Perspectives on New Zealand immigration policy

Several years ago the Law and Economics Association hosted an event in Wellington in which the New Zealand Initiative’s Eric Crampton and I each told our stories about New Zealand immigration policy. My account is here, and a link to the talk I gave is here.

A few months ago a couple of Victoria University of Wellington academics responsible for a Masters class (in a programme I didn’t even know existed (Masters in Philosophy, Politics and Economics)) invited us to do something similar for their class. We did that today.

My text (a bit fuller than what I actually used) is here (if Eric chooses to link to his slides on his blog I will include a link) (UPDATE: link here). My focus was solely on the economic dimensions of immigration policy, and in particular on the implications for economywide productivity (as the best proxy for whether large-scale policy-led non-citizen immigration has been beneficial for New Zealanders). My focus was primarily on the long-term programme, and entirely on the situation in normal times (ie I was not addressing the current Covid mess, which reflects poorly on the government but has no necessary connection to the appropriate medium-term approach).

My approach tends to start from a series of stylised facts about New Zealand’s economics performance in recent decades. This was the list I used this time.

But first, the gist of my story, which starts from a set of stylised facts about our economy.  Most of them are not in contention, even if the meaning and implications are debated:

  • New Zealand’s productivity growth has continued to languish, and even after the reforms of the 80s and early 90s (including a return to large-scale immigration) there has been no narrowing of the gaps. We’ve fallen further behind Australia, and increasingly behind central and eastern European OECD countries.  It would now take a two-thirds lift in the level of productivity to catch the OECD leading bunch,
  • Foreign trade as a share of GDP has stagnated, and this century has gone backwards. This in the new great age of globalisation,
  • New Zealand’s exports have remained overwhelmingly reliant on natural resources (whether agriculture, tourism or whatever).
  • Consistent with this, the rapid growth areas in our economy have been the non-tradable, not internationally competitive, sectors,
  • Also consistent with this, our real exchange rate has remained high, even as productivity has declined relative to other countries over decades,
  • Even as real interest rates have fallen, they have remained persistently higher than those in other advanced economies,
  • Business investment as a share of GDP has been weak (OECD lower quartile),
  • Indications are, globally, that if anything distance has become more important not less, with high value economic activity increasingly clustered in big cities near the major markets of the world,
  • Unlike what we see in the US and Europe, GDP per capita in by far our biggest city isn’t much better than that for the country as whole – if anything the gap has been narrowing.
  • Over the last few decades, no country has aimed to bring more migrants (% of population) than New Zealand did – although Canada and Australia have come close to matching us, and Israel too.   
  • OECD data show the NZ migrants also have the highest average skills levels (but still a bit behind natives) of migrants to any OECD countries.

Not one of the expected economywide benefits of a large-scale immigration promotion policy has shown up. Not one.   And we aren’t five years into this experiment, by 25 to 30.

I stepped through my standard arguments for why large scale immigration here may have been damaging to our medium-term economic performance. I noted that of the handful of OECD countries that have tried anything on the scale of New Zealand’s experiment (Canada and Australia and – in a slightly different context – Israel) none stands out as a productivity leader, and yet very little of the literature on the economics of immigration looks specifically at this group of countries. What isn’t always appreciated is that New Zealand has much more experience of large scale immigration and emigration (the latter, of nationals) than almost any other country – the sustained outflow of natives has been a thing since at least the mid 1970s, while our governments have actively promoted large-scale non-citizen immigration for all but about 15 years since World War Two.

When we’ve considered the economic performance over recent decades of the active immigration-promoting countries, and the countries experiencing outflows of their own people, the ball should really be in the court of the pro-immigration economists to show us, concretely, where and how large-scale immigration is lifting the productivity and incomes of the natives.   That is particularly so in New Zealand, given the disadvantages we can enumerate in advance – distance and continued natural resource reliance – and the signal implicit in the decades-long outflow of natives.

I talked about a number of other problems, and (in particular) gaps, in the existing literature before ending with this conclusion.

There might be all sorts of reasons for favouring high immigration – better ethnic restaurants[1], defence, a liking of big cities, or trains. If your country has prospered greatly, you might be happy to share the gains widely.  But the economic case for large scale immigration, as a way of boosting the productivity outcomes for natives in already advanced economies[2], looks thin at best.  Not many countries have run the experiment in modern times, notwithstanding the models that are claimed to support such an approach.  New Zealand has been at the forefront – actively promoting large scale immigration for all but 15 years since World War Two.  Unfortunately, New Zealand has had the worst relative economic performance of any advanced economy over those decades – we haven’t just come back to the pack, but now languish well down the rankings, have led the GDP per capita tables just 100 years ago (when abundant land, small population, and asymmetrically favourable technology shocks combined in our favour).

As I review the experience of advanced countries, if one wanted to take a punt on policy promoting large scale immigration (and few have) the best places to try look to be countries:

  • Close to the centres of global economic activity (whether Europe, North America, or East Asia),
  • Having experienced an asymmetric productivity shock – whether from the market or other policy reforms – favouring longer-term economic prospects in your country,
  • With economies with substantial reliance primarily on sophisticated manufactured products and high-tech services,
  • With their own people coming back home

And it looks like a highly risky strategy if your country is

  • Very far from anywhere,
  • Heavily dependent on (fixed) natural resources,
  • And has seen little sign of asymmetric favourable productivity shocks for your industries in a quite a long time,
  • Somewhere your own people have been leaving in large numbers

These look to be quite general insights.  And yet few if any of the countries that have three or four of the first characteristics have gone in heavily for policy-led immigration (perhaps Ireland or the UK might have been the closest- but UK immigration per capita was also about a third of New Zealand’s (per capita), and the UK is no productivity star).   Of the countries that went heavily for policy-led immigration, even Canada and Israel each meet only one of the three criteria – and neither can readily show the economic gains from large-scale migration. Australia and New Zealand meet none.

As for New Zealand, we can (sadly) tick all four items in that second class of conditions.  This was – and is – perhaps the least propitious advanced economy on earth to experiment with a large-scale immigration strategy.  And yet we did. If it was perhaps defensible in 1946, and optimistic in 1990, persisting now it just stubbornly wrongheaded, defying experience and evidence.    It isn’t quite as wrongheaded as a strategy to promote mass migration – however able the people – to Kerguelen, the Chathams or the Falklands, but not far short of it.  Australia has coped better with its experiment only because they were able to bring to market lots of natural resources previously lying idle.

It isn’t that people are any different here – locals or migrants.  And water still flows downhill.   But the opportunities just aren’t very good at all.  It is an old line but no less true for that: a definition of insanity is doing the same thing again and again and expecting a different result.  We’ve tried this one far too many times for our own good.

[1] I recall Eric Crampton once suggesting an Ethiopian quota

[2] The contrast, say, to the economic gains New Zealand Maori may have received from 19th C immigration.

21 thoughts on “Perspectives on New Zealand immigration policy

  1. I thought I saw a comment a few years ago that immigration helped government with an increase of 2% GDP to top up the meagre 0.5% local GDP. It was all political smoke and mirrors. Covid put a stop to it.

    Liked by 2 people

    • Yes, immigration definitely boosts headline GDP growth. If that doesn’t benefit most of us, it does benefit firms operating in sectors structured to benefit most from the demand associated with rapid population growth.

      Most of the more serious champions of high immigration to NZ now claim no more than that immigration probably provides a small boost to productivity and GDP per capita. I think they are wrong even about that, esp in NZ, but it is quite a shift from the claims heard even a decade ago.

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  2. A simple view: the basis, and the only plausible basis of New Zealand’s prosperity is that it produces more food and timber than it’s population consumes. Every additional local mouth to feed or body to house reduces the margin. The end result of unchecked population growth can only lead to emulation of a country like Egypt, the breadbasket of the Ancient World, now a basket case unable to feed itself.

    Liked by 1 person

    • A very Malthusian perspective (and note that climate change – historical – greatly affected Egypt’s grain growing potential. A more optimistic take would stress the US – from memory about 3m people in 1776 and now 300m+ and still one of the richer countries in the world. The question for us is whether using policy to supercharge population growth (much more so than the US) will help us close the big gap that opened up over the last 80 or so years between US and NZ productivity and GDP per capita.

      Liked by 1 person

      • That Malthus’s predictions have not yet transpired (except arguably on Easter Island), does not mean that they will not. Even without climate change the world’s present agricultural output is unsustainable (Energy, water, fertilizer inputs, highly damaging herbicide and pesticide use). Climate change and biodiversity loss, to both of which agricultural practices are a major contributor, only bring us closer to global famine
        My point was that New Zealand has no significant competitive advantage except for its per capita acreage receiving rain and sunshine. Yes, that advantage can be tweaked by adding value to the primary products, switching to more sustainable, less destructive products than dairy and radiata pine; but that arable acreage is finite, and shrinks under suburban sprawl and ever more frequent droughts, floods and wildfires.
        Right now we are in the happy position of being less overpopulated than most other nations. Less overpopulated, not underpopulated.

        Liked by 3 people

  3. “”… focus was solely on the economic dimensions of immigration policy””. Other issues include social cohesion, rorts & corruption, the effects on the low paid.

    The subject is fuzzy, hard to define. Taking an economists view everyone in NZ is either an immigrant or not an immigrant. I believe NZ stats define immigrant as a foreigner staying for more than 12 months. So presumably the PI fruit pickers are not immigrants but many European students on 23 month working holiday visas are immigrants. Are Cook Islanders with NZ passports immigrants? Auckland has immigrants from remote countries, from Australia, from the South island and from neighbouring rural areas – they all equally occupy houses and require schools and teachers for their children. Am I an immigrant? I’ve been here for 19 years and I have friends who have been here for over 60 years. My Turkish neighbours arrived, had two children and then returned to Istanbul 3 years later. Presumably their work or residency visas have expired but living in Turkey are two very young Kiwi emigres.

    Your article takes the long view; sensible governments would recognise its argument and curtail immigration. But the immediate problem is not opening or closing the immigration faucet but simply processing current applicants. A system that leaves school leavers in a limbo repeating year 13 and families split with no idea when their application will be processed is not only very unkind but is also causing NZ to lose talented GPs while retaining kitchen staff. I’ll reluctantly accept yet more foreign pump attendants and baristas if only INZ would stop its bureaucratic dithering.

    Liked by 2 people

    • Who is an immigrant? Depends entirely on the purpose. Two of my kids migrated to NZ (PLT data measure), and altho citizens by descent were later fully naturalised. For some purposes, the foreign born vs NZ born distinction can be a useful analytical one (even tho some of the foreign born may have been here for 70 years and been citizens for 60). In my discussion I simply focus on the distinction between those who now live here permanently (citizen or not) and those who don’t, since that is the place at which immigration policy really works.

      The current situation is a disgrace, and a v poor reflection on the govt and its officials. It wouldn’t be the worst thing in the world if something like the NZ Initiative’s “give residency to them all” happened – to clear out backlogs etc – altho it isn’t the path I’d take myself. Some of the discussion is muddled by rhetoric suggested temporary migrants are doing us a favour by being here, when all the evidence is that the main benefits of migration are to the migrant (and perhaps esp in the last 18 mths when people here temporarily, perhaps hoping to become permanent, were able to ride out the pandemic in one of the most Covid-free places in the world).

      Liked by 3 people

      • The current situation is a disgrace! So much so I’ve been forwarding media reports to my MP and Mr Faafoi for the last few weeks.

        The NZ Initiative’s suggestion was over generous and I would tamper with some of the details e.g. check what income tax has been paid by these stranded foreigners; and rather than date their work visas to end of 2024 make it ‘end of Covid-19’ plus 12 months. However I’d certainly agree that almost anything is better than the shame of current policy (should it be called non-policy?). For 18 months INZ senior management have had few immigrants crossing our borders; for 18 months they have had time to plan and act.

        Liked by 1 person

  4. Thanks for posting. As always, a compelling and lucid summary of the issue. It’s astonishing that things have been allowed to develop as they have for so long, without any serious criticism (besides your own more recently). This issue is a perfect storm involving classic regulatory capture (a small vocal sector benefitting greatly) and a political climate that makes advocacy of the national interest and native inhabitants a taboo topic.

    One comment from you I found interesting was: “One can debate social cohesion, **national defence**…”. This never gets discussed, but what do you think about the fact a large proportion of NZs recent migrant group are from a state which is increasingly assertive / aggressive in our region and in its dealings with some of our traditional allies? Do you think the presence of such a large group, in many case of dual citizens, is influencing policy now in that area?

    Liked by 3 people

    • Mostly only in the sense that a fairly small group of CCP-linked people have been rather generous donors to major political parties. But I think issues around trade, and perceptions of risks to trade, are by far the biggest issue, and the political donations just helped at the margin.

      Recall that many PRC migrants come here because they want nothing to do with the CCP and its ways,

      Liked by 2 people

  5. One of your most memorable posts was the one titled “Faith [something]” about the Pathways Conference.

    More and more we learn (I mean it becomes clearer) that what we are seeing is religious behavior (on the one hand – self interest on the other).

    I’ve been reviewing Archives NZ and today came across “This is NZ” (1970). I remember being in Mexico and I teamed up with some Americans. One had seen it at the movie theatre and he said: “In Nuu Zeeland you’ve got lakes and mountains…”. One of the aspects of NZ life they promoted was gardening. I doubt they would be so bold today. [This Is New Zealand (1970)]

    Also I came across The New Zealanders (1959). it is a good look at NZ. One thing I noticed was the dryness of the Canterbury Plains (the first well was sunk in the 1960’s.

    Liked by 1 person

  6. In light of the capacity induced blackouts yesterday, it’s worth pointing out to the “big New Zealand” advocates that any evident positives from the recent programme are impossible to evaluate, if you accept that infrastructure development has not kept pace with the population. Governments have accepted the short term boost from migration, without investing to keep up the needs of a larger population. This has manifested notably in high house prices, however there still seems to be cognitive dissonance around the housing situation. But surely now, just on a pure maths basis, we must be able to see that there is a cost for this programme that needs to be paid – according to figures I have seen, NZ electricity generation has never been higher – and yet it still isn’t enough. Same applies to water in Auckland too – even with a wet winter they still seem to be just scraping through by Feb. The economic benefit (already banked) now has to be off set by these costs that will have to be paid, which for electricity will be much higher if we also want to reduce carbon…

    Liked by 3 people

    • The challenges of ending fossil fuel use are massive, unsurprisingly the “lets do this” types are completely unaware of what’s involved.
      Sixty percent of our energy is from fossil fuels, forty percent is from renewables like hydro.

      Even allowing (hoping really) for a significant improvement in efficiency and moderation of overall energy consumption of, say, 20%; re-tooling our transport fleet, industry, agriculture and homes to 100% renewable electricity would require more than a doubling of renewable power generation and distribution; and some significant developments and discoveries of scalable new technologies. Never mind that and the distribution issue – Cook straight in particular, we’d need hundreds of new medium sized generation facilities or twenty projects the size of the Clyde dam. A project that takes all the waters from Wakatipu, Wanaka, Hawea and upper Clutha catchments and took twenty years to design, consent and build.

      Where is the actual plan for all of this? Is the unbelievably stupid “let’s do this” incantation the extent of it?

      Liked by 2 people

  7. Had to happen. Mass immigration has finally come home to bite them on the bum. A million new immigrant-users added to the population in 20 years without adding to power generation.

    And, to add to the problem, Government launches a program to convert vehicle inventory from Internal Combustion Engines to Electric without first ensuring there will be adequate electricity to run them. Failure

    The power brown-out on Monday night is the kiss-of-death to the EV program

    Liked by 3 people

  8. I think of immigration policy as a twin engined jet. One engine is corporate NZ as found in National/Act
    https://www.newshub.co.nz/home/politics/2021/08/if-other-people-want-to-worry-about-those-issues-that-s-up-to-them-national-mp-erica-stanford-not-into-debate-over-paintings-aotearoa.html

    and the other exemplified by this person

    “It is often a form of harking back to something that was seen as simpler and more unified period – but this is often little more than nostalgia.” — Unless it is something to do with Maori.
    https://www.stuff.co.nz/business/industries/107851506/housing-development-ad-selling-kiwiness-labelled-disrespectful

    Liked by 1 person

    • Steve Maharey sees the role of public radio as combating Nigel Farage and Trump. Someone “__ sailor” said he spoke to Claire Curran once and she was for open borders. My friend suggested to Megan Woods that we had too much immigration but she disagreed.

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  9. Listening to John Key on Leighton Smith (from about 1/3rd after vaccines)
    https://www.newstalkzb.co.nz/podcasts/the-leighton-smith-podcast/leighton-smith-podcast-episode-124-august-18th-2021/

    As he said he never polled under Labour the whole time he was PM and whenever Labour called him “rich p***’ people could see the G7 coming and he must be good with money. However as someone who comes across as the bloke at the BBQ cooking sausages he has no conception of the life experience of ordinary people. He’s the epitome of an anywhere (change the flag – just do it!).

    He was brought up in a single parent state house (so what?); when to primary school; went through secondary school (top of class?); went to university and then Merrill Lynch and makes a fortune. For many people life is the exact opposite. Peggy Macintosh came from a privileged background and wrote a famous essay on white privilege (and got that ball rolling) but the reality is that within society we walk through gates and some of those gate are simply closed to people – or we would all be wanting to be doctors. No one wants to be a cleaner in a rest home on minimum wage.

    He talks about NZ as though it were a person and (as they do) the economy is an abstract entity which “does well” so the more migration the better.

    For many people that house and neighbourhood and situation within the framework of a nation with it’s history, myths and connections is all they have.

    He claims that NZrs are overwhelmingly in favour of immigration (a necessary position). If so, he needs to explain how people experience migration. If it is true why do we have regular features telling us how good it is and reminding us that we are xenophobic for not agreeing?

    He is pro-roading to maintain livability but he says this maintains productivity. That can’t be true if productivity is based on a constant inwards flow?

    Liked by 1 person

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