Immigration

Nonsense repeated endlessly is still nonsense

Michael Reddell Immigration, New Zealand economic performance, Uncategorized

For decades –  in fact going back to the 19th century –  business groups in New Zealand have claimed that we need lots of immigration (often even more immigration) to relieve pressing skill shortages.   No one ever seems to ask them how other countries –  which typically have nowhere near as much immigration as we do –  manage to survive and prosper, but set that to one side for now.

Sometimes the alleged skill shortages relate to really highly-skilled positions.  I don’t suppose anyone is going to have a problem if DHBs manage to recruit the odd paediatric oncologist from abroad.   But more commonly the calls relate to the sorts of jobs that require considerably less advanced skills.  In generations past the call was for more domestic servants –  colonial girls were apparently reluctant to take on such roles, at least at the sorts of wages that middle New Zealand wanted to offer.     These days…….well, we all know the sorts of role firms claim they simply have to have immigrants for.  Without them, the more florid suggest, the economy will topple over.

For an individual employer, those calls make a lot of sense.  Each firm has to operate with the rest of the economy as it is.    Faced with two potential employees of exactly the same quality, of course an employer will prefer the one who will work for less.  And they’ll be keen to have the competition among potential employees, to keep down any pressure for higher wages.  And if your firm couldn’t hire immigrants while your competitor could, your business might well be in some considerable strife.     Moreover, if the whole pattern of the economy has adjusted to using large amounts of modestly-skilled immigrant labour, so that some sectors rely mainly on that labour, of course it will look to employers in those sectors as if the continuation of current policy is absolutely vital.   Who, we are asked, will staff the rest homes otherwise?  Or milk the cows?

Deprive an individual employer of the ability to hire modestly-skilled migrant labour, and the argument will stack up.   But if we are thinking about immigration policy as a whole we need to take a macroeconomic, whole of economy, perspective.  And then the perspective, or experience, of an individual employer is largely irrelevant.    With a materially different immigration policy, much about the economy will be different, not just the ability of that individual firm to hire a particular immigrant.

This isn’t some striking new perspective.  New Zealand economists were saying it decades ago, responding to exactly the same sort of business sector claims.   Mostly the response consisted of pointing out two things, both of which really should be obvious but seem to repeatedly get lost in the “our business needs more migrants” rhetoric:

  • migrants aren’t just producers (sources of labour supply) but consumers, and someone else has to produce the stuff they want to consume, and
  • in a modern economy each new person generates a need for quite a lot of additional capital (a place to live, roads, schools, hospitals, shops etc) and someone else has to produce and put in place that capital.

In other words, whatever beneficial impact an individual migrant may seem to have at the level of the individual firm, there is little reason to suppose that in aggregate high rates of immigration will do anything at all to ease so-called “skill shortages” or “labour constraints”.    In fact, mostly the claim was rather the reverse: big migration inflows temporarily exacerbate those pressures across the economy as a whole.

I’ve written previously about Professor Horace Belshaw’s contribution to the immigration debate as long ago as 1952, as the post-war immigration wave was getting into full swing.   Belshaw was, at a time, one of our leading macroeconomists.  He noted

At the time when there are more vacancies than workers, it is natural to assume that immigration will relieve the labour shortage. This however, is a superficial view.  The immigrants are not only producers but also consumers. To relieve the shortage of labour it would be necessary for more to be contributed to the production of consumer goods or of export commodities used to buy imported goods than the increased numbers withdraw in consumption.  That is unlikely….[and] there will be some temporary net additional pressure on consumption.

and

Of much greater importance is the fact that each immigrant requires substantial additional capital investment, not in money but in real things.  Houses and additional accommodation in schools and hospitals will be needed. In order to maintain existing production and services, and even more to maximize production per head, there must be more investment in manufacturing and farming, transport, hydro-electric power, municipal amenities and so on.

To anticipate a little, immigration is not likely to ease the labour shortage while it is occurring, and is more likely to increase it because although additional consumers are brought in, more labour than they provide must be diverted to creating capital if the ratio of capital to production is to be maintained.

A few years later, the Reserve Bank published an article in its Bulletin (April 1961) on “Economic Policy for New Zealand” by a visiting British academic, who noted

It is an illusion to assume that inflationary pressure and labour shortage can be relieved by increased immigration….the main immediate effect of increased immigration is to add to the shortage of capital goods. Even single men need to be housed, and they need capital equipment with which to work in industry…..Resources have to be devoted to providing this capital that could otherwise have been devoted to increasing and modernising capital equipment per man employed.

A few years later, another leading New Zealand economist, Frank (later Sir Frank) Holmes – Belshaw’s successor as McCarthy Professor of Economics at Victoria – published a series of articles on immigration for the NZIER.  I could quote from him at length, but suffice to say he was convinced that in the short-term the demand effects (including for additional labour) from increased immigration outweighed, by some considerable margin, the supply effects.   And here “short-term” didn’t mean a month or two.  In fact, he quoted from some recent estimates by the Monetary and Economic Council –  the Productivity Commission of its time – suggesting the additional excess demand would last for up to five years.

Or, a few years on, a quote from economic historian Professor Gary Hawke

Ironically, the success with which full employment was pursued until the late 1960s led to frequent claims that labour was in short supply so that more immigrants were desirable. The output of an individual industrialist might indeed have been constrained by the unavailability of labour so that more migrants would have been beneficial to the firm, especially if the costs of migration could be shifted to taxpayers generally through government subsidies. But migrants also demanded goods and services, especially if they arrived in family groups or formed households soon after arrival and so required housing and social services such as schools and health services. The economy as a whole then remained just as “short of labour” after their arrival.”

This sort of conclusion wasn’t even very controversial among economists.   Whatever the possible longer-term merits of high immigration –  and on that point views did differ –  no serious analyst saw it as a way to relieve labour market pressures or deal with other excess demand pressures.   It simply didn’t.

For 15 years there wasn’t very much immigration to New Zealand and in the process this knowledge seemed to have been largely lost.      But the character of the economy didn’t really change, let alone the basic propositions that (a) migrants are consumers too, and (b) more people requires the accumulation of materially more physical capital.    At the Reserve Bank it took us a while to wake up to this, in the face of first big post-liberalisation surge in immigration in the mid 1990s, but thereafter it became established wisdom for us.     Consistent with this was a piece of research the Bank published just a few years ago.  In that paper Chris McDonald looked at the impact of a one per cent lift in the population from net migration on, in this chart, the output gap (the estimated difference between actual GDP and the economy’s productive potential).

output gap mcdonald

On this estimate, unexpected changes in migration increase the excess demand pressures on the New Zealand economy.    The dark blue line is the central estimate, while the lighter lines represent confidence intervals around that central estimate.   Coincidentally –  see the Monetary and Economic Council estimates from earlier decades – on this model it takes five years (60 months) for the excess demand effects to fully dissipate.   Over  that time, on this model, immigration will be exacerbating aggregate labour market pressures, not relieving them.

I don’t want to put too much weight on any particular model estimates, and the Reserve Bank itself has tried to back away from this particular one.   What causes the change in immigration matters to some extent.     But the general conclusion –  immigration does not ease resource pressures –  shouldn’t be controversial.  Indeed, only a few months ago some IMF modelling on New Zealand’s experience again produced similar results.

None of this should be a surprise (including to economically literate officials advising ministers).  As I noted earlier there are two strands through which immigrants add to demand.  The first is consumption.  The household savings rate in New Zealand is roughly zero: on average, people consume what they earn.   Perhaps the typical (or marginal) migrant is different –  some will be sending remittances back to their homelands –  but even if we assume that new immigrants have hugely different behaviour than New Zealanders, perhaps consuming equal to only 80 per cent of income, it is still a significant boost to demand.  In effect, much of what the immigrants produce will be consumed by them (not exactly the same stuff, but across the economy as a whole).  That is no criticism of them –  people do what people do –  but it is the first leg in the story about why claims that immigration eases labour shortages are typically simply false.

But the much more important part of the story is the capital requirements that new people (migrants or natives) generate.     Here Statistics New Zealand’s capital stock data can help us.     The latest estimates of the net capital stock (ie net, as in depreciated, and excluding land) are around $750 billion.   Total GDP is around $250 billion.   That ratio of net capital stock to GDP has been pretty stable around 3 for decades.

cap stock to GDP

Each dollar of additional GDP seems to require three dollars of new capital.    And this ratio understates the issue for two reasons:

  • the first is that the capital stock is a net (depreciated) figure and the GDP is gross (it includes capital spending to cover depreciation  –  around 15 per cent of GDP), and
  • the second is that our focus is here on the contribution of labour.    The ratio of the net capital stock to compensation of employees (the national accounts measure of total labour earnings) is almost 7.

These are average numbers of course, and in discussing immigration the focus should be on the margin.    It might be reasonable to point out that the typical migrant won’t need much more government capital in the short-term (eg schools and hospitals)  –  but then central government makes up only around a sixth of the total capital stock.  Perhaps the typical migrant, at least their early years, will settle for less good quality housing than the typical native?   But on the other hand, the productivity of the typical migrant is also likely to be lower than the national average, again at least in the early years (MBIE’s own labour market research highlights how long it takes many migrants to reach the earnings of similarly qualified locals).   So I’m not here to give you a definitive number for how much new capital spending is typically going to be associated with each new migrant, but it will be large.  It will be a significant multiple of the first year’s labour supply of the typical new migrant.  It will, in other words, for several years exacerbate any aggregate shortages of labour, not relieve them.

Of course, quite a bit of physical capital is imported.  All those earlier estimates already, explicitly or implicitly, take those imports into account.  SNZ’s input-output tables suggest that across capital formation as a whole the import component isn’t high –  around 21 per cent in 2013.  That shouldn’t be surprising.  Buildings make more than half the physical capital stock, and although they have some imported components, there is a great deal of domestic labour (and domestically produced timber and concrete).  Accommodating more people simply adds greatly to the demand for employment over the first few years after they arrive.

Commentators and politicians who argue that migrants don’t take jobs away from New Zealanders are largely correct  (again, past modelling exercises confirm that sort of intuition).  They don’t do so –  and they don’t succeed in lowering aggregate wages –  precisely because influxes of immigration (or unexpected reductions in the net outflow of New Zealanders) add to demand –  for goods and services, but thus for labour –  more than they add to supply.    There are probably some sector-specific adverse wage effects –  in sectors where immigrant labour has been made particularly readily available –  but much the bigger determinant of overall real wage prospects in New Zealand is productivity growth.  Sadly, our record on that score over many decades has been poor. Over the last five years it has been shocking –  no labour productivity growth at all.    That, in turn, may be in part because of the effects of rapid population growth –  all that spending associated with more people crowding out (notably through a high exchange rate) activities that might have offered more productivity growth prospects.    Despite the political rhetoric to the contrary, there is no surprise that more people create more jobs –  always have, probably always will.  But there is also no surprise that as it was decades ago, is now, and probably ever will be, increased immigration doesn’t ease overall labour market pressures.

So too much of the New Zealand debate is simply misplaced.  If we want to deal with domestic unemployment, as we should, look to monetary policy (it was a point Frank Holmes made 50 years ago). In the current context, hire a Governor who will take seriously the ambition of non-inflationary full employment.  If there are sectoral market pressures, let wages in those sectors adjust –  that is what happens to tomato prices when tomatoes are in short supply.   And if we were serious about wanting sustained productivity growth –  as we should be –  it increasingly looks as though much lower levels of non-citizen migration would be the way to go.

On our woeful productivity performance, even the Reserve Bank is starting to openly recognise the issue.  This chart (using their estimate of TFP) was in the chief economist’s speech this morning

Figure 3: Potential GDP Growth

Figure 3: Potential GDP Growth

Source: RBNZ estimates.

Little investment –  as the Deputy Governor noted in his speech last week –  and almost no productivity growth, and simply lots and lots more people.  To what end –  beneficial to the average New Zealander –  one might reasonably wonder?

 

Immigrants and the right to vote

Michael Reddell Immigration, Uncategorized

I’ve been reading Fair Borders?: Migration Policy in the Twenty-First Century, recently released by Bridget Williams Books in their BWB Texts series.  It is a collection of nine fairly short chapters by New Zealand authors on various aspects related (more or less loosely) to immigration policy.  Being from the BWB stable, it is a pretty left-liberal collection.   I’m hesitant about recommending it, as many of the chapters don’t offer much insight or analysis, but (a) there isn’t much being written in New Zealand on immigration policy, (b) it is pretty cheap ($14.95 from memory) and (c) the publisher (in the cover blurb) does recognise that the interests of actual or potential new migrants and the interests of New Zealanders aren’t necessarily the same.

I will come back another day to the chapter by a young economist who has recently completed a PhD on “the macroeconomic effects of immigration” at Cornell.  But today I wanted to focus on the one chapter that really caught my attention, by Kate McMillan, a senior lecturer in politics at Victoria.  Her chapter bears the title “Fairness and the borders around political community”, and isn’t really about immigration, per se, at all.   Rather she focuses on something I’d never known before, that New Zealand is very unusual internationally in when we allow new arrivals to vote.

Only five countries in the world have provisions allowing resident non-citizens to vote: Malawi, Chile, Ecuador and Uruguay –  none known these days for taking many immigrants –  and New Zealand.   In most countries, only citizens get the right to vote in national elections (there is a much wider range of rules for local elections in many countries).  The United Kingdom also allows residents who are citizens of the Republic of Ireland or “qualifying” citizens of Commonwealth countries to vote in parliamentary elections, but there is no general entitlement for non-citizens residents (including those from EU countries other than Ireland).

New Zealand’s rules seem to have evolved from something very like the British system.  Until 1975, “the right to vote in New Zealand local and national elections was granted only to British subject adults who had been resident in New Zealand for at least a year”, and similar provisions had been in place in Canada and Australia.  McMillan reports that Canada and Australia at around this time shifted to a citizenship-based voting rights model, the same choice that had been made by most new states as they decolonised in the post-war decades (Malawi presumably being the exception).

New Zealand made a different choice.   We dropped the “British subject status” requirement, and opened the franchise to any permanent resident who had been resident here for a year or more.  And, as McMillan points out, in the Electoral Act “permanent resident” doesn’t mean what it means in the immigration administration.   To become a permanent resident under that system, you need to have been on a resident visa first for two years.  But in the Electoral Act, anyone on a visa without an expiry date counts as a permanent resident.   In principle –  although it won’t be common –  someone could have arrived on 22 September last year, and be voting on 23 September this year.  The same provisions apply to Australian citizens living here (a year’s residence suffices to get the right to vote).

McMillan highlights further how unusual our voting rights rules are.  In those other four countries that allow non-citizen residents to vote in national elections all require residents to have lived in the country for at least as long as they would have to have lived there to be entitled to take out citizenship before they are allowed to vote.  (Unless you are Peter Thiel or Gabs Makhlouf), people have to spend five years here before they are entitled to apply for citizenship.  But new arrivals can vote when they’ve been here for only a year, even if they have no real intention of staying.

That doesn’t seem right to me.    It is certainly a long way out of step with international practice, including in the democratic societies we typically compare ourselves to.  To be clear, McMillan herself does not favour material changes in the rules, although she does suggest bringing the Electoral Act’s definition of “permanent resident” into line with that in the Immigration Act (which would increase the practical residence requirement from one year to two).   She suggests this change for administrative clarity (including for migrants and others on just who is entitled to enrol/vote) and because ‘the current one-year residency rules leave too much room for populist opposition”.  That seems an odd argument both because (a) her own chapter highlights just how out of step with international practice the New Zealand rules are (even compared to liberal beacons like Sweden, Canada, or Norway), and (b) because it isn’t at all clear why a shift from a one year to a two year residence requirement would satisfy the dreaded “populists”.     In almost all countries, non-citizens can’t vote in national elections at all.

A change along those lines would be a big step for New Zealand. But in a sense it would be a step away from our colonial past.   The very liberal franchise provisions are clearly a legacy of the days when (a) almost all our migrants were British, and (b) when there was only a hazy line drawn between Britain and New Zealand (or Canada and Australia) –  there wasn’t a separate New Zealand citizenship until 1948.    These days we are our own country, and it seems right that only those who have made the step of becoming citizens of this country should be able to vote, and thus directly influence how we are governed.   It isn’t an argument about immigration numbers at all.  And if and when immigrants (in large or small numbers) become citizens they should, of course, be free to vote.

There are counter-arguments, of course,  One relates to paying taxes.  If one pays taxes in a country, shouldn’t one be able to vote there?  I don’t think so.  I’ve lived and worked in three other countries, and it never once occurred to me that I should get a say in their future.  It was their country –  the citizens of those countries –  not mine.    Clearly, almost every other country in the world takes the same view –  and the handful of others who don’t also don’t receive very many new people anyway.

Taking up citizenship is an act of commitment.  It means different things to different people of course.  When the 1975 rule change was made, there was a concern about not putting pressure on people to become citizens who might have been here for decades, and barely recognised a difference between British and New Zealand citizenship (McMillan quotes from Hansard a speech by then backbench MP Michael Bassett).  Perhaps that was an argument that had some validity 40 years ago  (I don’t find it very persuasive even then, as existing rights could readily have been grandfathered, imposing a citizenship-based franchise for anyone arriving after the law was changed).     These days, it seems a very weak argument.  If you aren’t prepared to go to the modest effort of becoming a citizen, and swearing allegiance to New Zealand and its sovereign, we might be quite happy to let you live here permamently, but why should you get a say in how this country is run or governed?  You’ve chosen to remain at arms-length from us.

As McMillan reports, the select committee that considered the 1975 legislation (a) amended the initial government proposal to allow only citizens to stand for Parliament, and (b) recommended “that the issue of franchise rights be considered again the following year and that some thought be given then to whether citizenship might be the appropriate measure”.    There seems a lot of merit in an argument that if you can vote you should be able to stand for Parliament, and I don’t expect there would be many supporters for removing the requirement that only citizens can be MPs.    McMillan and a colleague sum up the 1975 changes as a product of “interplay between idealism and pragmatism, theoretically informed and ad hoc decision making, and quick-fix measures that, whether by accident or design, became a permanent and extraordinary feature of the New Zealand constitutional landscape”.   It is a quick-fix that is now well overdue for reform.

How important is the issue?   In numerical terms perhaps not too large.  As McMillan notes, the proportion of newly-eligible non-citizens who vote in the first election they are eligible for is relatively modest, and the number of new residence visas granted each year is just under one per cent of the existing population.   Most of them will be eligible for citizenship two elections afterwards.   Perhaps in some constitutency seats it might be a bit more of an issue, but the overall composition of Parliament is largely determined by the nationwide party vote.

I think it is more about taking New Zealand citizenship rather more seriously than we seem to.   Whether it is abuses like the grant to citizenship to Peter Thiel (nine days in the country and no intention of ever living here), or allowing full voting rights to people who’ve been here for as little as a year, and may have no intention of staying, we seem to treat too lightly membership of this polity.    Some of that is about our colonial history, but Canada and Australia had similar histories and they’ve moved their franchise provisions back into the international mainstream.  Perhaps part of it is the sheer numbers of New Zealanders who’ve left permanently?   Whatever the reason, reforming the voting rights provisions, to a citizenship basis – and perhaps something like five years residence for local body elections –  would seem to make sense.  I’d be comfortable with protecting existing voting rights for anyone who has lived here for more than, say, 10 years, but for anyone else, if they want a say in the government of this country, first make the step of becoming a citizen of this country.

On another topic, many readers will be aware of Radio New Zealand’s new podcast series on immigration which started last week.   I was one of the many people they interviewed as part of putting the series together.   The series is presented by an immigrant (non-citizen) and is sponsored by Massey University and so, as you might expect, the overall tone is pretty favourable to New Zealand immigration.  And there is a slightly de haut en bas tone to it all.   Having said that, it is a fairly serious-minded attempt to look at a wider range of perspectives on the New Zealand experience than one often finds.  It called to mind the line Boswell recorded in his 18th century life of Samuel Johnson

I told him I had been that morning at a meeting of the people called Quakers, where I had heard a woman preach. Johnson: “Sir, a woman’s preaching is like a dog’s walking on his hind legs. It is not done well; but you are surprised to find it done at all.”

For anyone interested in the subject, you could do worse than download the series as it released over the next few weeks.

New Zealand First’s immigration policies

Michael Reddell Immigration, NZ First, Uncategorized

I was briefly half-encouraged when I heard that Metiria Turei had been attacking New Zealand First for having “racist” immigration policies.  Mostly it seemed like a further rather depressing attempt to suggest that any serious debate about New Zealand’s unusually large and ambitious immigration policy was illegitimate, all the while trying to look like the Greens were taking the high moral ground, even as their co-leader actually descended into mud-slinging and name-calling herself.   But….there was the hint there that perhaps New Zealand First actually had some distinctive immigration policies.  The last time I’d looked on the NZ First website what was notable mostly was how little material there was on immigration policy, and how few significant policy proposals.

But, no.    When I checked again yesterday, there still wasn’t much there.    From listening to Winston Peters over the years, or even just listening to the reaction to him, you might have supposed New Zealand First had some far-reaching and specific proposals that would change the face of immigration policy in New Zealand.  Instead what you find is this.

New Zealand First is committed to a rigorous and strictly applied immigration policy that serves New Zealand’s interests. Immigration should not be used as a source of cheap labour to undermine New Zealanders’ pay and conditions.

There have been numerous instances of administrative failure to apply immigration rules and standards.

New Zealand First will strengthen Immigration New Zealand to give it the capacity to apply immigration policy effectively.

New Zealand First will:

  • Make sure that Kiwi workers are at the front of the job queue.
  • Ensure that immigration policy is based on New Zealand’s interests and the main focus is on meeting critical skills gaps
  • Ensure family reunion members are strictly controlled and capped and there is fairness across all nationalities.
  • Ensure that there is effective labour market testing to ensure New Zealanders have first call on New Zealand jobs.
  • Introduce a cap on the number of older immigrants because of the impact on health and other services.
  • Make sure effective measures are put in place to stop the exploitation of migrant workers with respect to wages, safety and work conditions.  In Christchurch and elsewhere there is evidence of exploitation of migrant workers.
  • Develop strategies to encourage the regional dispersion of immigration to places other than Auckland. Auckland’s infrastructure is overloaded.
  • Remove the ability to purchase a pre-paid English lesson voucher to bypass the minimum English entry requirements.

And that is it.   I’m guessing that no one (or at least no political party) is going to disagree with anything in the first three mini-paragraphs.    But if no one is going to disagree, those words aren’t saying much either.

What about the specifics?   Everyone is going to sign on for avoiding the exploitation of migrant workers, even if reasonable people might differ on quite where the line would be drawn.  Even the current government took some steps in response to the Christchurch evidence.

The current labour market testing system may, or not, be working well, but on paper there are requirements in place that are supposed to prioritise potential New Zealand workers (three of the eight NZF bullet points).  Again, no one much  –  perhaps not even ACT or the New Zealand Initiative –  is going to disagree with the general goal, and nothing New Zealand First says here is very specific.  It all seems pretty mainstream stuff –  probably putting too much faith in the capabilities of MBIE for my own tastes.

New Zealand First wants to cap family union entry, and also cap the number of older people getting residence visas.  But again, how different is that to current policy, where applications for parent visas are currently suspended altogether?    Perhaps New Zealand First wants to go further in that direction than most, but it hardly has the ring of something very dramatically different.

And in calling for a larger proportion of migrants to be encouraged to places other than Auckland, NZ First seems quite consistent with the government’s policy of offering additional points for people with job offers in the regions.  And Labour want to allow regions to develop their own priority occupation lists.  Personally, I think all three are daft, and simply tend to lower further the average quality of the immigrants we get, but (sadly) there is nothing out of the mainstream in the direction NZ First seems to be proposing.

And that leaves the final bullet about English language requirements.  Without knowing anything much about it, on paper what NZ First is proposing looks reasonable enough (if we are going to have English language requirements, a prepaid voucher for a course one may never bother attending doesn’t look like much of a substitute.    But it is a level of detail that hardly seems likely to divide parties deeply.

And quite what qualifies as “racist” there –  and Turei was explicitly talking about “policies” –  is beyond me.  Except of course that she and her co-leader (the latter in his speech last week) seem determined to insist that no legitimate discussion or debate is possible about New Zealand’s unusually large immigration policy –  unless, of course, they are proposing things, in which case presumably we can all be assured of their virtue and rectitude.

What is more striking is that, for all the speeches and interviews, there is nothing in that New Zealand First list that would make any very material difference to the expected net inflow of non-citizens.   In particular, there is nothing at all about the overall level of residence approvals.  Reading this list, NZ First appears to be comfortable with a residence approvals target of around 45000 per annum (three times, per capita, the US rate of approvals), and it is the number of residence approvals that will, over time, determine the contribution of immigration to population growth, pressure on resources or whatever.     There is also nothing at all on provisions around international students, nothing about working holiday visas, and nothing specific on temporary work visas.

If one took this page of policy seriously, one could vote for NZ First safe in the expectation that nothing very much would change at all about the broad direction, or scale, of our immigration policy.     Of course, there would be precedent for that.  The last times New Zealand First was part of a government, nothing happened about immigration either.

Perhaps there is still some major announcement with some more substantive policy specifics still to come.  I see that the New Zealand First conference is being held this coming weekend.    Perhaps that will be the occasion.   But at present, there is very little there, and most of what there is isn’t a million miles from where the other parties –  including the government –  seem to have been.

The Greens on immigration: taking the low road

Michael Reddell Greens, Immigration, Uncategorized

Earlier this week various media outlets were carrying reports of a new speech on immigration from Green Party co-leader James Shaw.  In both Stuff and the Herald,  articles were headed “Green Party apologises for anti-immigration pandering.   To be fair to Shaw, that wasn’t quite what he said.

A year or so ago, the Greens came out with a new policy on immigration.    The aim was to produce annual population growth of around 1 per cent, and they would adjust immigration policy settings (in light of changes in rates of natural increase or of the comings and goings of New Zealanders) to meet such a target.   At the time they talked a lot about the pressure points that really big net migration inflows caused.   Shaw told Radio New Zealand

“We know that immigration is becoming more of a concern for people and in my experience the vast majority of people aren’t concerned about immigrants, they’re concerned about the impact on house prices, and infrastructure.”

They seemed mostly to be about stabilising population growth pressures, rather than reducing average net immigration very much at all.   After all, average annual population growth in New Zealand in the 20 years prior to the current immigration surge was 1.1 per cent, and rates of natural increase are slowing.

But whatever their intentions, I think everyone who thought about the issue at all seriously, concluded that their policy was unworkable, mostly because of the big –  and not readily forecastable –  fluctuations in the comings and goings of New Zealanders.  I wrote about it at the time

In a sense the fatal conceit in the Greens new policy is the idea that New Zealand’s population growth rate can be held stable from year to year.  While New Zealanders are fairly free to move –  or not –  to the much larger Australian economy in response to changes in relative economic opportunities –  and while New Zealand incomes are so much lower than those in Australia –  we will almost inevitably have the sorts of swings in the net outflow of citizens I showed in the first chart above.  Trying to manage the inflow of non-New Zealanders year by year to offset those fluctuations would be (a) impossible, and (b) something of a fool’s errand even to try.

Others pro-immigration people have made the some point about the unworkability of the scheme.

So in that respect it is good that the specific formulation of a target has been dropped.  If they were serious about a population policy –  and I think they are the only party to have one –  they could have rephrased it to aim to produce average population growth of around 1 per cent per annum on, saying, a five year forward looking basis.    That would have been less unworkable.  But, instead, the numerical target has gone altogether.

From the tone and content of Shaw’s latest speech there must have been a huge backlash in some quarters against the party leadership, and probably Shaw in particular, over last year’s proposed policy.

Last year I made an attempt to try and shift the terms of the debate away from the rhetoric and more towards a more evidence-based approach.
We commissioned some research which indicated that immigration settings would be best if tied to population growth.
Unfortunately, by talking about data and numbers, rather than about values, I made things worse.
Because the background terms of the debate are now so dominated by anti-immigrant rhetoric, when I dived into numbers and data, a lot of people interpreted that as pandering to the rhetoric, rather than trying to elevate the debate and pull it in a different direction.
We were mortified by that

I guess I’m not a Green supporter, but much of this just looks unrecognisable.  Go back and look at the mainstream media coverage, and no one then seemed to think he was “pandering”.   It looked at the time like a serious attempt (apparently backed by some commissioned research) to grapple with some pressing issues –  especially around housing and transport –  and if the solution he came up with wasn’t very workable (and probably should have had a lot more internal stress-testing before it was released for public consumption), it was a serious attempt.  It didn’t blame migrants for New Zealand policy failures, it simply recognised that very rapid population growth can create stresses for us all.   As Shaw noted then

Mr Shaw said the aim of the policy was for better planning, and less hostility towards immigrants.
“The debate around immigration is kind of being captured by those voices who are just simply anti-immigrant, and we really want to make sure that doesn’t happen.

It all seemed pretty calm and rational (even if unworkable).   In fact, at the time so calm and rational that Shaw could even use the (relatively) moderate “anti-immigrant” to describe those who wanted to pull back more significantly on immigration.

There is none of that calm moderation in this week’s speech.    In a speech of only 1350 words, “xenophobia” appears four times, and “scapegoating” three times (admittedly “racism” gets in only once).    People who disagree with the Greens’ stance are, apparently, characterised by such evils.  And on the other hand, the Greens are the party of love

I’m proud to lead a party that stands for the politics of love and inclusion, not hate and fear

and

Openness, inclusiveness and tolerance must win out over racism and scapegoating and xenophobia.   Love and inclusion must win out over hate and fear.

If that isn’t pandering, I’m not sure what is.  And all the while attempting to secure the high moral ground.   Thus

We in the Greens are deeply concerned that the debate about immigration policy in New Zealand has, over the course of time, come to be dominated by populist politicians preaching a xenophobic message in order to gain political advantage.

This ugly strain of political discourse is quieter at times of low net migration into New Zealand, but rises at times of when net migration is high – as it is now, and so, at this election, sadly, the xenophobic drum is beating louder.

“Xenophobia” is one of the favoured words of the groups –  whether from the right or the left –  in our society who favour a continuation of our unusually large-scale immigration policies.

My Oxford dictionary defines xenophobia as a “morbid dread or dislike of foreigners”.   I’d challenge Mr Shaw, or others in the media and lobby groups who like to the fling around the word –  or cognates like “fear” (widely used in this year’s New Zealand Initiative report) – as if the only basis for questioning New Zealand’s immigration policy can be something irrational, to produce some evidence for their claims.    I presume Shaw isn’t wanting to apply this description (“xenophobia”) to his Labour Party allies who recently came out with some proposals designed to reduce the net inflow of migrants (at least temporarily), using much the same sort of arguments Shaw himself was articulating, calmly and reasonably, only last year.  No doubt he intend his comments to apply to Winston Peters –  also the avowed target of the New Zealand Initiative’s report.   I’m no fan of Peters, but I’ve read various of his speeches over the years, and listened to him in interviews, and the “morbid dread of foreigners” seems to bear no relationship at all to what Peters is saying.    Do the Greens recognise any legitimate reasons for being sceptical about the merits of the large scale non-citizen immigration programmes New Zealand runs?

“Scapegoating” is one of Shaw’s other favourite words.   Here, there was a section in Shaw’s speech that I totally agreed with

Migrants are not to blame for the social and economic ills of this country.
Migrants are not to blame for the housing crisis.
Migrants are not to blame for our children who go to school hungry.
Migrants are not to blame for the long hospital waitlists.
Migrants are not to blame for our degraded rivers.
It is the government’s failure

But again, is anyone engaged in the public debate saying anything different?   I was flattered to be described recently by the New Zealand Initiative as “New Zealand’s most articulate critic of immigration”.  I’ve said repeatedly that migrants are just doing what all of us probably seek to do –  pursuing the best opportunities for ourselves and our children.  The problem isn’t the individuals, it is the policy choices governments make.  Again, is anyone who is critical of current immigration policy saying anything different?

Shaw seems to have abandoned what he described as

an attempt to try and shift the terms of the debate away from the rhetoric and more towards a more evidence-based approach.

and tried to cover his own poor specific policy proposal last year, by adopting instead the politics of the slur.   And all while pretending to claim the high moral ground.   Perhaps naively, I’d always thought the Greens –  much as I disagree with them on most things –  were better than that.

As it is, we are now left unclear what the Green Party’s immigration policy really amounts to.  To their credit, there is a 10 page densely-typed immigration policy document on their website, but neither it nor the two page summary give us much clarity at all.

They begin

We support an appropriate and sustainable flow of migrants

Which differentiates them from who how?   “Appropriate” is one of those words bureaucrats use when they don’t want to be specific.

And among their three ‘key principles’

Maintain a sustainable net immigration flow to limit effects on our environment, society and culture.

Surely any possible worries about the impact on “society” or “culture” could only stem from “xenophobia”?  Or is that only when other people make such arguments?

There are strange observations such as

Only make decisions to use immigration as an instrument of economic policy openly by an Act of Parliament

I don’t really disagree, but…..immigration policy operates under the Immigration Act, passed and amended by Parliament.  And among the purposes listed in that Act is

contributing to the New Zealand workforce through facilitating access to skills and labour

The Immigration Act, at least in its modern guises, has always been substantially an instrument of economic policy.

There is lots of detail on various aspects of the policy, but no sense at all as to how many permanent non-citizen migrants we should be seeking to take each year.  We know they are keen to take more refugees, but it isn’t even clear whether that increased intake would be in addition to the total number of non-citizens we take in each year at present, or whether additional refugees would replace some others.

On voluntary migrants they say

an open immigration policy would be unmanageable, and it is the Government’s duty to ensure that voluntary immigration is managed in the national interest. Although ‘national interest’ can mean different things to different people, the definition that has informed our national immigration policy for many years is that we should accept people who will bring skills, capital, or other desirable attributes with them.

And they have a view on the types of skills which should be favoured

Give priority in the skilled migrant category to skills needed for a sustainable society and economy, such as scientists, engineers and other trades with specialised skills applicable to fields including — but not limited to — organic farming, biodegradable materials, recycling, and renewable energy and fuels.

But there is nothing, at all, as to whether current target levels (around 45000 per annum residence approvals) is too high, too low, or about right.

Not even their general stance towards the environment gives much clue.   In discussing “yearly immigration quotas” they say we need

an assessment of the ability of our environment to cope with population increases, taking into account changes in energy use and other behavioural and infrastructural factors;

but they also talk in the same breath of

the need to have spare environmental, social and cultural ecological capacity to accommodate potential returning New Zealanders and people displaced by climate change

But what does it all mean?   You could mount a good argument, on environmental grounds, for a much lower annual target for new residents.   And the likely economic costs of meeting our climate change emissions commitments –  made more difficult by rapid increases in population – would just reinforce that, especially as the Greens are explicit that immigration policy needs to be managed for the interests of New Zealand, not the world.   But that doesn’t seem to be the Greens approach at all.

And then of course, there are the cultural dimensions.  Here is what they have to say

The Taonga of our people, and sites of historical, cultural, environmental, recreational, and general emotional significance for resident New Zealanders, should be protected from adverse impact as a result of immigration, and should not be seen as up for sale to wealthy newcomers. The Green Party will:

1. Take all reasonable steps to prevent immigration numbers, and the sale of land to rich immigrants, from having an adverse impact on Taonga.

But, again, what does it mean?   And why isn’t it what the Greens themselves would refer to as “xenophobia” if anyone else was raising the issues?

Perhaps one can only conclude that answering fairly basic questions like how many non-citizens we should take in each year, or even just what rationing devices we should use to decide which migrants to take, is altogether too hard.  That isn’t promising for a party that wants to be in government only a few months hence.

Reading Shaw’s speech the other day, I did notice this line

in fact, the Greens have the ambition of being the most migrant-friendly party in Parliament.

I did carefully note the potential distinction between “migrant-friendly” and “migration-friendly”, but when I first read the line I was struck by how similar it was to lines one sometimes sees from ACT.   David Seymour obviously thought so too, as he was soon out with a release casting doubt on the Greens’ claims in this area, and suggesting that ACT really was the most pro-immigration party.    Perhaps the Greens just want to be known as nice, while Seymour explicitly eschews niceness

We stand up for productive immigrants and the businesses that employ them, not because it feels nice, but because New Zealand needs immigrants

In fact, I suspect both parties have quite strong globalist leanings –  more so than a concern for the interests of existing New Zealanders –  but neither can quite bring themselves to consistently adopt such an approach.  Curiously, both also seem keen on values statement and the indoctrination of immigrants –  even if they probably couldn’t agree much about what ideas they’d indoctrinate the immigrants with.

If it weren’t for such leanings, it is hard to imagine the Greens –  vocal champions of clean rivers etc –  wouldn’t be much more strongly advancing an agenda that avoided government policy exacerbating population pressures on the environment.    Whether on economic grounds, or environmental grounds, the immigration programme we’ve run for at least the last 25 years (through all sorts of year to year swings in the overall net inflow or outflow) simply doesn’t look to have been working in the interests of New Zealanders as a whole.  If the Greens disagree, it would be good to see the argumentation and evidence.

 

 

 

Squeezing out business investment

Michael Reddell Immigration, New Zealand economic performance, Population, Uncategorized

I was up early this morning to talk to the breakfast meeting of a Rotary club about immigration and economic performance in a New Zealand context (similar points to my LEANZ address last week, but shorter and a bit simpler).  I hadn’t been to a Rotary meeting for decades, since going to the odd one as a teenager as my father’s guest, and somewhat alien as it was (altogether too extrovert for me, especially at 7am), it was also rather inspiring –  people working together to make a difference in their community; some of George H W Bush’s “thousand points of light”.

In the course of my talk, I’d made my standard point that in New Zealand rapid population growth seems to have contributed to crowding out business investment.   Whatever the reason, over the decades business investment as a share of GDP in New Zealand has averaged around the lower quartile of what has happened in OECD countries as a group.  Driving home I remembered that a couple of months ago I’d downloaded all the data to help illustrate some of the stylised facts that bothered me, but had never gotten round to using the resulting charts.

All else equal –  and it never is –  a country that has faster population growth would normally be expected to devote a higher share of current output to investment than countries with slower population growth.  That observation isn’t exactly rocket science.  More people need more houses, and roads, and shops, and offices, and schools, and hospital, and factories.   A country with no population growth at all could simply maintain its capital stock per person by devoting enough of current output to capital expenditure to cover depreciation.  (To be clear, in all this I am using national accounts measure of investment (“gross fixed capital formation”), which (largely) measures resources devoting to building new stuff.)

Houses make up the largest single component of the reproducible capital stock (and almost half the total in New Zealand at present –  note that this is houses, not the land under them).    And since everyone needs a roof over their head, and almost everyone does, you would expect to find a materially larger share of current output devoted to house-building in countries with faster population growth rates.   There is lots of short-term cyclical volatility in house-building activity, so it makes sense to look at average over a long enough period to look through cycles.

In this chart, I’m looking at the period from 1995 to 2014 and looking across OECD countries.  I chose the period because quite a few OECD countries –  especially former eastern bloc ones –  don’t have data before then, and when I downloaded the data a couple of months ago a few countries didn’t yet have 2015 data.    One year won’t materially alter the picture.

res I % of GDP

New Zealand is the red dot close to the line (above population growth of about 27 per cent).

The slope has the direction you’d expect –  faster population growth has meant a larger share of current GDP devoted to housebuilding –  and New Zealand’s experience, given our population growth, is about average.     But note how relatively flat the slope is.  On average, a country with zero population growth devoted about 4.2 per cent of GDP to housebuilding over this period, and one averaging 1.5 per cent population growth per annum would have devoted about 6 per cent GDP to housebuilding.    But building a typical house costs a lot more than a year’s average GDP (for the 2.7 people in an average dwelling).     In well-functioning house and urban land markets you’d expect a more steeply upward-sloping line –  and less upward pressure on house/land prices.    But that isn’t today’s point, which was simply that more people has indeed meant more residential investment.

But what about the business investment picture?  In the data, business investment is a residual –  calculated by taking total investment and subtracting housing investment and general government investment.  Again, all else equal, you would expect a country with a faster population growth rate to have devoted a larger share of current output to business investment.  Workers need “tools”, and if economies are going to maintain their trajectory of growth in income per capita, then the growth in the capital stock needs to at least keep pace with the number of workers.

(You might wonder why I look across countries, rather than just across time within individual countries.  There are two reasons.  First, in many countries there isn’t much variation in population growth rates.  And second, to the extent there is, reverse causation may well be at work –  a booming economy will tend to draw in more people. )

But here is what the cross-country chart looks like.

Bus I % of GDP

Again, New Zealand is the red dot near the line.

There is plenty of variation –  not every observation is close to the line –  but there is no sign at all of the expected upward slope.  If anything, the regression line is downwards –  the faster population growth was across these countries in this period, the smaller the average share of current output devoted to business investment.  The (non-housing) capital stock per person will have been growing materially more slowly in the average high populaton growth country than in the low population growth countries.    The countries with material falls in population were all former eastern-bloc countries, who might be thought to have lots of convergence (and investment) opportunities anyway.  But even if one deleted them from the chart entirely –  and recall that we too were supposed to have lots of convergence opportunities –  the regression line is still very slightly downward sloping (basically dead flat).

It is a chart that should be pretty troubling.    Even a modestly upward-sloping line would still be weaker than ones prior might lead one to expect.

Some readers with more of a background in formal economic research don’t like these scatter plots at all.  They rightly note that it captures just a relationship between two variables, and there is a lot of other stuff inevitably missing.  The relationship may be causal, but it might not be.    One protection against that risk is the use of long period averages for 30+ countries.    But, as importantly, scatter plots of this sort have to be taken together with the wider context –  other stuff we know.

For example, is there a plausible mechanism that might account for such a relationship?  Well, the notion of “crowding out” is a pretty well-established one in the economics literature.  When the government increases its expenditure, the typical result (in a reasonably fully employed economy) is for private sector spending to fall.  Higher interest rates and a higher exchange rate are part of the mechanism by which that happens.   Whether or not there is a full offset is debated, but no one seriously doubts the mechanism or the direction of the effect.    Investment spending tends to be more sensitive than consumption spending, with the exchange rate channel making tradables sector activity (sales and investment) particularly likely to respond.

Increased demands associated with faster population growth may well work in much the same way.   The summary, scatter plot, data certainly isn’t inconsistent with such a story.   In the New Zealand context, one of the stylised facts we have to grapple with is that our real interest rates have been persistently higher than those in other advanced countries, and our real exchange rate has fluctuated around persistently high levels.  (And when I restrict the business investment chart only to countries with floating exchange rates, the downward slope is still apparent.)

So I don’t find the scatter plot in isolation conclusive, but it is troubling nonetheless –  and should be for those who like to invoke the empirical estimates of large per capita income gains from immigration, again in a cross-country context.  How likely are such gains, if countries with relative fast population growth rates (almost all, on account of high immigration inflows) are also the countries that, on average, have relatively modest levels of business investment?  Firms invest to take advantage of the new opportunities that arise.

I’ve asserted that high levels of planned immigration have a disproportionate effect on investment in the tradables sector.  These aggregate data don’t shed any light on that split –  they are just total business investment.   But, at least in a New Zealand context, it makes sense that things will have worked that way.   Higher real interest rates than in other countries –  unmatched by faster productivity growth – will deter all long-lived investment here, regardless of sector.  But when the exchange rate is also boosted, firms considering new investment in the tradables sector are exposed to a double-whammy: highest cost of capital, and a less competitive position relative to foreign firms.   Domestic demand tends to be strong in countries with fast population growth, while international demand is something New Zealand firms just have to take as given.   As our export share of GDP hasn’t been growing –  if anything shrinking –  while those in most other OECD countries have, it seems reasonably likely that investment in theNew Zealand tradables sector has been much weaker than otherwise, and weaker than that in the non-tradables sectors.  That weakness in tradables investment is likely to affect both our natural resource based industries (deterring more capital intensive modes of production) and in the struggling (where unsubsidised) other parts of the tradables sector.

For many countries, population growth isn’t that materially influenced by national policy.   In the former eastern bloc countries, the fall in population is about natives leaving.  In some other countries, illegal immigration can be a big issue.  But in New Zealand –  and Australia –  policy makes a big difference.   We have full control over our borders, and let in lots of legal non-citizen migrants.   In New Zealand, in particular, it looks as though discretionary policy choices have worsened the business environment, and in particular skewing things against the prospects for strong investment by firms that could successfully take on the rest of the world.

(In case anyone is interested, somewhat to my surprise I discovered that there is also a downward-sloping regression line when one plots general government investment and population growth.   I’d expected to find that the government investment just happened anyway –  governments not being subject to market tests.  But over these countries in this period it didn’t.  If, optimistically, you think that government investment is a complement to private investment in improving economic performance, that should be particularly worrying.  Even if the lagging government investment is just about keeping up with the numbers of schools and hospitals (say) a higher population requires, it doesn’t exactly look like a mark of success –  whether in New Zealand, or across the OECD.)

 

Who has been getting residence visas?

Michael Reddell Immigration, Uncategorized

Someone called Keith Ng (who is apparently quite pro-immigration), has gone to the effort of downloading some of MBIE’s (not at all user-friendly) visa approvals data and formatting it in a reasonably readily usable way.  The resulting spreadsheet is here.   I was particularly interested in the analysis by occupation, and particularly that for those granted residence here.  (He has provided the data for work visas as well, but it conflates all sort of work visa types, short and long term, and isn’t that informative as it stands –  I suspect that 30000+ tour guide visas in the last seven years or so mostly captures a lot of people who are here for very short periods of time.)

In their annual Migration Trends and Outlook publication MBIE do provide a table of the occupations of the principal applicants for skilled migrant category residence visas.  But, unlike most of their tables, there is no time series provided.  In 2015/16 –  the latest publication –  these were the top 10 occupations.

Chef 860
Retail Manager (General) 675
Cafe or Restaurant Manager 598
Registered Nurse (Aged Care) 520
ICT Customer Support Officer 372
Software Engineer 323
Carpenter 281
Developer Programmer 267
Baker 213
ICT Support Technicians nec 206

I was a bit curious how many chefs there were in New Zealand in total.  At the last census, there were only 16218.

But Ng’s table enables one to easily look at the main occupations of people being granted residence over the last decade or so.  He presents the data for  each of the years 2006/7 to the present, with only partial data for the incomplete (June) year 2016/17.  Here are the occupations with more than 1000 approvals over the decade.

Occupations of approved residence visas applicants: 2006/07 to present
Chef 6729
Retail Manager (General) 3765
Registered Nurse (Aged Care) 3609
Cafe or Restaurant Manager 3585
ICT Customer Support Officer 1993
Software Engineer 1943
University Lecturer 1789
Secondary School Teacher 1656
ICT Support Technicians nec 1439
Registered Nurse (Medical) 1393
Developer Programmer 1338
Baker 1294
Carpenter 1214
Early Childhood (Pre-primary School) Teacher 1192
Accountant (General) 1191
Office Manager 1145
Motor Mechanic (General) 1080

And this is the most skilled half of the people who are granted residence (others get in on non-skilled bases –  family, refugees, Pacific Access etc).

The list is quite dominated by the first few entries, and those occupations don’t stand out as occupations of exceptional skill, even though MBIE used to like to tell us that our immigration policy was a “critical economic enabler”.    And remember that this is about people getting residence, not about work visas which, notionally at least, are supposed to partly reflect specific temporary areas of skills shortages (and, hence, where one might expect bunching in particular occupations, but where the particular occupation would change over time).

The large numbers of aged care nurses (and there are many more, and aged care workers, in the work visa numbers) stands in striking contrast to the recent pay equity settlement. In that settlement, the government concluded that employees in the sector were so badly paid that a direct government intervention was needed to drive up the wages.  I don’t usually focus much on the arguments about whether immigration lowers wages –  my focus is more on overall economic performance –  and I’m not (at all) a fan of “pay equity” interventions, but it is hard to look at these two things and not conclude that there is a certain incoherence about policy.   Had fewer aged care workers from abroad been granted visas, it seems likely that market wages in that sector would have been rather higher.

Of course, among the occupations on that list are some that seem genuinely quite highly-skilled.  My eye was caught by the number of university lecturers and “developer programmers”.

The number of developer programmers getting residence visas has increased from almost nothing, and at an even faster rate than the (presumably) rather less skilled ICT Customer Support Officers.

res approvals IT

On the other hand, rather fewer university lecturers (and secondary school teachers) have been getting residence.

res approvals teachers

How early childhood teachers qualify at all is a bit beyond me.

And just in case you, charitably, supposed that some of the less skilled occupations were becoming less important over time, here are the food-preparation ones on my list.

res approvals food

And here are the trends in the remaining top five roles

res approvals other

If there is a serious economic strategy behind all this, it is pretty hard to spot.  No wonder the government was casting around for other ideas when they ran into the Monahan brothers and came up with the global impact visas.  But just because something different needed to be done, didn’t make  “just anything” –  especially something with a rather hip or with-it feel to it –  a sensible thing to do.

The only really compelling story that makes much sense of the residence approvals numbers is official (political and bureaucratic) determination to drive up the population.  If that is the goal, I guess one can’t be very picky and we get a bunch of modestly-skilled people coming.  But there isn’t much sign that driving up the population has been a successful economic strategy anywhere –  unless, of course, one counts survival as a precondition, which partly motivates the Israeli policy of open doors to any Jews –  particularly not in places that remain heavily dependent on what they can do with fixed natural resources.    Sometimes rapid population growth can be a complement to economic success –  people will be keen to come and there might be plenty of prosperity to go round.  But New Zealand’s policy –  and Australia’s actually –  continues to put the cart before the horse, as if drawing more people here will somehow conjure up great new higher-productivity opportunities for them and for us.     But there is simply no basis –  and certainly not in New Zealand’s experience –  for such a belief.

 

 

 

Global impact visas

Michael Reddell Immigration

Almost two years ago, in July 2015, the government announced that it was planning to introduce a new visa class.

Mr Woodhouse says the Government is also considering a new Global Impact Visa to attract high-impact entrepreneurs, investors and start-up teams to launch global ventures from New Zealand.

At the time, I noted

The Global Impact Visa idea sounds superficially promising. But my impression from the Pathways Conference last week was that existing entrepreneur visa schemes had not worked particularly well.  It will be interesting to see the analysis behind this proposal, including an assessment of how the risks around it will be managed and overcome.  I remain a little sceptical of the attraction of New Zealand to “younger, highly talented, successful and well-connected entrepreneurs from places like Silicon Valley”.  The flow of people in that sector would seem more naturally to be in other direction.  I hope it is not an example of the old derogatory adage used about Britons working in Hong Kong:  FILTH  (“failed in London, try Hong Kong”).

But since then I’d paid no more attention to the Global Impact Visa, until my son pointed out a large article in last Saturday’s Dominion-Post.   And it seems that I had missed the first part of what was actually a two-part series on the new visa, and the role two wealthy young Americans appear to be playing in determining who gets these visas.

The second article is really focused on the new visa scheme itself.  It begins this way

They’re young, rich, Silicon Valley idealists who want to change the world from New Zealand. How did the Monahan brothers come to influence our immigration policy – and what’s in it for us? In part two of our series, we look at how the Americans convinced Immigration NZ they should be the ones to pick the best entrepreneurial brains to come here.

In it there is lots of high-profile publicity for Nigel Bickle, the public servant who runs the Immigration New Zealand division of MBIE.  Bickle was last noted on this blog after he appeared on Nigel Latta’s advocacy TV programme championing large scale immigration thus

Bickle  –  that “front-line service delivery expert” –  argues that we need lots of immigration because a country “can’t get wealthy trading with ourselves”.  There seemed to be quite a bit of confusion there.  Of course, small countries (in particular) need to trade internationally, but that tells one simply nothing about the case for (or against) large scale immigration.  As it happens, and as I’ve pointed out before, most countries –  and especially most countries of our sort of size (population) –  export and import a much larger per cent of their GDP than New Zealand does.

Under the Global Impact Visa scheme (approved by Cabinet as a four year pilot), up to 400 visas (plus spouses/partners and families) will be granted.   As MBIE puts it

The policy is designed to attract those with the drive and capability to launch global ventures from New Zealand who may not be able to qualify for other visa categories. They will have the combination of drive, risk appetite and global connections which enables them to launch or significantly contribute to successful innovation-based ventures in New Zealand.

After three years, whether the ventures work out or not, recipients of global impact visas will be able to apply for residence visas.

Legally, of course, only government agencies can grant visas.  But MBIE will be granting these visas only to people who are recommended by their private sector partner, the Edmund Hillary Fellowship  (EHF).  EHF is itself a joint venture, again as MBIE puts it

between the Hillary Institute for International Leadership, a not-for-profit organisation that identifies and celebrates mid-career leaders from around the world; and Kiwi Connect, an organisation promoting and connecting high-impact entrepreneurship in New Zealand.

It isn’t quite clear what a non-profit that “identifies and celebrate mid-career leaders from around the world” has to bring to either (a) New Zealand immigration policy, or (b) New Zealand policies around innovation and technology, especially when this particular programme seems to be mostly fairly oriented towards young people (“early in their wealth cycle”).  It looks a lot like they just offer access to the Hillary name.

As for KiwiConnect, it doesn’t really seem to exist any more.  Their website says

Kiwi Connect originally set out to be a bridge between New Zealand and the world for impact-driven talent to be able to engage with the NZ startup and business ecosystem. We have succeeded in that mission with the creation of the Edmund Hillary Fellowship, and consequently have put Kiwi Connect into hibernation to focus our team’s efforts 100% on delivering a world-class Fellowship programme.

You can read their burble, on their transition, here.

We also identified that the ecosystem growth wasn’t matched with the necessary level of global connectivity for New Zealand to be internationally competitive. This connectivity is important in turning size and distance from what has been a disadvantage in more traditional industries, to a new advantage for innovation.

Since founding Kiwi Connect, we have focused on filling the gap to connect New Zealand with world-class talent, impact capital, and cutting edge innovation, so that NZ can create a critical mass of entrepreneurial activity within a thriving ecosystem. We started with more questions than answers, facilitating multi-disciplinary, global conversations on what it will take for New Zealand to lead in innovation.

It is a certainly a novel proposition that distance and remoteness will not just be overcome, but might apparently be “a new advantage for innovation”.    One would hope MBIE rigorously evaluated that propostion.

Anyway, the Edmund Hillary Fellowship it now is.

The Edmund Hillary Fellowship (EHF) is a global platform that brings together the best of humankind’s creative potential and entrepreneurial spirit in New Zealand, to create a lasting positive impact for the world.

They are being paid quite a lot of public money ($4m) to get the global impact visa programme going and, according to their website, the first visa approvals are expected to be granted next month.

The Fellowship has a very useful set of FAQs on their website, which I’m drawing from here.

What is it?

The Edmund Hillary Fellowship (EHF) is an end-to-end programme that gives impact-driven entrepreneurs, investors and startup teams a platform to incubate positive impact ventures from Aotearoa New Zealand, and contribute towards a thriving innovation ecosystem in the country. EHF offers exclusive access to Immigration New Zealand’s new Global Impact Visa.

Who is it for?

EHF is for entrepreneurs and investors who are innovating in the industry or sector they operate within, with the ambition to build or support globally scalable ventures to solve significant challenges and influence the course of humanity. This programme is for individuals who align with our values, and who have the skills, capabilities, relentless drive and desire to leverage the unique opportunities New Zealand offers, and make game-changing impact on the world.

Which is where things start getting a little troubling.  Little old New Zealand, keen to develop its “innovation eco-system”, actually puts official weight and money behind a focus on influencing the “course of humanity” and drawing people who will “make game-changing impact on the world”.    If the Monahan brothers, or any else, want to pursue such dreams, I wouldn’t want to stop them –  I’m sure we could all think of ways in which the world could be a better place.  But this is almost “on another planet” stuff, with no sign in any of the published material as to how they think this might actually come to something, let alone offer something worthwhile for the citizens of New Zealand.

They go on

What are the personal qualities you are looking for in candidates?

Model Fellows are highly capable and motivated individuals who view the problems in the world as opportunities to significantly improve it. They are big-picture thinkers at the top of their game, who are able to unpack complex problems to understand all the angles, and come up with holistic solutions that connect the dots. They have unwavering passion, relentless drive, and the ability to execute with excellence. Edmund Hillary Fellows also take advantage of the unique opportunities that New Zealand offers.

Walking on water looks as though it might almost qualify one.   But one has to wonder whether even Bill Gates would have qualified.

After all, when asked about proposed “impact” they write

What do you mean by impact?

We define “impact” as solving problems of significance to humanity in a way that creates positive lasting economic, social and environmental value.

All three at once.  It is a tall order.  Did Microsoft or Google, let alone Facebook, create “economic, social, and environmental value”?

And it doesn’t seem very likely that any card-carrying conservative would qualify for this programme.  Perhaps you noted earlier that the Fellowship is looking for people who “align with our values”.    Here are their values.

The first marker of the left-liberal orientation is the repeated use of “Aotearoa New Zealand”.  It might be old-fashioned and conservative to make the point, but the country is actually called New Zealand.

Much of the rest is the sort of babble that probably appears on any agency’s “values statement”.  But these ones caught my eye from the longer list.

Simplicity inspires us.

We value collaboration over competition to help raise the tide for all.

We strive to act with care for people and land, and to improve intergenerational wellbeing through creativity and entrepreneurship.

Our work is not about us but about those we serve. We actively strive to be better versions of ourselves

and while they talk about how “We love challenging assumptions”  a bit further down the page we read that their person described as “Candidate Attraction Lead”

believes that startups will solve the world’s problems only when they represent the diversity of the world’s people.

Perhaps she is right –  although actually for the last few hundred years most really useful innovations have come from a handful of cultures and countries –  I suspect she might not welcome a candidate challenging that proposition.

And this stuff matters because it isn’t just about getting accepted into the Edmund Hillary Fellowship in the first place.  To get a residence visa, you have to stay on good terms with the programme for three years.   I suspect there are many people who could genuinely make quite a difference, who would struggle to put up with the globalist waffle, and what social pressure goes with it, for three years.    Being able to put on a good front looks a highly valuable skill in this context.

And if you don’t already get the sense of what part of the political spectrum these people are coming from, I refer you back to the first of those Dominion-Post articles.   Take their annual innovation festival held near Wellington.

Every February since 2014, an eclectic bunch of people from around the world have descended on Whitemans Valley, an easy 30-minute drive from downtown Wellington, for a week-long “eco-innovation” festival called New Frontiers, a kind of techie’s version of Nevada’s Burning Man.

Think yoga, yurts, giant domes, composting toilets, campfires, more yoga, drum circles, dancing, vegan food and talking – lots of talking.

Guests have included film director James Cameron, Immigration NZ head Nigel Bickle, Conservation Department director-general Lou Sanson, regional mayors, US digital artist Android Jones and dating site guru Eben Pagan, poets, painters and inventors, as well as curious locals. It’s either a beautiful gathering of like minded thinkers or a weird cult, depending on your point of view. “There’s some freaky looking punters down there camping out in their domes, doing yoga and singing Kumbaya to the moon,” one local says.

Mike O’Donnell, a tech investor formerly of TradeMe who attended last year’s festival, was impressed by the diverse range of people and open exchange of ideas.
“They’re kind of 21st Century cyber hippies,” he says. “It’s a little bit overwhelming, but it’s quite cool. It’s a combination of 60s values, together with sustainable business models, truckloads of vegetarian food and exotic fruit juices.”

and then of the sorts of view championed

Matthew [Monahan] nominates Charles Eisenstein, who has spoken at New Frontiers, as his favourite author. That’s instructive of the brothers’ world outlook – Eisenstein is known as a proponent of “degrowth”, a movement based on “ecological economics” that rejects consumerism and capitalism.

Brian [Monahnan] raps about building a culture “not based on commerce, but on kindness”.

The brothers gave $4m to set up their non-profit Namaste Foundation, which has gifted money to everything from Black Lives Matter to climate change groups.

The Monahans’ philosophy is, of course, the polar opposite of Trumpism.
​”I’m definitely not a Trump supporter,” Matthew says. “I think the environmental challenges we have ahead of us are real. They are really giant problems that require all hands on deck.”

Doesn’t give a strong sense of a place with the Edmund Hillary Fellowship for, say, the large number of Americans with a different take on the world, politics and so on.

And all this is even aside from the bigger challenges a programme of this sort faces.    Adverse selection, notably.  Groucho Marx once famously remarked that he wouldn’t care to join a club that would have him as a member.  Realistically, why should we think that anyone who applies for this programme, to come and live in relatively poor remote (albeit non-Trumpian) New Zealand, is really likely to be the sort of person who can build a business that would “change the world”?        Take just the other OECD countries: every single one of them (even Chile) is closer to “the world” (markets, suppliers, knowledge clusters etc) than we are.   Most put on a pretty good show of democracy and the rule of law.   Quite a few have English as their first language –  and, of those, all look more attractive places in most respects than New Zealand does, for such transformative businesses (even Trump will be gone in, at most, seven years and seven months).   There  are isolated areas in which our regulatory provisions may be world-leading, but looking across the range of policy settings, we don’t really stand out.    And, frankly,  clusters of industries –  be it in Silicon Valley in tech, or London in finance, or wherever, exist for a reason.  The economics of agglomeration are real.

And when even venture capitalists, with their own money on the line, expect that relatively few of their investments will really pay off, why should we suppose that the Edmund Hillary Fellowship will manage even that sort of performance?  Is there any reason to suppose that they will successfully identify any people who will really turn out to “change the world”, or even add much sustained value to New Zealand?  Where are the focused incentives?   Perhaps there is such a basis, but it isn’t clear what it is.

As I noted a couple of years ago when the programme was first mooted, it would be “interesting to see the analysis behind this proposal, including an assessment of how the risks around it will be managed and overcome”.    As it happens, the government pro-actively released the Cabinet paper from last April on the proposed new programme.

But there was very little there.  There was no Regulatory Impact Statement, and although there is lots of talk about the scheme could be scaled up even before the pilot finished if the programme is “more successful than foreseen”, there is not a single indicator or marker in the entire paper that would have given Ministers (or now us, as citizens) any basis for knowing what counts as success, let alone whether any actual success is more than was foreseen.

There is lots of detail about the programme –  and the choice between MBIE running something directly or going with a private sector partner –  but almost no supporting analysis of the substance.   In putting the paper forward, the Minister of Immigration never touches at all on the incentive or potential adverse selection issues and risks.  There is lots of talk of the Business Growth Agenda, and aspirations to have New Zealand as an “innovation hub” (whatever that is), but nothing at all robust or rigorous on what MBIE thinks holds us back.   There is also really nothing on how a handful of people, focused on “changing the world” are really likely to favourably affect the economic performance of New Zealand and New Zealanders, including (in their strange words),  meeting “the entrepreneurial needs of New Zealand”.   Apart from anything else, if the rare one succeeds, are they likely to stay?

One’s confidence isn’t greatly enhanced when the Dominion-Post reports that one of the first proposals (and remember EHF provided this to the Dominion-Post, so they presumably thought it was one of the leading propositions) was “research into legal innovations that might arise from the recent granting of “person” status to the Whanganui River”.  World-changing?  Productivity-enhancing?

As the Dominion-Post article notes, there is plenty of disquiet about some aspects of the scheme in the immigration community.  Some of that may just be sour grapes and business rivalries –  the Monahans got the ear of the government when the critics didn’t.

I don’t have anything against the Monahans, although their much-vaunted respect for all seemed to run into a roadblock when they bought into Whitemans Valley –  named for a pioneer 1840s farming family –  and thought it was both a terribly amusing and  unsettling name, and decided to refer to the place as Aroha Valley instead.  But it isn’t hard, reading the MBIE material and the EHF material, to conclude that a bunch of idealistic, probably well-intentioned, Americans, ran into a government that wanted to look like it was “doing something” innovative, and out popped a programme with little hard-headed rigorous analysis to back it, not that much prospect of success, but which was good for some feel-good headlines for a while (note that back in 2015 even my initial comment was guardedly positive).

On the government’s side it looks a lot like another play from the MBIE “smart active government” playbook, which very rarely (and not surprisingly) seems to come to anything much.   I dug out a few articles last night about assistance to Sovereign Yachts –  lauded by a then Minister for Economic Development.  And there was a Simon Collins Herald article from 2003 on the “benefits of a helping hand” from the government

Most spectacularly, support for business and regional development jumped from $14.2 million to $100.5 million.

In the year to last June, Industry NZ handed out $7 million to 89 companies to help “significant expansion”, did business appraisals for 252 firms and helped 38 of them raise capital.

It gave $1.5 million in total to 15 business incubators and brought together 22 “clusters” ranging from organics to software.

It put $10.4 million into regional strategies, including $2 million each for four big projects – a technology park at Hamilton, forestry training in Rotorua, food processing research in Napier and wine research in Marlborough.

It gave a $500,000 “guarantee of assistance” to the American company Jack Links to build a meat snack factory in Mangere, another $500,000 to US company Media Lab for a research centre in Wellington and $50,000 to Hit Lab, a joint venture between Washington and Canterbury Universities.

Trade NZ’s investment arm helped expatriate yacht-builder Allen Jones set up in Whangarei, and this year gave $1.5 million to computer giant EDS to install call centres and researchers in Auckland and Wellington.

Less successfully, Industry NZ and Technology NZ promised $1.6 million to the Ericsson-Synergy software joint venture which closed late last year, and helped Sovereign Yachts to get land at Hobsonville, only to see it lay off staff last February.

Meanwhile, our productivity performance remained as weak as ever, and our tradables sector has been under even more pressure.  Why, one wonders, should this latest clever-sounding programme be so much different?  Why, for example, are the incentives right?

 There is a real reluctance in MBIE, and apparently among Ministers, to believe in New Zealanders.  OECD data tells us that New Zealanders are, on average, among the most skilled people, including in problem-solving skills, in the OECD.  And so many New Zealanders do impressively well abroad.      But still the cargo cult mentality seems to hold sway.  Nigel Bickle –  service delivery expert, in charge of Immigration New Zealand –  provides the concluding quote to the Dominion-Post series.  Matthew Monahan is quoted thus:
“Probably the best summation is the kaupapa set by Nigel [Bickle] at the outset,” he says. “Go get the world’s best people New Zealand needs to prosper.”

Plenty of foreigners have done well in New Zealand, and no doubt will continue to do so.  But New Zealand has the people to prosper –  the skills, the drive, the energy –  as it did 100 years ago.  Successful countries mostly make their own success, from their own people, institutions and cultures.   It isn’t clear why Michael Woodhouse, Bill English, and –  for that matter –  Nigel Bickle seem to think the answer lies in people over the water.

 

Immigration and New Zealand’s economic performance

Michael Reddell Immigration, New Zealand economic performance, New Zealand Initiative

That was the subject of last night’s Law and Economics Association seminar.    Eric Crampton (from the New Zealand Initiative) and I each spoke, and a good discussion followed.    The LEANZ flyer captured the essence of our own different approaches

Our speakers have differing views on the subject:

According to Michael Reddell, for most of the last 70 years successive governments have promoted large scale inflows of non-New Zealand citizens. Through various channels, this helps explain why New Zealand has been the worst performing advanced country economy in the world over that time – before and after the 1980s economic reforms. Located on remote islands, in an age when personal connections are more important than ever, that performance is unlikely to improve much, whatever else we do, until the government gets out of the business of trying to drive up our population, against the revealed preferences and insights of New Zealanders. We can provide top-notch incomes here – as we did in the decades up to World War Two – but probably only for a modest number of people.

Eric Crampton on the other hand says: It’s easy to scapegoat immigrants for all of the world’s problems – and many do. Proving immigrants do any harm at all is substantially more difficult. The New Zealand Initiative’s 2017 report on immigration looked to the data on immigration and found it difficult to reconcile popular fears about immigration with the data. As best we are able to tell, immigrants have lower crime rates than native-born New Zealanders; the children of immigrants are more likely than Kiwis to pursue higher education; and, immigrants integrate remarkably well into New Zealand society. Arguments that immigrants are to blame for slow productivity growth in New Zealand are inconsistent with either the international evidence of the effects of immigration on wages, and with what New Zealand evidence exists. And where the benefits of agglomeration seem to be increasing, restricting immigration against the revealed preferences of migrants, of those selling or renting them houses, and of those employing them, is likely to do rather more harm than good.

Eric’s presentation (here) was largely based around the Initiative’s advocacy piece on immigration published earlier in the year, which I responded to in a series of posts (collected here).    The text that I spoke from was under the title Distance still matters hugely: an economist’s case for much-reduced non-citizen immigration to New Zealand.  We engage pretty amicably, and I’m still grateful for Eric’s post about this blog in its early days, in which he noted

Michael believes that too high[a rate] of immigration has been substantially detrimental for New Zealand, where I’m rather pro-immigration. But his is the anti-immigration case worth taking seriously.

But in many respects, we were probably talking about different aspects of the issues.   When he focused on New Zealand, the points Eric made mostly weren’t ones I disagreed with.  We have been relatively successful in integrating large numbers of migrants, and migrants to New Zealand have been more skilled than those to most other advanced OECD countries.  Migrants don’t commit crimes at higher rates than natives: if anything, given the prior screening, probably at lower rates.   We both agree that housing supply and land use laws need fixing – although I’m more pessimistic than he is, because I’ve not been able to find a single example of a place that has successfully unwound such a regulatory morass.  But much of his story seemed to be on the one hand an acknowledgement that there isn’t much specific New Zealand research on the economic impact of our immigration, and on the other an empassioned call for us therefore to simply follow the “international consensus” and international evidence on the issue, because he could see no reason why our situation would be different than that of other advanced countries.

By contrast, my presentation was really devoted to making the case –  grounded in New Zealand’s economic history and experience – that New Zealand’s situation (and Australia’s for that matter) really is different than that of most advanced countries.    Along the way, I suggested that the overseas evidence is less persuasive than it is often made out to be.   After discussing the 19th century migration experiences, where the economic literature is pretty clear that migration contributed to “factor price equalisation”  –  lowering wage growth in the land-rich settlement countries, and raising it in the European countries the migrants left –  I turned to the literature on the more recent experience.

There are two broad classes of empirical literature on the more-recent experience (in addition to the model-based papers in which the models in practice generate the results researchers calibrate them to produce):

  • Studies of how wages behave in different places within a country depending on the differing migration experiences of those places, and
  • Studies that attempt to estimate real GDP per capita (or productivity) effects from a multi-country sample.

There are lots of studies in the first category, and not many in the second.   And almost all are bedevilled by problems including the difficulty of attempting to identify genuinely independent changes in immigration (if a region is booming and that attracts lots of migrants, higher wages may be associated with higher immigration without being caused by it, and vice versa).

I’ve never found the wage studies very useful for the sorts of overall economic performance questions I’m mainly interested in.  Precisely because they are focused on different regions within a country, they take as given wider economic conditions in that country (including its interest rates and real exchange rates).  They can’t shed any very direct light on what happens at the level of an entire country – the level at which immigration policy is typically set –  at least if a country has its own interest rates.  I’ve argued, in a New Zealand context, that repeated large migration inflows tend to drive up real interest rates and exchange rates, crowding out business investment especially that in tradables sectors.    In the short-term, it is quite plausible that immigration will boost wages –  the short-term demand effects (building etc) exceed the supply effects –  but in the longer-term that same immigration may well hold back the overall rate of productivity growth for the country as a whole.

There really aren’t many cross-country empirical studies looking at the effects on real GDP per capita (let alone attempting to break out the effects on natives vs those on the immigrants themselves, or looking at superior measures such as NNI per capita).   Those that exist tend to produce what look like large positive effects.  So large in fact that they simply aren’t very plausible, at least if you come from a country that has actually experienced large scale migration.   In one recent IMF paper, discussed in their flagship World Economic Outlook last year, an increase in the migrant share of the population of around 1 percentage point appeared to boost per capita GDP by around 2 percentage points.   As I noted, if that were so it suggested that if 10 per cent of the French and British populations swapped countries – in which case the migrant share in each country would still be lower than those in NZ and Australia –  both countries could expect a huge lift in per capita GDP (perhaps 20 per cent).   Nordic countries could catch up with Norway in GDP per capita simply by swapping populations between, say, Denmark and Sweden.

And countries that were seeking to reverse decades of relative economic decline could reverse that performance by bringing in lots of migrants.  Except, of course, that that more or less described New Zealand.  Over the last 25 years we’ve had lots of policy-induced non-citizen immigration (and many of the migrants aren’t that lowly-skilled by international standards).  And we’ve made no progress catching up with the other advanced countries; in fact we’ve gone on having some of the lowest productivity growth anywhere.  As it happens, Israel –  with more migrants again than we had –  had similarly dismal productivity growth.

I could go on.  For example, a country like Ireland certainly experienced a huge surge in productivity, but it was half a decade before the real surge in immigration started.    And, the way the model is specified, the per capita GDP gains are sustained only if the migrant share of the population remains permanently high –  if the migrant share dropped back so would the level of GDP per capita.  None of it rings true.  It speaks of models that, with the best will in the world, are simply mis-specified, and haven’t at all captured the role of exogenous policy choices around immigration.

But the thrust of my story was that New Zealand (and Australia) were different because their prosperity has, since first settlement, rested substantially on the ability of smart people, with good institutions, to make the most of fixed natural resources.   And our prosperity still rests on those fixed natural resources –  whereas that is no longer the case in most advanced economies – because it seems to still be very hard for many successful international businesses to develop and mature based in New Zealand (or Australia) when based on other than location-specific natural resources.  Our services exports, for example, are still lower as a share of GDP than they were 15 years ago, and represent a small share of GDP by advanced country standards (even with subsidies to the film industry (direct) or the export education industry (indirect)).

Of course, really energetic and smart people –  NZers and immigrants –  will start businesses here that seek to tap global markets (often going straight to the world, not starting with the domestic market).  But experience suggests that for all those talents and ideas, it is (a) harder to base and build such businesses here than in many other places, and (b) even among those that succeed, in time most will be even more valuable and more successful based somewhere nearer the markets, supplier, knowledge networks etc.   Mostly, it looks as though remote places will successfully specialise in production of things that are location-specific.   Gold or oil are where they are.  They aren’t in London or San Francisco.  Or Auckland.   Much the same could no doubt be said for hydro power, or good dairy or sheep land.

Heavy reliance on fixed factors (land and associated resources) doesn’t doom a country to underperformance.  But it does mean that if your country’s population is going to grow faster than that in other countries that are much less reliant on fixed natural resources, one needs a faster rate of underlying productivity growth just to keep up with the income growth in other countries.  Either that, or new mineral discoveries (always there but not previously recognised).   We’ve managed neither.

Against this backdrop, I concluded

Specifically, now we need deep sustained cuts in our immigration programme.  I’ve argued for 10000 to 15000 residence approvals a year.  Doing that wouldn’t be terribly radical – we’d actually be putting ourselves more in the mainstream of international experience with immigration policy.  Doing so would allow a rebalancing of our economy, and help us to meet pressing environmental challenges,  in ways that would offer a credible promise of materially higher living standards for, say, 4.5 million New Zealanders.     After 25 years –  perhaps even 70  –  when things have just gotten worse for New Zealanders relative to their peers in other advanced countries,  it is past time to abandon the failed experiment  –  and radical experiment, not mainstream orthodoxy, it is –  of large scale non-citizen immigration.     A population growing as fast as ours is, driven up by government fiat when private choices are mostly running the other way (birth rates below replacements, net outflows of New Zealanders), in a location so remote, just doesn’t make a lot of sense.

In the discussion that followed, there was quite a lot of what seemed to me like wishful thinking, and a reluctance to accept the apparent limitations of our location.  I can understand that reluctance.  In the past I’ve been there myself – I’ve just this morning re-read the text I wrote some years ago for the 2025 Taskforce’s report on why distance was overstated as a constraint.   I think Eric and I both accept that, if anything, personal connections are becoming ever more important (certainly than say 100 years ago, and perhaps even than 30 years ago).  Perhaps one day, technology really will markedly ease those constraints  –  eg the possibilities that might arise from mooted six hour flights to San Francisco instead of twelve.   As I responded to a questioner, if those ideas about the death of distance were being articulated in 1990, when New Zealand was just opening up, I’d probably have found them plausible.  But we’ve seen no evidence of it being enough –  no acceleration in (relative) productivity growth, no surge in city-based exports, really no nothing.

Eric also suggested that reliance on natural resources was a dangerous strategy, because of the potential over future decades for things like meat-substitutes to develop.  They may well.  And perhaps Ukraine (say) will get its act together, and a remote agricultural producer will be at even more of a disadvantage.  I don’t have any expertise in those areas, but even if they are a possibility that we may have to face, so what?  If the advantages/industries that have made New Zealand relatively prosperous were to go into further decline, it would be even more worrisome (for future living standards) if our policymakers had gone out on a limb and imported even more people.    Because there is simply no evidence, despite all the hopes, and all the high-flown bureaucratic words, that an Auckland-based alternative economic future is coming to anything very promising.  Auckland’s GDP per capita isn’t much above the New Zealand average –  unlike the situation in places (think London or New York) where service-based international industries now predominate –  and that margin has been shrinking further.   When the economic opportunities in places go into relative decline people rationally leave those places.  It is the way things work within countries.  There is no particular reason for it to be any different between countries (see for example, the huge outflow of New Zealanders to Australia in the last 40 years or so).

I have sought to advance a narrative to explain as many as possible of the stylised facts of New Zealand’s underperformance, including

·        There is still no sign of any labour productivity convergence (if anything, on average, real GDP per hour worked is falling slowly further behind),

·        Total factor productivity is hard to measure, but on the measure there are we’ve kept on doing very badly there too,

·        We’ve had 25 years of the highest average real interest rates in the OECD  (which could be a good thing if we had lots of productivity growth, but we haven’t)

·        Not unrelatedly, even though our productivity has slipped behind over decades, our real exchange rate hasn’t adjusted downwards in the way that standard theory would teach,

·        We’ve had weak business investment (bottom quartile of OECD countries, even though population growth has been in the top quartile), even though we started with low levels of capital, and

·        We are still experiencing weak growth in exports (unlike most countries, we’ve seen no growth in exports/GDP for 25 years or more) and weak growth in the tradables sector of the economy (in per capita terms, no growth at all this century.

·        Among those exports, there is little sign of any sustained move beyond reliance on natural resource based exports.

·        Oh, and our one half-decent sized city, Auckland, has experienced declining GDP per capita, relative to the national average, over the 16 years for which we have the data.

Eric’s response last night was that there were many alternative narratives to explain our dismal long-term productivity performance.  But, in fact, whether in their full report earlier in the year, or in discussion last night, the Initiative hasn’t really sought to outline a credible alternative story.   In practice, any alternative seems to amount to “well, it would, or could well have been, worse without the large-scale immigration”.  Perhaps it could have been. but surely it would be helpful to offer a story about the channels through which those worse outcomes could have come about, and how those channels are consistent with the indicators we’ve actually seen?

I ended the text I spoke from with an appendix setting out the key elements of how I’d change our immigration policy.  Much of it will be more or less familiar to regular readers, but for the record here is the list.

Appendix

Some specifics of how I would overhaul New Zealand’s immigration policy:

  1. Cut the residence approvals planning range to an annual 10000 to 15000, perhaps phased in over two or three years
  2. Discontinue the various Pacific access categories that provide preferential access to residence approvals to people who would not otherwise qualify.
  3. Allow residence approvals for parents only where the New Zealand citizen children have purchased an insurance policy from a robust insurance company that will cover future superannuation, health and rest home costs.
  4. Amend the points system to:
    • Remove the additional points offered for jobs outside Auckland
    • Remove the additional points allowed for New Zealand academic qualifications
  5. Remove the existing rights of foreign students to work in New Zealand while studying here. An exception might be made for Masters or PhD students doing tutoring.
  6. Institute work visa provisions that are:
    • Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa).
    • Subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).

I argue that this sort of approach would take more seriously the constraints of location, and offer much better prospects for lifting the productivity and living standards of something like the existing population of New Zealanders.  Much of modern economics doesn’t pay much attention to fixed natural resources, and economics of location (at least in a cross-country sense).  That is understandable –  they aren’t the big issues for most other advanced countries (UK, USA, Belgium, Switzerland and so on).  What is less readily pardonable is the willingness of our own political leaders, and supporting bureaucrats, to give so little attention to those factors and what they mean for our prospects.  Firms, families, and societies all manage within constraints.  Our governments do so when it comes to managing their own financial accounts.  But otherwise, they seem free to just pretend that we are in a different situation than we are actually are, to persist with a modern Think Big that, decades on, still shows no sign of working out well for New Zealanders as a whole.   Quite why New Zealanders allow ourselves to be carried along, when the evidence is against it, is something of a mystery.

Emissions policy and immigration policy

Michael Reddell Immigration, New Zealand economic performance

A month or so ago I ran a couple of posts on New Zealand’s greenhouse gas emissions in international context.  Readers may recall that New Zealand now has the second highest emissions per unit of GDP of any OECD country, having moved up from sixth in 1990.

emissions per GDP

As part of the Paris climate change accord process, New Zealand has made ambitious promises to reduce its total emissions substantially.   This was the wording from the terms of reference for the new Productivity Commission inquiry into how best the economy might adjust given the climate targets

New Zealand has recently formalised its first Nationally Determined Contribution under the Paris Agreement to reduce its emissions by 30 percent below 2005 levels by 2030. The Paris Agreement envisages all countries taking progressively ambitious emissions reduction targets beyond 2030. Countries are invited to formulate and communicate long-term low emission development strategies before 2020. The Government has previously notified a target for a 50 per cent reduction in New Zealand greenhouse gas emissions from 1990 levels by 2050.

At present, total emissions are still above 1990 levels, not a common outcome for OECD countries.

One of the reasons for that is that we have had much faster population growth than most advanced countries.    Indeed, in their recent report on emissions etc, the Ministry for the Environment even listed population growth as first among the various constraints or challenges New Zealand faces.

Some of the challenges New Zealand faces when reducing emissions include:

  • a growing population
  • almost half our emissions are from agriculture where there are fewer economically viable options currently available to reduce emissions
  • an electricity sector that is already 80.8 per cent renewable (meaning that we have fewer ‘easy wins’ available to us compared to other countries who can more easily make significant emissions reductions  by switching to renewable sources of electricity).

As I noted in my earlier post, I was pleasantly surprised to find the population issue listed so prominently.

It is hard to disagree with them  But it does leave one wondering what advice or research/analysis they have done, and provided to Ministers –  including when the target was being adopted –  about the implications of New Zealand’s immigration policy.  Our non-citizen immigration policy pushes up the population by almost 1 per cent per annum (against an, admittedly unrealistic, benchmark of zero inward migration of non-citizens).  Have they analysed the potential costs and benefits from lowering the non-citizen immigration target relative to other possible abatement (or compensation) mechanisms?  Perhaps there is credible modelling that suggests the overall abatement costs to New Zealanders would be lower through other plausible mechanisms.  But given that population increases appear first, and without further commentary, on their lists of “challenges” it would be good to know if they have done the work.

On reflection, I think I will lodge an Official Information Act request to find out.

And so I did, writing thus to the Ministry for the Environment

I was interested to read in the snapshot emissions document released this morning that the Ministry regards increasing population as one of the top challenges New Zealand faces in meeting its emissions reductions target.

Accordingly, I request copies of all advice to the Minister for the Environment or ministers responsible for climate change policy, any and all internal research or analysis documents, and any advice to MBIE or the Mnister of Immigration, on the implications of New Zealand’s immigration policy for (a) the setting of, or (b) the successful pursuit of, or (c) costs of pursuing New Zealand’s emissions reduction target.   Among my interests is in any material on the relative costs of various options for achieving the target, including whether any research and modelling has been done on the costs of cutting the immigration targets relative to other abatement methods/policies.

This request covers all material since the start of 2014.

I deliberately went back to the start of 2014 to encompass both the period leading up to the adoption of New Zealand’s emissions reductions commitments, and the period since then, when presumably officials had to think hard about how policy might assist in minimising the costs to the economy of meeting the target the government had committed us to.

A short time ago, I received a full and comprehensive reply from the Ministry for the Environment, the ministry which has the lead responsibility for official advice on climate change and emissions related issues.

After quoting my request back to me, Roger Lincoln, Director Climate Change, replied

“No documents were found within the scope of your request. For this reason, your request is being refused under the grounds of 18(e) – the document that contains the information requested does not exist or can’t be found.”

I wasn’t really expecting there would be much.  But nothing at all, not a shred, whether before the government entered into these commitments, or subsequently, or even just before they openly listed the growing population first in the list of challenges New Zealand faces in reducing emissions?   That did take me by surprise.   So complete is the absence of material, that it is almost as if they were determined not to consider the issue, or (say) point it out to MBIE, the government’s leading immigration policy advisors.  Whether that was because senior officials internally discouraged them looking at the issue, or whether one or other of their ministers issued such guidance, we don’t know.

But MfE is clearly aware enough of the issue to put it top of their recently-published list of challenges.  And yet has done no research, no analysis, and provided no advice on the interaction between immigration policy and the costs of meeting our climate change commitments.

Not long enough, Stephen Toplis incurred the wrath of a senior public official for suggesting that, in his view, if the Reserve Bank did not adopt a particular line, it could be considered “negligent” –  ie not doing its job properly.   And that was just a conditional statement about something that hadn’t happened yet.      When the Ministry for the Enviroment has done nothing at all on immigration policy and the additional costs it appears to impose to meet the emissions targets –  not even simply pointing out the possible connection to MBIE –  whether in providing advice on formulating commitments, or on how the country might best meet those government commitments – that looks quite a lot like actual negligence, with the potential for real economic costs to New Zealanders.

I do hope that when their Issues Paper for the emissions reduction inquiry emerges, the Productivity Commission will prove to have taken the issue rather more seriously.

A true believer from the OECD

Michael Reddell Immigration, OECD

The OECD released today its biennial Economic Survey of New Zealand.  I will write about it in due course, but there are 170 pages to read.

Usually these reports are just released on the website from Paris.  But today the OECD’s Chief Economist, Catherine Mann was in town, to help promote the OECD’s view of the world.  There was a press do this morning apparently, and then a Treasury guest lecture presentation, attended by all manner of past and present bureaucrats, and some others with an interest in what Catherine Mann had to say.

She gave us some brief observations on the state of the world economy, before turning to present the New Zealand survey –  the OECD’s story about what is going on here, and what should be done to make things better.  To their credit, the OECD is quite open about the ongoing severe underperformance of the New Zealand economy –  as they note, the productivity gaps to the richer OECD countries are large and, if anything, are getting larger.  Here was my variant (from a post last week) of the sort of chart she showed.

douglas 3

But the point of this post is about the bit where she took my breath away.  I couldn’t quite believe what I was hearing.  I don’t think even the Minister of Finance or the Prime Minister would have made such bold –  but unsupportable –  claims.

She presented a chart showing growth in real GDP per capita in the OECD as a whole in the US, the euro area, and in New Zealand.  As she noted, growth in all regions is still lower than it was in the 20 years or so prior to the 2008/09 recession.     In the other three regions, the OECD is picking that per capita GDP growth will pick up in 2017 and 2018, but in New Zealand they are picking it to slow a bit.  I looked at the chart and didn’t make much of it –  there is plenty of year-to-year volality, and I wouldn’t put much weight on just two years’ data.

But Mann couldn’t help herself.  She was here to tell a good news story, and proceeded to try to do so.     You might, she said, look at that chart and think it wasn’t a very good story for New Zealand –  real per capita growth was picked to slow after all –  but, no, in fact it was really a good thing.  Perhaps, I thought, she was going to say that the economy was overheating and needed to level out.    But it was a bigger bolder claim even than that.

Her argument was that per capita growth was just slowing “mechanically” because we’d acquired so many more people, and were forecast to keep on doing so.  Of course, she said –  advancing no story for why – this would weaken per capita GDP “arithmetically” in the short-term.  But –  and here I scurried to write down as much as possible her actual words –  because we were taking in so many more people to work and study, who would add value, bring fresh ideas, and create new businesses we were creating the underpinnings of a longer-term stronger economy.

Apparently, high levels of immigration were now bad for per capita income in the short-term, but would be good in the long run.  It was pretty much the opposite of the conventional New Zealand evidence –  that demand effects exceed supply effects in the short-term.  But set even that to one side for the moment.

[UPDATE:  On reflection, perhaps she had in mind some of the European countries with waves of refugees crossing borders, adding to population and probably not doing much for economic activity in the very short run.  But that is nothing like New Zealand’s immigration system –  most people arriving either have a job to go to, or are paying for a course of study about to begin.]

Because, in fact, she reckoned she had evidence that we were already seeing significant benefits.  And what form did these benefits take, in the assessment of the chief economist of one of the world’s premier international economic agencies?   Why, it was wage increases.

She had another chart, showing real wage growth for the US, the euro area, and New Zealand.   On this measure, real wages had been rising strongly in New Zealand in the last two years –  more strongly than the average for the 20 years prior to the recession.  (And over the same earlier 20 years New Zealand had had the lowest average real wage increases of any of the regions she showed).  And what was her story to explain this?  Why, it was the immigrants.  We were bringing in highly skilled immigrants, who will be earning higher wages, and –  look at the chart –  we see it in the data already.

Many of you will no doubt be wondering about this alternative universe.  But it is real data.    And, in fairness, comparing wage increases across countries is quite difficult, because countries measure things different ways.  In this case, she used a measure of “labour compensation per employee, adjusted for the GDP deflator”.   Ideally, one would want to use wages per hour worked, rather than per employee, but set that to one side for now.   More importantly,  in commodity exporting countries –  where the GDP deflator (value of the stuff produced here) inflation rate goes all over the place, no one but no one thinks that the GDP deflator is a meaningful statistic to use to deflate anything year to year.    When dairy prices plummet, on that measure real wage inflation rises, and vice versa.  From year to year, it tells one nothing meaningful.  And this, recall, was a presentation specifically focused on New Zealand.

Here’s an alternative –  much better –  measure of real wage inflation for New Zealand.  It uses the private sector LCI (analytical unadjusted measure) adjusted for the Reserve Bank’s preferred measure of core inflation, the sectoral factor model.  There is some short-term variability, so I’ve used annual average increases.

wages OECD

Not much sign of the recent high rates of wage inflation the OECD’s chief economist was touting.   The QES –  an actual compensation measure – is even weaker.

Of course, there isn’t much sign of the really highly-skilled migrants either.  Mann seemed to have forgotten that the OECD skills data –  which they use quite a bit in this report –  shows that while New Zealand’s immigrants are relatively highly-skilled compared to migrants to other countries, they  are on average less highly-skilled than the natives.  There hasn’t been a sudden change in immigration policy in the last couple of years that has generated some step-change increase in the skill level of migrants.

A sceptic sitting near me whispered, “just drink the Kool-Aid Mike”……

I was puzzled by all this, and waited for the question time at the end of her presentation.  I asked Mann quite what her optimistic take was based on  –  that while immigration would apparently be denting per capita GDP now, it would soon lead to an acceleration.  After all, I noted, we’d had large immigration inflows for decades, and on the numbers she had presented we’d had the lowest productivity growth and lowest real per capita GDP of the countries she had shown.    I wondered if she could explain her optimism in terms that took account of New Zealand’s experience over the previous 30 years or so  (not my chosen period, but the one she was using in her own presentation).

It was a pretty astonishing response.   She argued that this was an “immigration-driven economy”, and asserted that the skill characteristics of the immigrants were high, repeating that the evidence for this was the high real wage increases we’d seen in the last couple of years.  Moreover, she asserted, the pre-recession period wasn’t that relevant because we had so many more immigrants now (and presumably could therefore expect much larger future real economic gains).  She seemed not to be aware at all that the largest single component of the increase in the net PLT inflow had been the reduction in the number of New Zealanders leaving.  Or that the new analytical immigration data suggested there wasn’t anything very exceptional about the inflows of non-citizens we are seeing now (there was something similar 15 years ago).   Was she aware that there had been no increase in the residence approvals targets –  indeed a cut more recently  –  and that a significant chunk of the rest of the increase in the net inflow wasn’t more people chosen for their high skills, but (eg ) working holidaymakers and students mostly studying in relatively low-level courses.   It was a quite extraordinary degree of ignorance in someone holding forth so confidently on the undoubted gains New Zealand would see from the large immigration flows.   I don’t expect the chief economist of the OECD to be across all the details of New Zealand (a rather small and minor member of the OECD), but if she isn’t, she shouldn’t be holding forth with such breezy confidence on such a major issue of New Zealand economic policy and economic performance.  Instead, she seemed to have a doctrine, and patched together something that superficially appeared to make the data fit the doctrine.

It went on, because she attempted to explain away why our real wage inflation had been less than that of the US or the euro-area in the couple of decades prior to the recession.  It was, she claimed, because the historical US numbers were (somehow –  it wasn’t made clear how) biased upwards, and the New Zealand numbers were biased downwards.  Perhaps, but it was a new claim on me, and not one for which there was a shred of evidence produced.

It was an astonishing performance.  She then invited the OECD’s desk officer for New Zealand to add any comments.  I felt a little sorry for him – especially as he was an old friend of mine.    He noted that the actual slowdown in real per capita GDP growth the OECD was picking  for this year and next was mostly to do with them using the expenditure measure of GDP, and the gap that had opened up between the expenditure and production measures (ie just technical stuff).  He certainly wasn’t running an immigration story for that, as Mann had attempted to do.

He (who knows my story reasonably well) went bravely on attempting to address my question about how this optimism about the economic effects of immigration fitted against the backdrop of the last 30 years.  But it was clear that neither he, nor the institution, had any sort of narrative explanation that would even begin to fit the bill.  He seemed reduced to quoting the recent IMF cross-country empirical piece on immigration.  As he noted, in that sample (which included New Zealand as one of 14 countries), immigration did appear to have boosted per capita GDP.   But, as I pointed out in a post when the work was published even if that result was true on average for all the countries in the sample, there was no reason to be confident it had been so over this period for New Zealand (since these are average results).  More importantly, perhaps, the same study actually found negative effects (although not statistically significant) of immigration on both labour productivity and total factor productivity –  again, on average across this sample of countries.

I’ve seen quite a few leading international economic agency senior officials in my time.  This was one of the worst performances from such a senior person I’ve ever seen.   She may well have been quite good in her own area –  international economics –  and in fact I went along mostly because she had a very good academic reputation, and had performed well when I’d seen her previously.  But when she lapsed into advocacy and cheerleading for New Zealand’s immigration policy, without getting fully familiar with a credible story that fits the New Zealand data and experience, she probably did herself, and the cause, more harm than good.

[UPDATE: For anyone interested, her presentation slides –  including the charts I tried above to describe – are here. ]