[Note significant UPDATE at the end of this post.]
The only good case for having an entity like the Productivity Commission is if it delivers serious in-depth research and analysis – insight – on significant public policy issues, and does so without fear or favour. In principle, there might have been a decent argument for such an institution (I used to be persuaded) given the weaknesses of academe (at least on New Zealand policy issues), the relative absence of think-tanks, and the deterioration in our core public service advisory agencies. But it is hard to fix just one small part of organisational mix, and even more so when those (a) holding the purse strings,and (b) making key appointments demonstrate no appetite for, or interest in, serious research and analysis. And thus, 10 years into its existence, we have the diminished Productivity Commission.
It was never likely to be easy to create and sustain a good entity of that sort, with no critical mass (unlike the much larger Australian equivalent which initially inspired the creation of the New Zealand one), and just up the street from key ministries (the Australian equivalent is an Melbourne, so an attractive option for people who do not want to live in Canberra). But this government seems to have basically given up trying. But then they’ve consistently indicated little or no interest in reversing the decades of relative productivity decline, even though fixing this failure would provide the best long-term support for fixing many of the things they often claim to have gone into politics for.
That was all exemplified with the appointment a year ago of their mate Ganesh Nana as the new chair of the Commission. Doubts that I and others expressed at the time have been more than vindicated since (be it speeches, interviews, or other public statements).
But if there was still any doubt, the diminished state of the Commission was fully on display with the release yesterday of the draft report on the immigration policy inquiry. Immigration (of non-citizens) is a huge government intervention lever, deployed in New Zealand on a scale far larger than in almost any other countries, with (potentially) significant economic, social, and cultural implications. In New Zealand, champions of the large-scale non-citizen immigration policies – run for much of the last 150 years – repeatedly claim that there are significant economic benefits to New Zealanders from such policies, even as for decades now our position in the global economic league tables has kept on dropping away. Perhaps the advocates are right, perhaps they are not. But you might suppose it was a topic warranting some serious and in-depth research and analysis, New Zealand specific but engaged with diverse cross-country experiences, that really engaged with the issues and experiences and offered compelling insights on what might work best, for what end, and how.
But if that was the sort of report anyone was hoping for, it bore no resemblance to what the Commission has delivered. I’m sure there may even be a first-rate case that could be made for how New Zealand’s immigration policies of recent decades have made (or will soon make) most or all of us economically better off – that is, after all, the thrust of the rhetoric from successive governments, and ministries like MBIE (that used to tout New Zealand immigration policy as being a “critical economic enabler”). It would be fascinating to read – and engage with – such a document. But even though it largely champions something like the (pre-Covid) status quo, the Productivity Commission’s piece offers nothing serious to engage with. I wasn’t a great fan of the New Zealand Initiative’s report on immigration policy/experience a few years ago (and offered extensive commentary in a series of posts collated here), but it was a worthier effort – on fewer resources – than the Productivity Commission’s.
The essential vapidity of the report – most especially on anything relevant to productivity and economic performance – seemed well-captured in this extract from the final page of the Commission’s four page summary of the report.
So the very first recommendation – one of three in that shaded box – is that ultimate Wellington-insider type of recommendation: more jobs for bureaucrats writing policy statements for the governments. Nothing about the substance, all about process. It isn’t necessarily a stupid idea, but surely as about item 25 on a list of second-tier recommendations?
I suppose every Wellington bureaucrat these days feels obliged to invoke (or conjure up) Treaty of Waitangi dimensions, and so the Commission also has it in its top-3. But the focus of the Commission is – or was supposed to be – primarily economic in nature (there is something of a clue in the name) and all the commissioners – and probably all the professional staff – are economists so one if left wondering what they have to add on Treaty issues, at least beyond their personal politics (quite far left in the case of the chair). Same goes for that weird suggestion that learning Maori might be made a factor in granting residence – I suppose some might think it a good idea, but you might have thought there would be at least some attempt to highlight potential trade-offs (in which, for example, some of the more potentially valuable migrants might find learning a niche language – or least jumping through hoops appearing to do so – something of a deterrent).
I don’t have any particular problem with something along the lines of a couple of the recommendations. Providing more flexibility for those of time-limited work visas to change employer makes some sense (although would make more sense as part of my scheme whereby employers would pay a significant fee to hire short-term migrant workers), and the suggesting about limiting the rights of return of permanent residents who leave seems sensible (if niche), as might a provision to allow only citizens to vote (a more normal practice overseas). But relative to the scale of the intervention immigration policy represents these are second or third order issues at best.
And all that is left, which might have some substance (for good or ill), is the second of those highlighted recommendations, but even there is less to it than meets the eye. Net migration flows (in, out, New Zealander, other) are volatile, but that isn’t mostly because New Zealand policy is volatile. Instead, most of the volatility arises because when the Australian labour market is strong the net outflow of New Zealanders to (higher-paying) Australia increases, and when the Australian labour market is less strong the net outflow diminishes (often quite sharply). There isn’t anything much New Zealand governments can do about that – other than (which would be grossly against the interests of New Zealanders) begging the Australian government to limit our escape option. It is disconcerting that in the draft report the Commission still seems to be hankering to attempt to smooth the net flow (without changing the average rate of immigration over time) and says it will be thinking more about options before presenting their final report. I suspect that if there is one thing the champions of high immigration and the sceptics (like me) agree on is that attempting to use policy to fine-tune flows is a daft, and probably unworkable, idea (it always used to be MBIE’s line to me when I was still an official – and not championing such fine-tuning – and I was at a meeting at the Commission within the last couple of months at which a strongly pro-immigration economist and I (united on almost nothing else in that discussion) strongly urged them not to try. If the Commission thinks they, or MBIE, can forecast the Australian labour market that well, that far in advance – and then adjust policy and movement that quickly – then the macro authorities in Australia probably have jobs on offer for them. And if the government does want to encourage large average migration inflows – to an underperforming remote economy – changing the rules frequently (with forecasts and mis-forecasts of the economic cycle) simply isn’t a sensible way to be attractive to the few really able people likely to be seriously interested in settling here.
The draft report (at 68 pages) is much shorter than many of the Commission’s reports over the last decade. Unfortunately, with the greater brevity has come an absence of much serious analysis or engagement, or even a framing of the issues. The report is accompanied by a series of special topic papers, and I turned, hopefully, to the one headed “Impacts of immigration on the labour market and productivity”. That alone is 98 pages, but (a) the text runs out after 48 pages (the rest is mostly just charts) and (b) most of the rest is boilerplate description of the data, offering no insight to anyone who knows the New Zealand story. And when we finally get to a few pages on productivity – and you will recall that over the years the Productivity Commission has consistently highlighted New Zealand’s long-running poor outcomes – the Commission’s treatment involves no serious engagement with the New Zealand data or experience, no fresh analysis or research (commissioned or in-house) but rather (a) on the global picture a description of one academic paper, and (b) on New Zealand specifically, a single paper done for the old Department of Labour by the Commission’s chair some years ago, in which sure enough gains to per capita income show up, but solely by construction (it is a CGE model) and in which any possibility of productivity gains (or losses) is assumed away by construction. Nana has long been on record as a champion of large scale immigration, and juicing the population of our cities (he was my interlocutor in this RNZ discussion) but his paper sheds no light (and really can’t do so by the technique used).
Overall, the report is the sort of thing an average MBIE policy team could have churned out. It offers little or no insight, no fresh analysis or research, but offers a few tweaks (some sensible, some not) which a government that likes mass migration (and Labour has for several decades now) can nod sagely at and perhaps make the odd change (and of course some red meat to the Labour Maori caucus).
Now regular readers might be wondering how the Commission has treated the arguments I have been making over the last decade or so about New Zealand’s immigration policy and our disappointing economic performance.
I noticed that a recent speech was shown in the list of references so I searched the document to find out where they had referred to it. The solitary reference was here
This raises the question of whether overall resident approval numbers (the “planning range”) should be reduced or linked to
other factors, such as outflows of New Zealanders or the state of the economy. If other changes are not made to ease restrictions on housing construction and to boost investment, a “least regrets” approach implies setting the planning range at lower levels
than has been the case in recent years. Some commentators and submitters argued for setting the planning range at much lower levels (Reddell, 2021).
Which is, to say the least, a bit naughty, as neither in that speech nor in anything I’ve written in recent years, have I suggested tailoring the residence approvals numbers to housing construction, the cyclical state of the economy, the outflow of New Zealanders, and the “least regrets” framing is one that I have not used (I think it originates with the economist Julie Fry). But, however they describe it, the Commission simply presents the idea of lower numbers of residence approvals, makes no comment and moves on.
A few pages earlier, the Commission does devote half a page to a discussion of “arguments from a macroeconomic perspective suggesting that fast population growth may have suppressed New Zealand’s productivity growth”. I recognise some aspects of some of my arguments and analysis in what follows, and I suppose it is welcome that – without further analysis or testing – they comment that
Aspects of New Zealand’s economic performance over the past 30 years are consistent with these arguments, including a persistent high real exchange rate (despite poor relative productivity growth which would tend to push the exchange rate down), a flat or falling share of exports to GDP, slow rates of productivity growth, and high real interest rates compared with other developed countries. Immigration is unlikely to be the sole cause of these trends, but the symptoms are consistent with it being at least a contributor.
But that is it. Which is strange, because the story has implications. If it is right (in whole or in part), it argues for much less trend immigration (at least to the extent economic outcomes matter a lot), and if it is wrong, well it should be exposed and demonstrated as wrong. Instead, we get “symptoms are consistent with it being at least a contributor” and then they move on to the next topic. It does not create much confidence that they have thought hard or engaged much. Instead, as they move to the next paragraph, they seem to confuse and conflate these arguments with quite different issues and arguments (that I’m certainly not making) about housebuilding and construction of public infrastructure.
When people refer back to this report in years to come – as no doubt some will – no doubt the champions of large scale non-citizen immigration will find support. But no one – pro or con – will find illumination. But with nothing challenging, nothing troubling, no doubt the Beehive will have been happy, and the powers that be at the Commission will have rewarded the trust ministers showed in appointing their mates.
I have tried to look at the report not just through the lens of my own views on a sensible immigration policy for New Zealand. If one is evaluating the quality of a report, what matters isn’t just (or even mainly) if the authors end up agreeing with you, but how. I can’t believe that any serious champion of large scale immigration to New Zealand (and there are some, not just among the self-interested) would regard this report as a serious and useful contribution to a better understanding of the issue in New Zealand. If those were my views – and of course they aren’t – I’d be a bit embarrassed that this was the best the government’s Productivity Commission had managed to come up with.
As it happens, I am very curious as to how the Commission ended up where it did. I chose not to make a submission, on some combination of lack of confidence in the Commission, health, and a sense that staff and at least some commissioners were well aware of my arguments, which had been documented extensively over the years. But about three months ago I had an approach from a senior staff member asking if I would write a paper for them, which they would have reviewed and would then publish, articulating the “Reddell hypothesis” and reviewing the experiences here and abroad that might help shed light on the issues etc.
I declined almost immediately, and after some further engagement not only declined but suggested that such a paper would not necessarily be in their best interests even if the Commission was to be sympathetic to my story (they’d have been much better off getting someone not precommitted to review the arguments and evidence). But I have since had a couple of sessions with staff and commissioners on the issues and arguments, and while I’m not going to go into detail on the substance of those discussions, suffice it to say that it was something of a surprise to read the report, and the lack of serious engagement with the issues and experiences.
It is, of course, up to the Commission what issues and arguments and experiences it addresses. But for anyone interested in exploring mine further
this was the speech the Commission (somewhat misleadingly) linked to
and these were notes for a recent lecture at Victoria University
and this is a longer version of a recent book chapter in which I explore New Zealand’s longer-term economic underperformance, distance, and the inconsistency between our immigration policies and producing first world living standards at this distance from the world.
Silly me. I assumed that any substantive discussion of effects of immigration policy on productivity might appear either in the main report or in the supplementary paper I linked to earlier “Impacts of immigration on the labour market and productivity”. However, the Commission has just pointed me to another supplementary paper which – because it was under the heading “The wider wellbeing effects of immigration” and I am mainly interested in economics and productivity – I had not read. It turns out that “the wider wellbeing effects” is mostly about economic effects, and that there is a whole chapter (pp12-19) on macroeconomic issues and arguments, including a sub-chapter on the “Reddell hypothesis”. I had seen an earlier draft of that chapter and had provided some comments on it.
It is a little strange to have (a) published this core economic material in a chapter under such a heading and then (b) not to cross-reference it in the main report, but for what it is worth the chapter includes this specific official “finding”.