantees NZ’s economy security in exchange NZ provides China with unqualified political & cultural support internationally.

    Economic security in the form of China purchasing everything NZ produces at say 20% markup on international prices or simply agrees to say cover NZ’s ongoing National Super.

    China would let NZ make its own laws around end of life, abortion, drugs etc etc but the hard stuff like the economy National & Labour wouldn’t have to worry about. They just have to keep Beijing happy internationally.

    NZ a formerly a core western country now part of a modern Sinosphere. History repeats etc etc.


    • That makes quite unrealistic assumptions about the stability (even short term) of the CCP. Recent CCP conduct in the international arena appears to be about ensuring external treats to provide internal distractions.


  6. Noting that persistent problems often require a minimum of 3 actions to resolve the problem.

    Does policy change without a plan more detailed than “this one is better than that one” actually make a difference on the scale required, it strikes me as being abit like a farmer who’ ploughs a field, fertilizes it,and then is shocked by the fact it just grows weeds because he considered panting seeds be excessive micro management.

    The poor business management skills in iconoclast’s example are still common or possibly even more so now just a bit different (accounting costs have crashed in the last 30 years). Successful export industrys here tend to have a competitive / demanding domestic market, if the domestic regulators are too accommodating it be comes an export disadvantage. Too often, large NZ players are large because they played politics or have better access to funding and then struggle in the global market because they don’t have their competitive advantage.

    We need to create domestic demand for new products that are competitively exportable (deep sea systems looks to be a good place to start), rather than babying our businesses which often appears to what most of the “pro” business policy seems to be in this country.

    Liked by 1 person

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