Spin….just spin

I suppose all Prime Ministers these days feel the need to spin.

Ours was at it again yesterday.   She was talking over breakfast –  a vegetarian one the Herald account tells us – to the Trans-Tasman Business Circle.  Her topic?

The topic I have been given for today – ‘The Future of Work and how the government is preparing for the economic challenges of the future’

It is pretty much downhill from there.

Countries the world over are currently grappling with digital transformation, and transitioning their economies, and New Zealand is no different in that regard.

Even if you pardon that abuse of the language (“transitioning”), does anyone have any idea what this means. Individuals and firms are getting on with their lives, looking for opportunities, as it long has been and no doubt long will be.  Are technologies different than they were fifteen years ago?  Of course.  But is our economy that different than it was fifteen ago?  Sadly, probably less so than one would hope.

That isn’t the prime ministerial spin though

Where we are different, I believe, is in the way we are responding to those challenges, turning many of them into opportunities.

The country with weak productivity growth, drifting further behind the rest of the advanced world, and with declining shares of GDP accounted for by trade with the rest of the world.

As it happens, the annual national accounts were released later yesterday morning.   I was playing around with the data and might use it for various posts in the next few days, but since the PM was talking about “digital transformation”  I thought this chart was interesting.

cap stock 19.png

Now not all of these, by any means, are about the narrow “digital transformation”, but if such a thing were happening on a large scale, in which new world-beating opportunities were being developed and seized, these indicators are among those where we might expect to see it.  As it is, over the last few years things to have been more or less going sideways.

The PM went on to first offer some context

Firstly, the NZ economy is in good heart amid the global challenges and what many believe are new economic normals,

Well, okay, believe that if you want.  But most respondents to surveys don’t share your positivity, and in general they are less likely to be motivated reasoners than a PM.  And

Secondly, the Government and Reserve Bank are doing their bit to ensure that fitness endures and it’s important business continues to work with us too – after all, we mustn’t talk ourselves into a funk

We are right, you are wrong.  Get with the message.  Or at least that seemed to be what she was suggesting.  Just a shame the data don’t tend to support her.  I’m still not sure what the Reserve Bank has to do with “that fitness” (whatever it is) –  presumably she hasn’t had it schooled into her that the OCR is typically cut (in an economy without big positive productivity shocks) because demand is weak and things aren’t going that well.  Oh, and is she perhaps aware of those big new capital requirements the Governor is wanting to impose on banks, and hence on the availability of credit to the economy?  If she is embracing those, that would be an interesting call –  her Finance Minister has been very careful to disown all responsibility.

Anyway, she gets into her stride in a section headed “It’s the economy”.

All of you in this room will know that this Government’s approach to the economy is that it is not an end it itself but, rather, a means to an end.

Which might be news if, just perhaps, she could point us to any government in history, or even just New Zealand history, for whom that was ever not so.

That of course means building strong economic foundations. And on that front we’re doing pretty damn well actually, especially amid global uncertainty.

The argument must be weak so lower the tone of the language.  No one is going to dispute that successive New Zealand governments have successfully focused on budget balance and a modest level of debt.  What about her other claims?

So far our policies have delivered growth of 0.5 percent in the June quarter and average growth of 2.4 percent in the year ending June. That shows that the New Zealand economy continues to outperform those of Australia, Canada, the Euro area, the UK, and the OECD average – basically those we compare ourselves to.

That tired old line so beloved of whoever is in office, right or left, and their champions.  Never mind that we have substantially faster population growth than all of those countries except Australia and that any reasonable and honest use of GDP statistics in a a discussion about success, wellbeing or whatever, starts from a discussion of GDP per capita.    On that score, there is nothing impressive about even our recent record, let alone the longer-run picture.

Also, recent data shows New Zealand’s manufacturing and services sectors are both expanding.

Well, yes that is probably so, but…..when your population is growing by 1.5+ per cent per annum if those sectors (ie the bulk of the economy) were actually contracting it would be really quite alarming.

We have record low unemployment and annual wage growth is at its highest level since the 2008 financial crisis. Average wages have increased by 4.2% in the last year alone.

Yes, relatively low average unemployment –  consistent with the typical person being unemployed for “only” two years in a working life –  is one of the successes of the New Zealand policy framework.  But the current rate is nowhere near a “record low” –  not even during the 30+ years of the HLFS (that was just prior to the last recession), let alone the post-war decades prior to the quarterly survey getting going.

New Zealand continues to be a good place to do business, topping the World Bank’s 2019 Ease of Doing Business index. Our globally competitive economy is underpinned with stable political and regulatory systems, an innovative well-educated population and our proximity to 60 percent of the world’s population. We are a safe place to invest.

Such a great place to do business in fact that (a) business investment remains persistently weak, especially given the surge in the population, (b) our economy is becoming more inward-focused (trade shares have been falling) and (c) another tired old line –  we are close to 60 per cent of the world’s population –  that bears just no relation to reality whatever.  Yes, we are closer to the centre of gravity of world economic activity than we were 100 years ago – when we traded mostly with the then-dominant power the UK –  but these days the UK is still closer to India and as close to China as we are.  In both cases, far away.  Oh, and we are also a long way from those leading productivity economies in Europe and North America.

And last on this list

And you’ll note that when the Reserve Bank announced its decision to hold the Official Cash Rate at 1 percent last week, its analysis confirmed the economy is in good shape, amid global economic headwinds. The Bank pointed out that employment is pretty much at its maximum sustainable level, residential investment is increasing and that economic growth is expected to rise next year, due to the Government’s investments. While the RBNZ noted that global headwinds have impacted business confidence in New Zealand, it also said that our investments are forecast to support and grow the economy next year.

When the Prime Minister says “investments” here she really just means more government spending, most of it consumption or transfers.  Probably she didn’t read the Reserve Bank’s statement, but she will have had a personal briefing from the Governor.  He too is inclined to spin, but his document had a rather lot on the downside risks –  in fact they explicitly noted, and formed policy on the basis of, the balance of risks being to the downside.  And while the Bank had rather upbeat growth forecasts, few private economists shared their optimism.

I am not wanting to suggest things are disastrously bad, at least in a short-term cyclical sense in New Zealand, but at very very least the PM is gilding the lily.   Perhaps you might think that is her job, and on a bad day I could share the cynicism, but we really should expect something better from people who hold office as leaders.

But her own summary is this

Ultimately, we have a positive story to tell, including to investors, and one of my consistent messages is that we are a stable, reliable  investment option, with plenty of success stories. Now, domestically, we  all need to act like it.

I’m right, you are wrong, get with the message.   Or so it seems.     And, yes, we do have a fair measure of political stability –  no Brexits, no civil wars etc, no impeachment hearings (just the ongoing stench of the political donations scandals) –  but that doesn’t markus out from most advanced countries, those that have been performing pretty strongly –  actually securing the productivity gains on which so much else rests –  and those, like New Zealand, that haven’t.

The next section is headed “Govt doing its bit”.  Here there is a lot about capital investment

It won’t surprise you to hear me say – infrastructure, infrastructure and infrastructure. There’s no question that we have a range of deep policy issues to address as a nation, but unless we get the basics right of providing decent housing, transport and health and education services, we’ll only compound those more complex issues. That’s why the Government’s Economic Plan, which you will have heard many Ministers talk about, is designed to build an economy that protects and improves the living standards and wellbeing of all New Zealanders through ensuring we get those most basic fundamentals right.

That’s why we are investing record amounts in hospital and school building programmes – including the fact that in our first two Budgets we’ve invested $2.45b into upgrading and building new hospital and health facilities- that’s twice as much as the previous government managed in nine Budgets – alongside large investments in transport safety, regional roads, and public transport, and we’ve done that while maintaining a responsible budget surplus.

“The Government’s Economic Plan“: that’s a good line.  I hope it got a laugh.  But perhaps the audience were more polite than that.  Infrastructure?  Well, shame about the roads that aren’t getting built, even as the population grows rapidly.  And here is another chart from the annual national accounts, showing general government investment spending as a share of GDP.

govt GFCF

Nothing startling about spending in the first full year of this government.  But perhaps it will be different in years to come.

And then the empty boasts about housing

Not to mention our comprehensive plan to fix the housing crisis which includes delivery of: more state houses than any Government since the 1970s, banning offshore speculators, expanding Housing First to end homelessness, a $400 million package for a progressive home ownership scheme, and making saving for a house deposit easier by lowering the deposit required for a Government-backed mortgage or first home grant from 10 per cent to five per cent. These are real, tangible, things that will help New Zealanders and their families.

“Comprehensive plan” and yet not a mention of the only thing that would make a durable, substantial and sustainable difference, lowering prics of houses and urban land, land use reform.  Allowing people to borrow 95 per cent LVR loans – even as her Reserve Bank keeps on LVR restrictions on private credit –  is at best papering over the cracks of the failures, chosen, of successive governments, including her own.  But give her credit for consistency:  Labour leaders (whether Little or Ardern) have never been willing to champion serious land use liberalisation.

A little further one and we get this recapitulation

Ultimately, this [Infrastructure Commission report] should all be sending two really strong signals. That we are planning for the future and that now is the time to invest. New Zealand is doing well and there are enormous opportunities if we act now. The best thing for the NZ economy at the moment is optimism, planning and investment action. We’re doing some pretty heavy lifting to shore that up in terms of spending and infrastructure investment, the RBNZ is doing its bit with record low interest rates – the private sector needs to ensure it’s on board too.

But, our economy (a) isn’t doing that well (see above) (b) and firms –  people with shareholders’ money on the line clearly aren’t seeing “enormous opportunities” to invest, either now or (in fact) for decaders past.  If it were otherwise now then, all else equal, interest rates just wouldn’t be this low –  as a macro 101 reminder to the PM, interest rates are low because demand for resources at any higher interest rates would be even weaker.

But the PM enjoins us to “only believe”, to join some sort of cheerleading squad building castles in the air.

In fact, one of my staff members asked an economist earlier this week to sum up the economy in one sentence and was told – “it’s ready for lift-off”.  I could not agree more.

Perhaps there is such an economist.  Perhaps he/she doesn’t even work in DPMC/PMO. Perhaps there even will be a bit of a recovery next year.  But just nothing suggests this economy is “ready for lift-off”.  The basic imbalances and severe structural problems haven’t been addressed, haven’t changed.

She goes on.  There is the claim

we have laid out a clear agenda. Yes, it includes change, but by now you’ll all know what that agenda entails and how we’ll deliver it.

Somehow, I suspect the farmers angsting about the current water proposals don’t see it that way.   And the government might have passed a Zero Carbon Bill, but (whatever its merits) it involves almost no substantive certainty about anything affecting business.  Do we know what is happening about Fair Pay Agreements?  And so on.

The speech goes on into a variety of other areas.  The last I wanted to comment on was this –  something to look forward to next week

Today I am also able to provide you with some insight into an upcoming announcement for the Forum. On November 25 the Forum will publish its Strategic Assessment of Future of Work Priorities. This presents four initiatives as priorities:

  • The first is Industry Transformation Plans which will ensure we add value to key sectors of our economy and leverage new opportunities. These plans – for the food and beverage, digital technology, forestry and wood processing, and construction and agritech sectors will describe an agreed vision for the future of each sector, and set out actions required to realise this vision.

(So actually, some of the “clear agenda” isn’t laid out yet, but will be next week?)

Presumably the Prime Minister takes this stuff seriously, but really who supposes that a bunch of central planners, bureaucrats and their corporate equivalents, are really likely to come up with anything useful in these “industry transformation plans”.  Haven’t we had numerous such plans before, stretching back many decades, and precisely what useful has come of them?    Market economies just don’t succeed with “agreed visions” across government and the upper tiers of existing industry players, but by competition, trial and error, creative destruction, unexpected discoveries…..all supported perhaps by governments willing to do what it takes to put a supportive overall policy environment in place.   Our goverment, much like its predecessors, is all too fond of the status quo, and unwilling to –  probably uninterested in –  getting to the bottom of why that continues to produce such mediocre economic results.

As a hint, the real exchange rate –  a key relative price that never seems to make it to the PM’s upbeat economic speeches –  remains well out of line with what you might expect for a country with such a disappointing long-run trade and productivity record.  It might be consistent with that performance, but simply isn’t consistent with delivering something much better, that “productive and sustainable” mantra ministers always keep reciting, while never doing anything much to bring about.

I guess Prime Ministers feel the need to spin, perhaps especially those who aren’t willing to do much substantial.    But it is a shame there isn’t a lot more honesty about the underwhelming state of the New Zealand economy and the reluctance of our policymakers and their advisers to do anything much about changing it.  Sheer spin might get a good headline in the next day’s newspaper, but longer-term it just feeds the growing cynicism about politicians and the political process.  It is cheap, has some short-term sugar-high effect, but is pretty deeply corrosive.  Why take seriously anything they say?

Lighthouses warn people away from the rocks

In a few weeks time Christians will begin to mark the season of Advent.  One of the texts often read in liturgies in that season is from the prophet Isaiah.

The people walking in darkness have seen a great light; on those living in the land of deep darkness a light has dawned.

At The Treasury yesterday, a visiting academic proposed such a vision for New Zealand’s place in the world, as the Pharos state.

Bernard Cadogan is a New Zealander now living in Oxford.  According to his bio

Dr Bernard Cadogan has his doctorate from Oxford University on Empire Studies and constitutional theory. He served Hon Bill English (1996-1999, 2005-8), the National Party Opposition (1999-2003), Hon Trevor Mallard (2003-5). He lives at Oxford UK with his wife and three children.

He was also, apparently, a foreign affairs adviser to Bill English in the latter’s brief stint as Prime Minister and has been a consultant to The Treasury on various occasions and issues.  He is formidably well-read, very fluent, often stimulating….and yet, so it seems to me, much better on history than on contemporary politics/policy, and really rather at sea when it comes to economics and economic policy.

I thought I’d written about his previous, extraordinary, Treasury guest lecture in 2016, given just a week after the Brexit referendum (a topic on which he had been providing consultancy services to Treasury), but it seems I never got round to it.    My notes record talk of “pogroms by ballot box”, of an EU that is “virulently alive” while there is “something dead in the British Isles”, comparisons with the Glorious Revolution of 1688, a summary remark along the lines of “darkness won: the fog has rolled back in”, the Brexiteers as “sons and daughters of the counter-enlightenment”, depriving young people of “a second European homeland so that some might have a Narnia”, and so on.   As it happens, the text of that earlier address is still on Treasury’s website –  which enables me to quote in its full “glory” this quote, only the gist of which I’d managed to jot down at the time.

Irrational romantic nationalism and the archaic narratives of historians and of the nationalist culture industry have prevailed over rational economic argument. Grub Street and Grub Street politicians from “Spectator-land”,  with the prose skills of another era, have worsted the experts and the technocrats, and rendered nugatory the best quantitative techniques.

You get the sense that Dr Cadogan wasn’t very keen on Brexit.

In yesterday’s address there was none of that tone at all.  It was quite a remarkable transformation, especially when Brexit still hasn’t happened –  if I heard correctly that might have something to do with consultancy services Cadogan is now offering to parts of the UK government.  But it seemed to be there by counterpoint, in his theme that in this troubled and turbulent world

Throughout his talk Dr Cadogan uses the image of the great lighthouse of Alexandria to represent New Zealand’s personality in global affairs, as a source of hope and comfort to countries and peoples sailing turbulent waters.

It was bringing to mind more of Isaiah

40 Comfort ye, comfort ye my people, saith your God.

Speak ye comfortably to Jerusalem, and cry unto her, that her warfare is accomplished, that her iniquity is pardoned: for she hath received of the Lord‘s hand double for all her sins.

The voice of him that crieth in the wilderness, Prepare ye the way of the Lord, make straight in the desert a highway for our God.

Every valley shall be exalted, and every mountain and hill shall be made low: and the crooked shall be made straight, and the rough places plain:

It was, and is, more than a bit of a mystery as to why anyone much –  at least in the advanced world –  should look to New Zealand for anything, let alone “hope and comfort”.  Cadogan never did address that point, apart from some quick passing reference to questions he gets abroad –  presumably from people within his own ideological bubble – about “how does New Zealand do it?”.  “It” here also never being defined, but I presume it had something to do with the popular adulation, in a few quarters abroad, for our current Prime Minister (shorn of any actual policy programme).

The lecture began with a painting by Nicholas Poussin in which the (small) servant Cedalion guides the giant Orion towards the sun, and healing.  Small nations may, Dr Cadogan asserts, have special powers –  at least if they can avoid getting stomped on by giants.   And New Zealand….oh New Zealand,

  • that radical democracy (the “most radical”)
  • exemplary in so many respects
  • admired for our democracy, values, responsibility, human rights, decency
  • a successful market economy,
  • excellent institutions,
  • where the Treaty of Waitangi combines utopianism and justice,
  • and where there is no hatred, no contempt, no ideologues (he seemed particular exercised here about some UK former junior minister, now ennobled as Lord Freud).

(He claimed that Henry Kissinger had once said that law was New Zealand’s greatest gift to civilisation. I’m not sure if someone was getting confused with Solon, or even Coke or, say, Blackstone.)

We, in Cadogan’s view, have a story to tell the world, we could be a “moral realist” “force multiplier” to the world.

There have been times in our past when a good number of serious people abroad have looked to New Zealand as some sort of exemplar.  Like them or not, the reforms of the Liberal governments in the 1890s attracted many visitors and attempts to explain the New Zealand story over the next couple of decades.  Probably not entirely unrelatedly, New Zealand was also among the handful of most prosperous places on earth.

There was a somewhat similar effect in the wake of the reforms of the late 80s and early 1990s.  Like them or not, they were adopted with energy, verve, vigour, rigour and with some genuine innovation. By this time, people –  here and abroad –  knew that New Zealand had fallen well behind (economically, and in terms of what a strongly performing economy could offer) and the reforms were some sort of beacon of hope, that would put New Zealand back on a high-performing path.  You still find the occasional residue of that sort of sentiment –  although mostly from people who haven’t looked at any data for the last 25 years.     In that period there was, at least among some on the left, some admiration for the New Zealand ban on nuclear ships –  some genuinely hoping that it would show the way to other countries (typically it didn’t).

But quite what are we to suppose that people –  elsewhere in the advanced world – should look to us now and admire or envy?  I’m at a loss.  A questioner in yesterday’s seminar pointed to the disgrace that is our housing market, the rise of homelessness etc.  I’d, of course, frame the issue more broadly, and highlight our continued relative economic decline.  In 1900, you might have missed great art and architecture, museums etc if you came to New Zealand, but at least average incomes would be as high as on offer anywhere.  Now, you face distance, a pretty thin representation of the best of our civilisation, and you get to be materially less well-off than you’d be in most other advanced countries.   Are we “leading the way” on climate change, or any other left-wing causes?  Not that I’d noticed.   No doubt there are niche areas where New Zealand people are well-regarded (one hears it re trade negotiations, but then again why not unilateral free trade?) and few people are ever likely to express much angst about New Zealand (a threat to no one).  But a light to the world?  Really?  Who is looking?  Who cares?  Where, for that matter, are these “values” Cadogan talks of –  none that are admirable on display re the PRC (and for a lecture supposedly on geopolitics, there was almost no mention of China).

Another questioner noted that for all Cadogan’s praise of our democracy, actually there were few checks on the executive, great concentrations of power, and little effective accountability.  It more or less stumbles on, but to what end?  And how resilient would it prove to be if really put under pressure?  The questioner might have added specific points about how weak the media generally is, the limited range and poor quality of much of the public debate, the weak role academics and think-tanks play here, and the degradation of the capability of the upper reaches of the public service.

Yet another sceptical questioner –  Prof Girol Karacaoglu from Victoria University –  noted that for all Cadogan’s talk about New Zealand exceptionalism, he (Karacaoglu) was reminded of a line from a book he’d read –  John Gould’s  The Rake’s Progress – soon after coming to New Zealand 40 years ago, suggesting that things in New Zealand both good and bad tended to follow, perhaps 15 years behind, trends from abroad.

Are there valid points in what Cadogan was saying?   Yes, although some probably don’t carry much substance.  Are we a great power or a small player?  A small player.  Ever was and probably ever will be.  Do small countries survive the rise and fall of great powers?  By and large, yes.   And are there areas in which it is more likely that we can learn from other small countries –  and perhaps work effectively with them – than from very large countries?  No doubt.

Cadogan urges a peripatetic “colloquy” of small countries –  he listed Norway, Sweden, Finland, Denmark, Netherlands, Portugal, Switzerland, Ireland, Australia and Canada (the latter two far from small) and “perhaps” Uruguay.  This grouping could, he suggested, learn from each other.   It is hardly a new idea, and of course in many areas of policy there are just such groupings (eg a “small inflation targeters” grouping of central banks).     But it wasn’t really obvious what New Zealand had to offer or –  at least on some key issues –  learn.    Our strategic position is very different from almost all these countries.  Which is a variant on the point that our geography is very different –  incredibly remote –  and there are few/no relevant national comparators (and not very encouraging subnational ones) when one contemplate the implications of that remoteness.    Perhaps Uruguay fits the bill, but for all its relative success in the last decade or so, it remains materially poorer and less productive –  with less of a record of political or economic stability – than New Zealand.

Cadogan seemed very taken with Ireland –  he’s an Irish citizen too apparently – but showed no sign of appreciating that for all of Ireland’s exaggerated GDP per capita, once you look at the bit of economic activity benefiting the Irish people, Ireland’s story (prosperity) is nothing out of the ordinary: it is a fairly prosperous (but not first rank) European economy, and if there are lessons for New Zealand they are mostly about what we can’t do (not being a short distance from hundreds of millions of other very prosperous people).

There was upbeat talk about what a difference a New Zealand Nokia –  a big brand signifying New Zealand –  might make: Cadogan saw such a brand as a “sports lifestyle” one that would “walk through the walls that ideology imposes”.  Perhaps, but isn’t this just wishful thinking?   A bit like the talk, inspired by mention of the top Swiss universities, of what a difference it might make if New Zealand had two really good universities, one in sciences and one in humanities.  And yet, starting relatively poor and very distant, there was no hint of how this alternative world might come to be.

There are plenty of places in the world worse than New Zealand. But the notion of the world –  advanced world –  looking to New Zealand as some sort of lead, exemplar or guiding light seems little more than ludicrous in our current diminished state.    If anything, we might be a bit of an embarrassment –  the nice little country, that did so many reforms, and yet look at them now, still drifting  ever so slightly further behind, without even a political system or civil society to insist on something better, to set a different course.  And so remote that we don’t ever matter much to most of the rest of the world.  Sure, we don’t have Donald Trump –  but, fortunately, neither does anyone else.     But we have a (former?) CCP member, former member of the PRC military intelligence system in Parliament (chairing a Select Committee no less), and no one in the establishment here says a word –  at least in the US there is disquiet, and more, about Trump.

Lighthouses –  grand or otherwise –  warn sailors off rocks.  I noticed in the NZ History Twitter feed that yesterday was the anniversary of a dreadful maritime disaster here in 1894 (one of the two or three worst days, per capita, for the peacetime loss of New Zealanders in history) –  no mention of a lighthouse in the write-up.  If New Zealand is any sort of lighthouse to the world –  on these rocks pointed at the heart of Antarctica –  it is perhaps in the form of the salutary lesson: don’t do as we did, don’t end diminished as we now are.

Fluent and stimulating as Cadogan can be, it might also be a bit more encouraging if our Treasury itself showed signs of leading the way towards a much better-performing economy.  Perhaps we never again can lead the world –  as we were doing 100 years ago –  but whether it is economic policy, housing, or just the quality of our diminished government institutions themselves, we have to be able to do better than we are now.

 

Two years on

The weekend newspapers had several articles highlighting the second anniversary of the New Zealand First choice that led to the creation of the current government.  There was, for example, the double-page spread  in the Herald devoted to a not-at-all-searching interview with the Prime Minister and the Minister of Finance.  And there was another double-page article in the Dominion-Post looking at the government’s performance under a range of policy headings.  Since the government’s term is now two-thirds over –  likely to be in full campaign mode (say) nine months from now –  it seems not unreasonable to take a look at performance.

The Stuff political stuff divided up nine policy areas between them and wrote short reviews of the government’s performance in each of them.  On my reading, they tended towards a generous assessment.  All governments do stuff –  sometimes even just things in the works under a previous government – and where this government has done most (education notably) there isn’t a huge amount of evidence that there were real problems that needed fixing, or that their fixes were dealing with whatever real problems there were.

Take housing, for example, where the Stuff journalists summarise thus

Two years into the Government’s term, housing is far from Labour’s strong point, but it is not an area of total failure.

So house prices are still rising, rents are still rising (even in a low-interest rate world in which provision of rental housing could/should have been cheaper than ever) and there has been no legislation to free-up urban land markets, or to compel local authorities to operate a more liberal approach.   Set against that, a foreign buyers’ ban was largely irrelevant, and there is little reason to suppose that building a lot more state houses will increase the overall effective supply of housing (certainly won’t deal with the land issues).  For what was declared to be a “crisis” –  I’ll just settle for disgrace –  what has been done, or accomplished, is astonishingly little.  And it isn’t as if markets are pricing in better outcomes in future either.

But what really caught my eye was that there was no discussion of the government’s economic policy performance.  One might reasonably grant them a pass mark on fiscal stewardship –  but on anything beyond that the best reason why Stuff might have chosen to overlook this key area of policy is that there just isn’t much there at all.

Back when they were in Opposition we would, occasionally, here about the lack of any decent productivity growth, talk about growing export sectors, and so on.  Even today, the mantra of a “productive and sustainable” economy gets rolled out from time to time…..but with almost nothing to back it.

Actual productivity growth still languishes – running at no more than 0.5 per cent per annum, slower than in most other OECD countries. (It is fair to note here that there could be material revisions to a large number of macro series over the next couple of months, consequent on the census (and subsequent creative efforts) results, but there is no obvious reason to anticipate material improvements.)

There is no sign that the external orientation of the economy has strengthened (eg exports and imports as a share of GDP). no sign of robust business investment, and of course we all know that business confidence results are in the doldrums.  Interest rates have had to be cut further and the real exchange rate remains pretty high.

And what response has government policy made?   The government seems to have made quite a fuss about the new research and development tax credit. But they’ve produced no sustained analysis illustrating why this will make a great difference – and no sustained either looking at why firms didn’t regard higher rates of R&D spending here as offering attractive risk-adjusted returns.  And that really is about it.

And on the other hand, we have the government sitting idly by while the Reserve Bank Governor pursues his whim of making credit less readily available and more expensive, a halt to most new road-building even as the population continues to increase rapidly (and not, even, say, a congestion-pricing regime that might help reconcile the two), a ban on most oil and gas exploration, looming new regulatory restrictions around water.  Oh, and immigration policy –  for which there is no evidence of systematic economywide gains, in a country where (fixed) natural resources underpin prosperity –  is, if anything, becoming more liberal.

The government keeps telling us it has a plan.  I wrote here at the start of the year about an economics speech the Prime Minister gave, concluding

If there is any sign of a plan, it isn’t one that is going to do anything to lift our economic performance, in the short or longer-term.   All indications are that the Prime Minister doesn’t care. 

And then last month the government released something they did call an “Economic Plan” – in fact a thirty year one.  Notwithstanding all the glossy pictures and long lists of points, it sank without a trace, barely even reported at the time, even with a supporting op-ed from the Prime Minister herself (my take was here).

Once upon a time, I wondered (perhaps naively) if perhaps they –  upper reaches of the Labour Party – really did care.  They should.  After all, it is their traditional voters –  the poorer people, the working classes, the younger –  who suffer most from the decades-long failure of successive governments to improve New Zealand’s woefully poor productivity performance.    But all the evidence from their time in office is that any care is superficial at best.  Sure, they’d probably welcome a much better performing economy if it suddenly dawned fresh and shiny.  But they seem to have no real ideas, no compelling narrative, for how to markedly re-orient our economic performance, and they is no apparent interest in finding answers, or ensuring that our economic policy and analytical institutions are delivering them serious advice, grounded in the actual experience of New Zealand, on policy approaches that might really make a difference.

It is an utter abdication of responsibility.  No one made them run for office, no one forces them to stay in office, but when they take office they have responsibilities for the future prosperity of New Zealanders that they show no sign of taking at all seriously.

An academic economist left this comment on one of my weekend posts

With this in mind, I must confess that I always threaten to fail my Otago students if they don’t migrate to Austalia, because it shows they haven’t learnt anything from me; but the university doesn’t allow me to deliver on the threat. Still, most would be financially better off if they took this advice, and migrated to a place where better firms are located, and sought jobs there.

Sadly true.  And what a sad commentary on decades of policy failure here: Labour ministers currently hold all the key portfolios (Prime Minister, Minister of Financem Minister of Economic Development) and it is their failure now.

 

Rygbi

My 12 year old daughter has been teaching herself Welsh –  a recent birthday present was a good Welsh-English dictionary – we’ve recently been watching a rather bleak Welsh detective series together, and this year she has also become (unlike her father) a bit of a rugby (“rygbi” in Welsh apparently) fanatic so I promised her that if Wales made the World Cup semi-finals I’d do a Welsh-themed post.  That’s economics rather than rugby though.

One of the themes of much modern economics literature is things about cities, location, agglomeration, distance and so on.  According to Eurostat data, London has the one of the very highest GDPs per capita of any region in the EU¹.  The two largest cities in Wales –  Cardiff and Swansea –  are each less than 200 miles from London.  And yet estimated GDP per capita in Wales is only about 40 per cent of that in London and 75 per cent of that in the EU as a whole (71 per cent of the UK as a whole).  Productivity in Wales (GDP per hour worked) might be about that of New Zealand.

And yet Wales has much the same policy regime as London.  Much the same regulatory environment, same income, consumption, and company tax rates, same currency (and interest rates and banks), same external trade regime, same national government (and as I understand it the Welsh regional administration doesn’t have control of very much), and the same immigration regime.  Most of the people are native English speakers (even many of those who also speak Welsh).

Huge populations are free to move to Wales.  There are 66 million people in the UK who face no regulatory obstacles to doing so.  They could set up firms in Wales.  So –  for the moment –  could people in most of the EU, and all legal migrants to the United Kingdom (with no particular ties to any other UK region) could move to Wales.  It isn’t open borders but in practical terms it is much closer to it than almost any sovereign state.

And yet……by and large they don’t.  The population of Wales today is only 50 per cent larger than it was in 1900 and only about 5 per cent of the population is born outside the British Isles.  Here is the share of Wales in the total population of the Great Britain.

wales 1

Wales used to have things going for it: plenty of room for sheep (wool and meat were two of our big exports to the urban population of the UK), the world’s largest slate industry,  and coal (lots of it) and the associated iron and steel (the latter booming from the start of the 20th century) industries.

But not, it appears, very much at all these days.   There is some tourism, some electricity exports (to the rest of Britain) and, of course, a variety of other industries.  It all generates tolerable living standards. albeit supported by significant inward fiscal transfers.  Unemployment is low, and (by New Zealand or London standards) house prices are fairly low –  Swansea (second biggest city) has median house prices around $350000.  But people in the rest of the UK, migrants to the UK, and –  importantly – actual/potential entrepreneurs don’t seem to find it terribly attractive.  Perhaps it would be different if it were an independent country –  the Irish company tax regime is apparently eyed up by some. But as it isn’t, one gets a cleaner read on the pure economic geography effects.

It is interesting to wonder what might have happened to Wales if it were an independent country and, all else equal, had had control of its own immigration policy.  What if they’d adopted a Canadian or New Zealand immigration policy –  or something even more liberal –  20 years ago?   Since there are plenty of places in the world much poorer than Wales (or New Zealand), and Wales itself is a small place, presumably they’d have had no trouble attracting people –  at least modestly qualified people from places poorer, or less safe, again: China, India, South Africa, the Philippines (to name just four significant source countries for New Zealand).   Even if many of the migrants initially saw Wales as backdoor entry to England, if New Zealand’s experience is anything to go by (become a citizen here and you can immediately move to much wealthier Australia) most wouldn’t.  Presumably the Welsh building sector would have been a lot bigger, but it isn’t obvious that many more outward-oriented businesses would have chosen Cardiff or Swansea over London or Paris or Amsterdam, even with the rest of Europe more or less on the doorstep.

Tasmania is another interesting example.  Like Wales, it shares essentially the same  policy regime (taxes, currency, external trade, most regulation) with the sovereign country it is a part of, in this case Australia.  There is unrestricted mobility for people within Australia, and external migrants –  including those from New Zealand –  can as readily settle in Tasmania as anywhere else in Australia. Hobart always looks like a really nice place.

Oh, and the population share of the total country is also small.  But the fall in the population share has been much sharper than for Wales.

wales 2

People –  and firms –  could choose to go to Tasmania but, by and large, they choose not to.  It is, after all, quite a way from Melbourne, and you can neither drive nor take a fairly-speedy train.   And unlike Wales, Tasmania is close to nothing else: Cardiff is much to closer to Dublin, Paris, Brussels, Amsterdam or even Frankfurt than Hobart is to Adelaide or Sydney.  Perhaps even more than Wales, the economic opportunities seem to be mostly in the natural resources (and no big new developments there in recent decades) and a few niche industries that might be there because the founder happens to like living there.   GDP per capita in Tasmania is just under 80 per cent of the whole of Australia average.

One could also do an interesting thought experiment as to what might have happened if Tasmania had been an independent country and had its own immigration policy.  Even had they just adopted the same policy as Australia did, almost certainly their population today would be materially larger than it now is (Tasmania now has three times the population it had in 1900, while Australia as a whole has more like seven times the 1900 population).  Being even smaller than Wales they’d have had no trouble attracting people.   But –  even more so than for Wales –  you are left wondering how many more outward-oriented businesses would have chosen to stay based in little Tasmania (few enough outward-oriented businesses are based in even the big Australian cities).

Are there lessons for New Zealand.  Our population has increased almost sixfold since 1900. In that time, we’ve fallen from (roughly) the highest GDP per capita anywhere to somewhere badly trailing the OECD field –  and maintaining even that standing only by work long hours per capita.

wales 3

It looks great to the strain of “big New Zealand” thought that has been around since Vogel at least.  But to what end, for New Zealanders?

Think of one last thought experiment.  What say we’d agreed a completely common immigration policy with Australia and held that in place for the last few decades?  More or less exactly the same number of people would probably have come to Australasia in total, but what do we supposed would have been the split between Australia and New Zealand.   It seems only reasonable to assume that a much larger proportion would have gone to Australia (than did).  After all, even those who went to Australia had a choice of Tasmania if they wanted cooler climes and a slightly slower pace –  but, to a very large extent they didn’t.  And we know what New Zealanders themselves –  who had ties to this physical places –  were choosing over the last 50 years, as hundreds of thousands left for the other side of Tasman.

And had that happened –  and perhaps New Zealand’s population was 3 million not almost 5 million –  is it likely that any fewer market-driven outward-oriented businesses would be based here than are today.   The land, the water, the minerals and the scenery would all still be there.  And how much else is there?

As a best guess, if by some exogenous policy intervention there had been another two million people –  of moderate skills etc – put in Wales, or another half million in Tasmania, it is difficult to have any confidence that average real incomes in either place would be any larger than they are now.  Most probably, they’d be worse off –  as say, the residents of Taihape probably would be if some exogenous intervention put another 5000 people there.  Having put an extra couple of million people in New Zealand – more remote than Tasmania, much more remote than Wales –  and not seen the outward-oriented industries, based on anything other than natural resources growing – we might reasonably assume we (New Zealanders) are poorer as a result.

Smart people are almost always a prerequisite to high incomes, but globally the top tier of incomes seems to focused on industries located in or near big cities, near big population concentrations, or on (finite) natural resources.   You can earn a very standard of living from finite natural resources –  it is the edge Norway has over the rest of Europe – but it looks pretty insane to confuse the two types of economies (when you have no realistic hope of transitioning from one to the other) and spread natural resource based wealth much more thinly by using policy to actively encourage rapid population growth.

From a narrow economic perspective –  and it isn’t of course, the only one the matters – the best thing for people from a lagging economic performance area is to leave.  It is what people did from Taihape or Invercargill, from Ireland for many decades, and (more recently and on a really large scale) what people did from New Zealand as a whole.   Governments can mess up that picture. In a way the Welsh are fortunate to have a rugby team but not an immigration policy, at least had they had the misfortune to have had policymakers like New Zealand’s.

 

  1.  Technically Luxembourg tops the table, but since a very large chunk of Luxembourg’s workforce doesn’t live there the numbers aren’t particularly meaningful (sensible comparisons need to take account of all the  – typical modest-earning –  support services populations need/use where they live).

Productivity (lack of it) and other things

When I was writing some comments last week on Reserve Bank Deputy Governor Geoff Bascand’s speech in Australia I was playing round with some comparative data and stumbled on this chart.

nzau 1

Over the entire period (since 1991) real GDP per capita has grown at exactly the same rate in Australia and New Zealand.   And I haven’t even cherrypicked the starting point: my chart starts when the SNZ quarterly GDP per capita series starts.

Of course, even in 1991 we were materially less well off than Australians, but should we take some comfort from having kept pace over now almost 30 years?  I’d say not.

Here’s why.   Look at the employment rates in the two countries

nzau2

You might be among those who think the more employment the better but (a) working is a cost (an input) to the employee and (b) wouldn’t it have been much preferable, even if you think higher employment rates are some great thing, for it to have resulted in more growth in average per capita income than in the country where employment rates didn’t increase as much?   Australia’s unemployment rate is a bit higher than ours, and that is a mark against them, but it is only a small part of the difference in the employment rates.

And here is a chart that is perhaps even more stark.

NZau3

Across the whole population, the average Australian is now working 5 per cent more hours than in 1991, while the average New Zealander is working 22 per cent more hours.

And yet the bottom line, growth in average real output per capita, is the same.

The difference is productivity – or, more specifically, in our case the lack of anywhere near enough productivity growth.

I’ve got other things on today, so that is it for original content.  But earlier this morning I was rereading my submission to the Reserve Bank consultation on the Governor’s plans to require large increases in bank capital.   There wasn’t anything in it I would now resile from.  I also skimmed through former colleague, and expert in bank capital modelling, Ian Harrison’s papers (here and here) and I doubt he would resile from anything in there.

But what remains striking is how little engagement there has been from the Governor on his proposals.    He has only given four on-the-record speeches this year, not one of which has involved a serious sustained attempt to make his case, let alone engage with alternative perspectives.  The only attempts I’ve seen to respond to alternative perspectives seem to simply involve suggesting that anyone who disagrees with him is somehow bought and paid for, and therefore their views aren’t worthy of serious notice or scrutiny.

At one level, it shouldn’t be surprising, given Orr’s personality and intolerance of challenge or disagreement –  and the fact that, formally at least, he doesn’t have to convince anyone but himself (since he is prosecutor, judge, and jury in his own case, and there are no rights of appeal). But as matter of good governance, in a democratic society, it reflects very poorly on him, on his handpicked senior managers, and on the Bank’s Board and Minister of Finance who are paid to hold the Governor to account but in fact act as if there role is to simply get out of the way and let the Governor get on with it, poor as the process and substance have been, poor as Governor’s conduct increasingly seems to have been.

And so I’ll leave you with some of the unanswered points from my submission

An unbiased observer, looking at the New Zealand economy and financial system, would struggle to find a case for higher minimum capital ratios.   Among the factors such an observer might consider would be:

• The fact that the New Zealand financial system has not experienced a systemic financial crisis for more than hundred years (and to the extent it approximated one in the late 1980s, that was in the idiosyncratic circumstances of an extensive and fast financial liberalisation which left neither market participants nor regulators particularly well-equipped),

• Our major banks – the only ones that might pose any serious economywide risks – come from a country with very much the same historical record as New Zealand,

• Despite very rapid credit growth in the years prior to 2008 (increases in the credit to GDP ratios among the larger in the advanced world, spread across housing, farm, and other business/property lending), and a severe recession in 2008/09 and afterwards, the banking system emerged with low loan losses,

• Since then, banks have not only increased their actual capital ratios (and been required to calculate farm risk-weighted assets more stringently) but have also substantially improved their funding and liquidity positions (under some mix of regulatory and market pressure).

• Over the decade, bank credit growth (relative to GDP) has been pretty subdued and there has been little or no evidence (in, for example, Reserve Bank FSRs) of any serious degradation of lending standards.

• The balance sheets of the large banks remain relatively simple, and there has been no sign (per FSRs) of the sort of financial innovation that might raise significant doubts about the adequacy of existing models.

• In terms of the wider policy environment, government fiscal policy remains very strong, we continue to have a freely-floating exchange rate, and there has been neither legislation nor judicial rulings that will have materially impaired the ability of banks to realise collateral.

• And the Open Bank Resolution option for bank resolution has been more firmly established in the official toolkit (note that if OBR were fully credible then, in the absence of deposit insurance, there would be little case for regulatory minimum capital requirements at all).

• And repeated stress tests –  over a period when the regulator had no incentive to skew the tests to show favourable results –  suggested that even if exposed to extremely severe adverse macro shocks, and associated large price adjustments for houses, farms, and commercial property, not only would no bank fail, but no bank would even drop below current minimum capital requirements.

• Consistent with this experience – also observed in Australia, the home jurisdiction of the parents of our major banks – the major banks operating here continue to have strong credit ratings (consistent with a very low probability of default), and the ratings of the parent banks are even higher.

• There has been no change in the ownership structure of our major banks, or in the implied willingness of the Australian authorities to support the (systemically significant) parents of the New Zealand banks were they ever to get into difficulty.

Add into the mix indications that New Zealand banks CET1 ratios, if calculated on a properly comparable basis, would already be among the highest in the advanced world –  in a macro environment with more scope for stabilisation (floating exchange rate, strong fiscal position, little unhedged foreign currency lending) than in many advanced countries –  and there would be a fairly strong prima facie case for leaving things much as they are.

But the Reserve Bank’s consultative document – and associated material, including speeches and interviews – engages substantively with almost none of this context.

And

It is grossly unsatisfactory that throughout months of consultation the Bank has made no effort to illustrate how its proposals for minimum CET1 ratios and the associated floors around the calculation of risk-weighted assets, compare with those planned by APRA for the Australian banks.

Such an exercise should have been relatively straightforward, especially if the Reserve Bank had done what most New Zealanders might reasonably have expected, and worked closely together with APRA in formulating its proposals.  Of course, New Zealand is a sovereign nation and the Reserve Bank (regrettably) has final decision-making powers in New Zealand but:

• APRA has a considerably deeper pool of expertise, including at the top of the organisation, than the Reserve Bank of New Zealand,

• The nature of the risks in the two economies and markets is quite similar (including similar legal institutions, and similar housing markets),

• If anything there is a case for thinking that APRA minima would be ceilings below which New Zealand requirements for our large banks should be set (since we have the benefit of strong parent banks, and well-regarded supervisor of those banks, whereas the parents  – and parents’ supervisors – themselves are on their own, and we have also chosen to have the OBR as a frontline resolution option),

• For the institutions that might pose potential systemic issues in New Zealand, any substantial increase in capital requirements can reasonably be seen as an attempt to grab group capital for New Zealand.  Why not work these things out together?

The onus should, surely, be on the Reserve Bank of New Zealand to demonstrate – make the case in detail – why the New Zealand subsidiaries of Australian banks should be subject to more onerous capital requirements than the parents, and banking groups as a whole, are subject to.  But not once has the Reserve Bank attempted to make that case.

I ended

New Zealanders deserve better than they have had in the poor process and weak substance that together made up this consultation.

To which one can only add that the repeated reports  –  some of things in public, others less so –  of the way the Governor has handled himself, his own conduct, through this episode are deeply disquieting.  There is little sign of the sort of character and temperament we should expect from a senior public servant exercise so much barely-trammelled power.  The Minister of Finance may declare that he has full confidence in the Governor.  The public should not, and if the Minister continues to sit on the sidelines doing nothing but expressing full confidence that should probably raise more questions about the Minister himself.

Meanwhile, one wonders what our new Australian Secretary to the Treasury makes of her first encounters with national policymaking and advice.

Productivity growth (or lack of it)

In yesterday’s post I included this chart of multi-factor productivity growth data for the 23 advanced countries the OECD produces estimates for.

king mfp

One always has to be a bit careful about MFP estimates, which are only as good as the model (and labour and capital input estimates) used to calculate them.   But when I looked at the OECD labour productivity growth data –  same countries, some period –  the picture was strikingly similar.

GDP phw 23

There is, perhaps, more of a suggestion that productivity growth was already slowing before the events of 2008/09, but still a fairly sharp fall-off in the last decade as well.

I used 10 year average data in these charts because (a) Lord King appeared to be focusing on the pre and post crisis periods (it is now roughly 10 years since the crisis), and (b) because, at least for some countries, there is quite a lot of year-to-year noise, which probably only signifies measurement error.  But out of interest, here is what those lines look like calculated as five year averages.

productivity 0ct 19

There is some sign of a bit of a rebound in productivity growth, especially for MFP.  But (a) most recent periods are probably prone to revisions, and (b) even the latest observations are nowhere near the growth rates being recorded 15 or 20 years ago.

Over the most recent five year periods, New Zealand ranked 4th to last for labour productivity growth, and simply last for MFP growth.    We managed 0.0 per cent average annual growth in labour productivity (on this measure) over the five years. By contrast, the median average annual growth rate for labour productivity over that period for the eight former eastern bloc members of the OECD was 2.3 per cent.

The OECD MFP data begin in 1984.  That just happens to be when the decade of far-reaching economic reform began in New Zealand.     When that reform process started New Zealand was already lagging badly behind the advanced members of the OECD: the OECD doesn’t have MFP levels data, but in terms of real GDP per hour worked, ours in 1984 was only about 75 per cent of the median for the 25 countries for which there is data.   The reform process was supposed be about catching-up again.  (There are a few people who will dispute that last claim, suggesting that it was only really about ending the decline or even slowing it.  But even if some of those individuals really were pessimists even then –  perhaps because they think the reforms were not nearly far-reaching enough –  it was not the way the story was sold, whether by local politicians or international agencies. Here was the Minister of Finance in 1989.)

caygill 1989 expectations.png

So how have we done since 1984?  On MFP growth

MFP since 84

There are (a few) countries that have done worse than us, but not many (and not mostly ohes that represent much to boast about).  You’ll either recall, or have read about, the rank inefficiencies in the New Zealand economy in 1984,  But since then we’ve lost ground relative to the typical other advanced OECD countries.

It is only one estimate.   Labour productivity –  GDP per hour worked –  is less model dependent and thus a bit more reliably estimated.

real GDP phw since 84.png

We do a bit less badly on this measure.  But the median of these advanced countries –  already materially richer/more productive than we were – managed average annual growth of 2.2 per cent per annum over this period while we managed only 1.6 per cent annum.  Over 35 years, that amounts to drifting a long way further behind.   We are now about 65 per cent of the GDP per hour worked of the median country for which the OECD has data for the whole period.

And one last chart: labour productivity growth since 2000 (when there is data for all of them) of the former eastern-bloc countries and New Zealand.

e europe oct 19.png

All of these countries were not-very-market-at-all Communist regimes in 1984 (three weren’t even separate countries).  Three of the eight now have average productivity levels equal to or exceeding New Zealand (and the worst only lags us by about 15 per cent).  But their growth rates are still much faster than ours.

I’m not here to refight the wars over the broad direction of the reforms New Zealand undertook from the mid 80s to the mid 90s. Most of those reforms were sensible –  although I’d nominate three important exceptions.  But the fact remains that, appropriate or not, decades on we have made no systematic progress on convergence and catch-up, and are actually drifting ever further behind.

But is there any real sign either of our major political parties care, let alone be willing to identify and initiate changes that might finally turn things around?  Not that I can see.

There are global problems and failings –  where this post began – and we can’t do anything about fixing those.  But we could –  and should – be doing much better for our own people, starting (as we do) already so far behind.

Not doing very well at all

I heard the Prime Minister on Radio New Zealand this morning running (again) the same spin that seems to go with the job, that somehow if New Zealand’s economic performance is perhaps not all we might hope for, it is at least as good –  better is the typical claim –  than other advanced countries.     Almost always such claims seem to rest exclusively on the rapid and policy-driven population growth New Zealand governments have chosen –  which boost the headline numbers, regardless of whether they leave the average New Zealander better off (in New Zealand’s case, experience increasingly suggests not).

But any meaningful comparison of economic growth across countries needs to adjust for differences in population growth rates.  Per capita statistics aren’t a radical innovation.  They have long existed for exactly that sort of purpose.

It used to be quite hard to get a reasonable sample of countries’ quarterly real GDP numbers.  But the OECD now routinely publishes such numbers.   A few countries seem to be a bit slow at providing the numbers the OECD uses, but when I checked there were 32 OECD countries with quarterly real GDP numbers up to and including the June quarter of 2019 (our most recent data).

This chart shows the latest annual growth rates for those countries, using national agency data for Australia and New Zealand and the OECD data for the rest.  There are two measures: the annual percentage change is the increase from the June quarter 2018 to the June quarter 2019, and the annual average percentage change is the increase from the year to June 2018 to the year to June 2019.   The latter series is a bit less noisy, but also a bit less timely.  As it happens, this time New Zealand’s rank is exactly the same on both measures.

Growth in real pc GDP

There are countries that have done worse than New Zealand: if one broke the group into thirds we’d be close to the bottom third of countries.  But that shouldn’t be much consolation, since we have much lower starting levels of GDP per capita (and GDP per hour worked) than most of the countries to the left of the chart.  The vision was (once) supposed to be that we might once again catch up with them.

Instead, at best we’ve been roughly matching the countries that are much richer and more productive than New Zealand, while the countries that are increasingly similar to us in productive levels rack up really strong growth rates (see seven of the eight countries to the right of the chart –  and the Irish numbers are generally best discounted because of the corporate tax distortions).       Here are the respective productivity levels

east europe GDP phw

Over the last year, these countries averaged growth in real GDP per capita of just over 3.5 per cent per annum.  New Zealand?   About 0.8 per cent.     And yes growth rates are slowing around the world, but over the last three years, those eastern European successful economies averaged 4.3 per cent per capita growth, while New Zealand averaged 1 per cent (in the bottom third of OECD countries).  That is the sort of catch-up that can be achieved.

Are there potential caveats to all this?  In respect of comparisons with the older advanced economies (those now mostly materially richer and more productive than we are), yes.   GDP numbers are revised and with the added imponderable of the new results of the flawed census there will be changes to data over the next few months (SNZ is releasing some new labour market estimates later this morning). But nothing is likely to change the pattern I illustrated the other day

pc GDP growth

Growth in real per capita GDP – never good at the best of times this decade (compared to previous cycles) – has been tailing off, and that conclusion is most unlikely to be changed by any revisions.

Even more certainly, no conceivable revisions are going to change those huge gaps between the growth rates (per capita) of the rapidly emerging eastern European countries –  every single one of which was until now poorer and less productive than New Zealand for at least the last 160 years –  and the pitifully poor growth rates –  per capita GDP or productivity –  managed by New Zealand.  It is a bi-partisan failure, but Labour, Greens, and New Zealand First are now in government.  It is their responsibility, but they seem clueless, careless (ie many just don’t seem to care much if at all), and determined to do whatever possible to try to pretend there isn’t a problem, a failure, and that all is really pretty rosy in the economic garden, and if there are any issues they are all the fault of others.

The problem, the failure, starts at the top, with a Prime Minister and Minister of Finance who continue to simply repeat the spin, which bears little or no relation to the dismal reality of New Zealand’s multi-decade productivity underperformance.  But they are aided and abetted by the Governor of the Reserve Bank, who simply makes things up (he was yesterday out claiming that “The New Zealand economy has proved resilient through a period of weakening global growth and heightened global uncertainty”) and the situation won’t be helped by a Secretary to the Treasury who knows almost nothing about New Zealand or about managing a national economy.  Our economic and political institutions, and their key individuals, are failing us.  New Zealanders –  not those key decisionmakers and advisers –  pay the price of failure.