MBIE

Government departments championing…bigger roles for themselves

Michael Reddell MBIE, Productivity

When it comes to Long-term Insights Briefings (LTIBs) I sympathise with the public service, I really do. The requirement to produce these documents was introduced by the previous government in fiscally expansive times (core government agency staffing growing rapidly). Even then, it was a fairly flawed idea but if agencies were awash with cash I guess they might as well try to do some analysis. These days, even if the fiscal deficit is not being cut, core government department spending is under considerable pressure, and we have a track record in which the LTIBs that have been produced have rarely added much value. I gather the current amendments to the Public Service Act will eliminate the requirement to produce LTIBs but…..for now government department CEs and acting CEs still have to comply.

A year or so ago MBIE and MFAT decided to get together and produce a joint LTIB this time round. As the law requires they consulted on the proposed topic

I put in a short but fairly sceptical submission on the topic

Anyway, the bureaucrats have beavered away and last month come up with a draft LTIB (on which submissions close next Monday). They must have refocused their efforts somewhat following consultation on the topic as it is now presented this way.

Having made a submission last year they’d included me on their general email inviting submissions on the draft. I’ve been away and otherwise busy and hadn’t really intended to even look at the thing, but there was another reminder yesterday so I took an initial look. It was the “accelerate the growth of high productivity activities” that prompted me to look a little further: the focus apparently was not economywide productivity and policy settings but the sort of “smart active government” stuff MBIE has long championed, involving clever officials and politicians identifying specific sectors to focus on and specific interventions to help those sectors. And, of course, lots of preferential trade, investment, etc agreements (the ones MFAT likes to call Free Trade Agreements). On a day when the dysfunctions of our public sector were on particularly gruesome display it seemed even less appealing and persuasive than usual. In a month when the government had been a) buying a rugby league game, b) increasing (again) film subsidies, and c) subsidising expensive New Zealand restaurants (via the Michelin corporate welfare), all in the name apparently of “going for growth”.

So I decided to sit down and read the draft document after all. It isn’t that long (45 pages or so excluding Executive Summary, glossary, references etc), reflecting no doubt the fact that LTIBs are a compliance cost for agency CEs rather than really core top priority claim on resources. Before reading it I heard on the grapevine last night of a smart person who had opened the document, read the first page, rolled their eyes, and closed the document again. But I persevered….and there is 25 minutes of my life I won’t get back.

Sadly, but perhaps not surprisingly, the draft report is unlikely to be any use to anyone looking for illumination rather than support (the old two uses of a lamppost line).

On New Zealand, we get a fairly long list of symptoms of our relative economic failure, but no serious attempt at analysis of the causes. If you don’t understand the causes, including the roles (positive or negative) of past policy interventions/choices, it is really difficult to see how you tell a compelling story about solutions, unless the document is just a prop for a longstanding predetermined narrative and set of policy preferences.

They then introduce a series of four small advanced economy “case studies” – a page each on Denmark, Finland, Ireland, and Singapore. Not only do they not engage with a really important difference between New Zealand and these countries – ie extreme remoteness – but there is no attempt to understand what drove the successes of these economies either. In each case there is a list of types of interventions that have been or are being used in these countries but no effort at all to assess what role (positive or negative) these interventions have played in contributing to medium-term productivity growth. It certainly isn’t impossible that some might have been helpful, some will almost certainly have been harmful (just consider the range of interventions our governments have tried over the decades), and perhaps many will have just been ornamental or redistributive – not really making much difference at all to the productivity bottom line. And I’m pretty sure that not once in the entire document is there any suggestion of the possibility of government failure, capture etc.

Then the draft report moves on to four domestic case studies (this time roughly two pages each), looking at the dairy industry, space and advanced aviation, biomanufacturing, and the Single Economic Market (mostly Australia but also beyond) with a focus on sector-specific interventions. None of it seems to display any scepticism, only a sense that we (governments) haven’t been sufficiently focused or willing to persist with particular sector supports. Strikingly, in the dairy “case study” there is no mention of the rather large role the government played in enabling the creation of Fonterra, and how the results have, to put it mildly, not exactly lived up to the promised hype.

And the whole document ends with a question that shouldn’t even be being asked by government departments.

But perhaps it is all music to the ears of governments that like specific announceables from week to week? (Whether MBIE or MFAT like those specifics is another matter – quite possibly not, but their mindset and fairly shallow analysis in documents like this helps provide cover for governments more ready to paper over symptoms, toss out some cash to favoured firms/sectors, and avoid insisting that the hard structural issues are identified and addressed).

And this sort of stuff helps keep lots of officials busy and feeling useful.

To any MBIE/MFAT readers, no I won’t be submitting, but I’m sure you get the gist. The sooner the LTIB requirement is removed from the law the better, but eliminating that won’t change the mindset. As far as MBIE is concerned, my ongoing unease was only reinforced when on the page with the consultation document on it, this was the list of tabs/items down the side of the page under the heading “Economic Growth”.

The manufacturing sector

Michael Reddell MBIE, New Zealand economic performance

I’ve written a few sceptical posts here over the years about the annual (or so) Technology Investment Network’s (TIN) boosterish reports on the New Zealand tech sector. The overall story was just even close to as upbeat as the reports liked to make out.

Yesterday a link to a new TIN report turned up in my email inbox. This was the bit in the email

There is a clue right there in the reference to chocolate chips. This wasn’t going to be a report about what most people have in mind when they think “advanced manufacturing” but about the manufacturing sector as a whole. All firms in the sector use technology of one form or another, some of it very advanced.

Anyway, I downloaded the full report (you have to register to get it, but it isn’t onerous, and the report itself isn’t overly long, at about 30 pages of substance). It turned out to be the product of a bunch of outfits I’m pretty sceptical of. There was TIN itself which did the work, there was the co-chair of the Advanced Manufacturing Industry Transformation Plan Steering Group (ITPs being that throwback to the 1960s that the outgoing government became keen on) who supplied the Foreword talking up both his group and document, and then there was MBIE which is said to have “commissioned this report” and presumably paid for it. Money was being thrown around in all too many areas under the outgoing government.

Both the Foreword (by Brett O’Riley) and the Welcome (by the Managing Director of TIN) are pretty upbeat. O’Riley makes the bold claim that manufacturing is “the backbone” of the economy (to which I responded on Twitter this way

After noting that the manufacturing sector will soon drop to being only the third biggest greenhouse gas emitting sector (behind households and agriculture) the Welcome ends this way

It all sounds good quite upbeat.

That is, until you read on.

There is a helpful Executive Summary. It also attempts to start upbeat

Advanced manufacturing is a critical engine of Aotearoa New Zealand’s long-term prosperity, making a vibrant contribution to the nation’s economy

But then the pesky data start getting in the way

There are still lots of workers

But if your sector is 9.1 per cent of GDP and 11.9 per cent of the workforce, what does that say about productivity?

Low level, and low growth rate. Ouch.

And, unsurrpisingly wage rates in the sector as a whole are below the economywide average.

You might have noticed in that clip at the top reference to 60 per cent of New Zealand’s exports. That is because many of New Zealand’s agricultural exports are processed (dairy factories really are big and sophisticated operations, even if the share of that processing in total dairy value-added is not huge). Anyway, exports….

Not exactly a positive story either.

The puff piece at the front was upbeat on R&D (‘over a quarter of national R&D spending comes from manufacturing’) but by the time you get to the Executive Summary a less rosy picture emerges

So that is quite a big drop in the share of national R&D spend, and manufacturing sector R&D staff are almost the same share of total R&D staff as manufacturing employees are in the total workforce (although to be fair one has to wonder a little about whether the comparisons here are all apples-for-apples, since if manufacturing does 27 per cent of the national R&D spend with only 12 per cent of the R&D employees, those manufacturing R&D employees must be doing a lot of work/spend each).

What of FDI? Manufacturing does seem to represent a larger-than-representative share of inward and outward FDI, but…

By my reckoning that compound annual growth rate for inwards investment was less a bit less than the growth in nominal GDP over that period, so not exactly a very positive story for “the backbone” of the economy, “a critical engine” of New Zealand’s “long-term prosperity, making a vibrant contribution to the nation’s economy.

The report would really quite like to be upbeat about new technologies, but….

And those were the last words of the Executive Summary.

There are some more detailed sections that follow. A new snippets:

On international trade:

in addition to that wonderfully-understated last couple of lines, note “in many case, the total volume of locally manufactured products actually decreased”, and “[various factors] beckon fewer orders and lower production for 2024 and beyond”

On R&D etc:

Nominal GDP rose faster than that.

And this grim observation

The exciting news is that emissions have dropped, and not just because of a dismal GDP performance, but that is an input, not the sort of outcome firms go into business to achieve.

What of profits? They grew more slowly than nominal GDP over this period, and represent 7.6 per cent of economywide profits even though the sector is 9.1 per cent of GDP.

The best you could really say for this report is that, underwhelming as the data are, perhaps it provides some sort of benchmark against which to measure where things go from here. But why the spin upfront, and why was the taxpayer paying for the report in the first place?

None of this is intended as a criticism of any specific company in the sector. Companies that survive and thrive in New Zealand, selling to world, deserve a fair bit of admiration and in the case studies at the back of the report there are some really inspiring stories (I don’t include taxpayer-subsidised NZ Steel among them, nor perhaps the company that has been running since 1981 and has a grand total of 115 employees). In all my years at the Reserve Bank one of the best things I ever did was to participate in the regular business visits programme, and it was rare not to come away from each and every company we visited admiring people – often owner-operators – who had everything on the line to make and sustain a business (it was hard not to think they were doing something better or more useful – certainly much more risky – than we were).

But the aggregate story just doesn’t seem to be a very positive one, if such aggregates (“the manufacturing sector”) make much sense at all (the New Zealand “manufacturing sector” is a very diverse thing, including new and cutting-edge firms and legacy companies from the eras of protectionism and Think Big). Beyond the puff pieces at the start, there is a certain grim realism about many of the comments on the numbers (see above), but perhaps it would have been better to have had that upfront, grabbing the headlines.

There is no right or wrong answer as to how much of a “genuinely” advanced manufacturing sector a successful New Zealand economy might be expected to have, but it isn’t surprisingly the sector struggles here when you combine things like distance, high company tax rates, obstacles to foreign investment, and a real exchange rate that for decades has been out of line with relative productivity fundamentals

What is going on with residence approvals?

Michael Reddell Immigration, MBIE

Late last year I did a post using some data from the near-final version of MBIE’s new immigration statistics dashboard.   The dashboard is now on general release (here) and I should take the opportunity to commend MBIE on the initiative (even while wishing SNZ would now take the key time series and include them in their Infoshare database).  It takes a while to really work out how to make the most of the dashboard, but it means that administrative data (all the information on visa approvals –  and declines) that used to be published in readily useable form only annually and with up to an 18 month lag, is now readily available within 10 days of the end of each month.  For anyone trying to keep track of what is going on around the impact of immigration policy settings –  and recall that the late lamented PLT data was never any use for that –  it is a huge step forward.

And so lets have a look at a few charts, using data to the end of February.   Here is the number of residence visa approvals (and declines), actual monthly data and with MBIE’s “seasonally adjusted trend” (more trend than seasonal) through the data.

Res 1

Recall that the “target” rate of approvals is around 45000 a year, an average of 3750 per month.   The trend in actual approvals has been running (increasingly) below that level for the last two years.   For the current financial year, approvals are running at an annualised rate of under 35000 –  lower than at any time in the last 10 years.   Interestingly, it isn’t that more applications are being declined – in percentage terms, the fall off in declined applications has been larger than the fall in approvals.

I’m at a bit of a loss to know quite what is going on.  There was a slight reduction in the approvals “target” (they like to call it a “planning range”) late in the term of the previous government, but that was the difference only between 47500 per annum and 45000 per annum, nowhere near enough to explain the fall in actual applications and approvals.

I’d heard in several places that a big part of what was going on was shifting more residence visa processing back onshore.   Here is some relevant data on that

res 2

Clearly something has gone on, but (a) for a long time the overwhelming bulk of approvals were granted onshore, to people already in New Zealand (on other short-term visas), and if (b) offshore approvals have dropped away sharply, offshore declined applications have dropped to almost zero.  So I’m no clearer now than I was previously.

The points system is supposed to serve as a rationing device –  a quasi or shadow price. If there are lots of good applicants then, in principle, with a bit of lag the points threshold should be raised, so that we winnow out the lower quality (in terms of how the scheme is set up) applicants.  And, on the other side, if applications are dropping away sharply then, all else equal, the points threshold should in time be lowered and we’d find ourselves taking less-good quality applicants, who would otherwise not have qualified for residence.  But applications and approvals have been well down for two years now, and nothing has happened to the points threshold.

I’m mostly pleased with that –  part of my argument over the years has been that too many of the people we are bringing in (even under the skilled migrant headings) aren’t that skilled at all, and while they are benefiting themselves (and good luck to them) it isn’t doing any good for New Zealand.  Changes made late in the previous government’s term –  tightening up a bit on the one hand, and additional points for regional jobs on the other –  won’t have changed that picture.  But……..keeping the target unchanged (which is government policy, what Labour campaigned on and New Zealand First accepted in the coalition deal, looks a bit empty if the target is going to be persistently undershot (more so than, say, undershoots of the inflation target, since immigration approvals are an adminstrative act, directly under official control).  I’m a bit curious why no journalist seems to have been grilling the government about quite what is going on.  Is this the immigration equivalent of “opportunistic disinflation” –  they’ll take the cuts in immigration approvals if they come, but won’t do anything active to bring them about (or reverse them).  One can imagine there might be some blowback –  except among the handful of open borders people –  if standards for getting residence visas were lowered further.

It is noteworthy too that the fall in residence visa approvals has been concentrated in the streams (business/skilled) that were supposed to be the focus of the immigration programme.   That is so even though, for example, parent visa approvals are still suspended altogether.

res 3

I’m left puzzled about quite what is going on.  The number of people here on shorter-term work visas has still been rising strongly (and most people who get residence were already working here), and if the number of students is now flat, the numbers aren’t falling and an increasing share of the students who are here are in better quality, university, courses.  Quite possibly, a smaller proportion of those doing university study are interested in staying long-term than of those who were doing the PTE courses (often mainly as a pathway to work and possible eventual residence).

res 4

And finally, for those interested, here is what has been happening to residence approvals for our two largest source nationalities.

res 5

The next two biggest source nationalites –  UK and Philippines –  have also fallen away a lot, the former part of a long-term trend decline.

Overall, there are more questions than answered, but it is great to be able to do these sorts of charts quickly and easily.  Many fewer people who meet our quite low immigration standards now seem to be applying, or getting, residence visas, and that despite the apparently quite tight labour market.

Given announced government policy –  a continued high target – that should be a concern to them.    Some questions should be posed to Mr Lees-Galloway (although I can imagine that he would much prefer not to have to face them).

 

 

Remoteness….occasionally a benefit

Michael Reddell MBIE

I’ve been a little unclear what to make of the Rocket Lab story.   Don’t get me wrong, I liked the idea that our regulatory systems can, on occasion, be sufficiently adaptive to cope with new and innovative industries –  even if it is far from generally true.  And I wish all the best to any New Zealander with innovations they succeed in taking to the world market, and if that includes rocket launches that’s fine.

But there was the nagging question of why such an activity would be taking place in New Zealand at all.  We aren’t exactly close to anywhere, let alone home to great centres of expertise.  But there were those government subsidies –  up to $25 million of taxpayers’ money to Rocket Lab, as well as the cost of the regulatory regime (15 to 20 bureaucrats in the “New Zealand Space Agency”).  And I recalled that the French launch their satellites from French Guiana without –  as far as I’m aware –  much else happening in French Guiana.

But there was an interesting article on Newsroom built around an interview with head of the agency, a mid-senior level MBIE official.   It answered some questions, and not in a terribly encouraging way.

There was the disarmingly frank acknowledgement of how little expertise MBIE has

The biggest challenge, Crabtree says, has been the “classic small government thing” of lacking expertise.

“We didn’t have the experience or technological depth, but the focus is on picking things up quickly but also working with international partners who can bring that to you…

“I set the challenge which was, can we move as fast as Rocket Lab?”

Where are the incentives to get things right, when the hype is all around accommodating –  and keeping pace with – Rocket Lab?  You can pick up lots of things quickly, but often you don’t know what you don’t know.    (And, to be clear, I’m not asserting a need for regulation for its own sake, and have no idea what specific regulation might –  or might not – be needed in this industry, but the general point holds.)

And then there was the answer to what New Zealand had going for it, aside from the cheque book of the put-upon taxpayer.

New Zealand has what Crabtree deems “a natural resource endowment” when it comes to space-related activities, such as a range of launch angles.

“You want to launch a rocket to the east, and you want to launch a rocket over the ocean, and you want that ocean to be relatively clear of ships, and you want the sky to be relatively clear of planes…

“There are very few places in the world that tick all the boxes.”

So that would be New Zealand, Madagascar, the Falkland Islands, and maybe Uruguay/Argentina?  Those great centres of economic activity, innovation and so on.   We have political stability going for us over each of those other places, but it scarcely sounds like the makings of  –  or even a marker of – a transformed economy, when the business has to operate in a place where nothing much else is.

Ah, but then there are the kids

Beyond the economic calculations, Crabtree hopes a booming space industry can encourage children to develop an interest in space and technology.

“Kids get interested in science either through dinosaurs or space, and we’ve had lots of dinosaur kids, but space hasn’t really had a fair go.”

The agency has been providing educational materials for schools to use, while universities also want to attract those keen on making a future contribution to the space race.

I guess at least the government is symmetrical –  we also subsidise the film industry which provides the most-frequent encounters with dinosaurs these days.

In my day, the Apollo programme, moon landings and all, was great for exciting interest in space, around the world.  Count me just a little sceptical that some rockets launching from remote sites on our east coast are going to make a material difference to the career choices of many New Zealand kids. Or that, if they did, many of the resulting –  higher value – jobs would end up in New Zealand for long.

Perhaps the industry can succeed here, standing on its own feet.  If so, I wish it well. But I’m a little uneasy about politicians and officials talking up, and then being pursued by, the hype.  Corporate welfare dollars all add up after a while.