New Zealand economic performance

National’s economic plan

Michael Reddell New Zealand economic performance, Productivity

I’d seen a few underwhelmed comments on the speech by Simon Bridges earlier in the week, “National’s economic plan for 2020”.   But just possibly some of those critics had missed some real gems, that might signal an Opposition party really serious about addressing New Zealand’s longrunning economic failures. For anyone wanting the short version, there was nothing of that sort.

I was quite critical of Bridges’s speech to the National Party conference last July

But, for all the almost ritualised mentions in Simon Bridges’s speech of the importance of a strong economy (even the Prime Minister mouths those sorts of line from time to time), there was nothing –  not a word –  to suggest that he recognises that the biggest obstacle to higher material living standards (whether in the form of cancer care or other public or private goods and services) is the woeful productivity record that successive governments –  led only by National and Labour –  have presided over.    There is plenty of talk about cyclical issues, but nothing about the structural failures, and nothing about what National might do that would conceivably make a real difference in reversing that performance.

Sure, it wasn’t primarily a speech about economics, but there has been nothing from Bridges or his colleagues elsewhere, and no hint of a recognition here, that much-improved productivity performance is the only sustainable path to much better material living standards.  And not a hint of a recognition that these failures were already well apparent in the government in which he served (latterly as Minister of Economic Development) –  and if you think politicians never make such acknowledgements then (and in fairness to Bridges) I should point out that in his brief speech at the start of the conference he did acknowledge that National hadn’t done that well on housing (“but we weren’t Phil Twyford”).

But I was a bit more positive about the economic policy discussion document released a month or so later.

Quite a few of things National is proposing look sensible. The general direction looks sensible.   The rhetoric is better than it was –  although, by itself, such rhetoric is cheap, and is the sort of thing most Oppositions for 25 years have eventually come round to saying.  But the scale of the policy response they are talking about is simply incommensurate to the scale of the problem (much of the policy mix they are suggesting is carrying on a broad approach they adopted in government, and productivity growth was very disappointing then).  For New Zealand average labour productivity to match that in top-tier OECD countries would require a 60 per cent lift from where we are.    That is simply huge.  Huge problems are rarely successfully answered with small changes (even a succession of them).

And so my challenge to National is along the lines of that the rhetoric is great, and I hope it reflects a shared sense that New Zealand’s long-term economic performance really is deeply disappointing, and has not sustainably improved –  relative to other advanced countries –  for any prolonged period for many decades now.  As they say, that has real implications for us, our children and our grandchildren, for the material living standards –  and public and private services –  we can achieve for the population as a whole.

But if you are serious, and you really mean what you say – all those good quotes I posted earlier –  you need to keep thinking harder, digging deeply, consulting broadly and testing and evaluating the proposals and analysis put to you.   Great ambitions need to be matched by excellent analysis, courageous policy, and skilful management of the political challenges.   Perhaps for many in the National caucus, winning the next election is all that matter, but I’d urge the party, and its members, not to focus on the small ambitions, but on the really big challenge that, successfully confronted, would so much transform New Zealand for the better, for almost all New Zealanders.

That was six months ago,  The election is now only seven months away, and if the speech earlier this week wasn’t intended to set out too many details (specific tax rate changes etc), if there was any sign at all that they were serious about more than just gettingback into office, it should be showing through by now, reflecting some sort of integrated story –  and telling that story –  about what has gone wrong, what needs to be done quite differently, and how National under the leadership of Mr Bridges proposed to set about doing it.   But no.

So what does he have to say?

It is pretty much all cyclical stuff.

The first page is pretty much a boilerplate recitation of the woes and challenges of the wider world, and there isn’t anything very much to disagree with.    Then we get this

Our commodity prices are high and our terms of trade are near the best they have ever been. From our primary sector through to our technology and innovative sectors, New Zealand should be booming and the envy of the world.

Perhaps there is a small amount to such a story on a cyclical basis, but no one in their right mind would envy our structural performance, among advanced economies, at any time this century (arguably, for most of the previous half-century either).

I’m not going to disagree with much of the shorter-term stuff

Because Jacinda Ardern’s Government has failed to deliver on its promises, has piled on the tax, cost and red tape, made things more uncertain domestically at a time of global uncertainty, and as a result New Zealand has become a country of lost opportunities.

They [people] deserve a government that does what it says it will, that delivers with certainty and removes barriers and burdens like tax, cost and red tape.

But then it starts getting a bit odd.

We have slipped to the seventh lowest GDP per capita growth in the OECD. We are behind countries like Chile, Hungary, Poland, Latvia, Estonia, Lithuania, Spain and even Greece.

Which is a rather odd list to be anguished about, seeing as all those eight countries have lower per capita GDP than we do (Spain is very close).  In conventional analysis of such things, one might reasonably expect (and hope) that poorer countries will grow faster than rich countries so that, over time, economic performance converges.    Oh, and Greece was coming off the back of probably the most savage economic downturn in the advanced world in almost a century, so it would be a surprise –  nay, a worry –  if they did not eventually begin to limp back towards full employment.

So, really strange list of countries, but it is certainly a fair point that seventh lowest per capita GDP growth in the OECD is pretty bad.    Unfortunately it has become par for the course.  For the whole period since 1970, we’ve had the third lowest growth in real per capita GDP in the OECD (small sample of countries for which there is data for the whole period).    There is complete data for the whole OECD membership since 1995, and over that period –  after all the reforms we did, but also period presided over by both National and Labour governments – we were 11th worst (out of 36 OECD countries).

And on productivity growth –  real GDP per hour worked – the only secure underpinning for long-term improvements in living standards, we’ve been 7th worst in the entire OECD over that whole period since 1995.

We’ve been doing poorly, mostly drifting backwards, relative to other advanced countries for a long time.     And if one year’s growth –  thrown around by all sorts of things, including measurement challenges (who knows how our latest annual growth rate will finally be measured, or ranked against those of other countries, when all revisions are in several years hence) makes for short-term political headlines, it is mostly a distraction from the real long-term failures.    A deliberate one one might suggest.

I couldn’t exactly replicate the Bridges claim that we were 7th worst in per capita growth –  I’m sure it is so on some or other series, but the ones I happened to check gave slightly different results.   I’m assuming he was using annual data, for which the most recent numbers are of course 2018 –  quite a lot (good and ill) has happened since then. I also checked the OECD quarterly seasonally adjusted per capita data, and as happens can offer a factoid Bridges might like: in the two years to September 2019 (latest official data, and covering the full period of this government) New Zealand’s per capita GDP growth shows as being 11th worst in the OECD, while for the previous three years (final term of the National government) we were 14th best –  ie actually better than the median OECD country.

But…..productivity.  Have I mentioned productivity?  (Bridges didn’t)   Over that whole five year period, our labour productivity was fifth worst in the OECD.   That was National’s failure, and it is Labour’s failure.  It would now take a 67 per cent lift in average New Zealand labour productivity to match average productivity in the leading OECD group (a bunch of north European countries and the US).

Now, in fairness to Bridges, there is one vestigial reference to such gaps

In comparison, if our GDP per capita were as good as Australia’s, the average Kiwi would be 35 per cent richer.

By my reckoning that is more like the productivity gap than the GDP per capita gap, but either way it is a big number.   No narrower now that it was –  wider on the productivity measure –  before the last recession.

Bridges goes on

That doesn’t happen by accident, it doesn’t take a country the size of Australia to achieve it. It happens when you have a strong economy focussed on you. Led by a competent government with a track record of delivering.

As Economic Development Minister and Associate Finance Minister, I saw how real this is.

Except that the gaps didn’t narrow then either, and all he goes on to enumerate is a series of either modest cyclical points or wholly rhetorical ones

It’s about getting up in the morning and seeing New Zealand ambitious and confident about itself again.

National’s response

National’s focus is simple and resolute.

  1. We will keep taxes and red tape low and grow incomes to help with your cost of living
  2. We will be responsible managers of the economy
  3. We will focus on growing the economy for all
  4. We will invest more in core public services like health and education
  5. Finally, we will create more jobs and opportunities for all New Zealanders

Except for the first half of item 1, Labour could – probably did – trot out exactly the same list in 2017.

He then gets a little more specific

To do this, today I am announcing five key measures that I want the sixth National Government’s first term to be measured by. They are things that matter to Kiwis because they impact us in our everyday lives.

  1. New Zealand’s economic growth is back to at least three per cent per annum.
  2. New Zealand’s growth rate per person is in the top half of the OECD
  3. We are reducing the after-tax income gap with Australia
  4. More New Zealanders feel they can reach their potential at home, rather than overseas
  5. We have revived business confidence so that businesses feel like they can take more risks and create opportunities for you and your family

Nothing very wrong with that I guess, but not much ambition either –  nothing about the level of GDP for example.   Nothing about productivity, and –  re the final point – business investment was really rather subdued under the previous government as well.

How will this be done?

Over the next few months I will be announcing our comprehensive Economic Plan.

The five major planks to it are five packages on:

  1. Tax relief
  2. Regulation reduction
  3. Infrastructure
  4. Small Business
  5. Families

Details to come, to be sure, but it is hard to believe it will amount to much, beyond a bit of political product differentiation, and (no doubt) a few useful steps at the margin.     If you plan to spend more, and keep the budget more or less in balance, for example, there is hardly room for game-changing tax reform.     And if I really quite like this

We have already promised to cut red tape and regulation. We will light a regulations bonfire in our first six months of government, and cut two regulations for every new one we create.

it isn’t much different to what National always says in Opposition, which never amounts to very much in government.  Why will this time be different?  Did Bridges have a reputation as a reforming liberaliser when he was a Cabinet minister?

The speech goes on with some soft-soap stuff that I won’t trouble you with.   And then we get to the conclusion

National’s view is that the 2020s should be New Zealand’s decade.

Which sounds good, but there is nothing in the speech suggesting thought, ideas, plans, ambition commensurate with the scale of that challenge.   It is really just a promise to manage a bit more compentently –  not an unworthy goal necessarily, but just part of keeping our ongoing relative decline tidy.   Ours kids deserve better.

Then there is this sentenc.  I read it first yesterday and read it again today and it still makes no sense –  or, most generously, just repeats itself in saying nothing.

Our ambition as a country can never be too great for what we need to achieve.

The decades of economic failure just keep on mounting up, on watches overseen by both National and Labour.  The scale of the failure –  the extent to which relative material living standards here have slipped away – is huge.  But while Bridges –  just like Ardern, or Key, or Clark, or Shipley –  might like to leave the impression they might finally be the one to wave a magic wand, all the evidence is that they (a) they don’t really care, and (b) have no serious ideas about what went wrong and no serious interest in knowing, or doing, what it might take to really turn this country’s economic future around.

If, perhaps, none of that is a surprise, I suppose we should simply be “grateful” that Bridges’s speech, just a few months out from the election, makes that indifference utterly clear.

 

 

Product market regulation

Michael Reddell New Zealand economic performance, Regulation

Writing yesterday about the Productivity Commission’s draft report on why firms don’t invest more (in “technology”), prompted me to take a look at the OECD’s Product Market Regulation (PMR) indicators.    In the OECD’s own words

The economy-wide PMR indicators measure the regulatory barriers to firm entry and competition in a broad range of key policy areas, ranging from licensing and public procurement, to governance of SOEs, price controls, evaluation of new and existing regulations, and foreign trade.

There is both a summary economywide indicator (the focus here) and a range of detailed component indicators and sectoral indicators.   As always with cross-country attempts to assess policy, the indicator(s) won’t be perfect, but such indicators can still shed some light on differences across advanced economies and across time –  the OECD has published the data every five years starting in 1998.

Here are rankings for 1998.  (On this measure, the lower the score the less burdensome -or whatever your descriptor – the product market regulation is.)

PMR 1998

In the wake of those numbers, when people talked about the productivity performance in New Zealand you’d often here something like “well, our business regulation is less burdensome than almost anywhere in the OECD” so (among the optimists) gains will follow or (among those less sanguine) whatever the big issues are they seem unlikely to be those relating to product market regulation.   A few years on we were still 2nd (in 2003) or 3rd (in 2008).

But by 2013 we were only ranked fifth.  Perhaps not disastrous, but some slippage evident.  And here are the 2018 numbers, fairly newly released (data for two countries still not there) assessing things as they stood on 1 January 2018.

pmr 2018

That is now a pretty unambiguous drop back in the rankings.   And three former Communist countries now beat us, with another two just slightly behind.

And it isn’t as if New Zealand has just been improving a bit more slowly than the rest of the OECD.  Here is the absolute score for New Zealand and for the median OECD country (no material differences if I used just the subset of countries for which there is a score on all five dates).

PMR 3

We’ve gone backwards, in absolute terms, since 2008.

I get quite a few comments whenever I write about productivity, suggesting that the web of regulation has been more constraining and all-encompassing over the years.  I have a fair amount of sympathy with many of those comments, even while doubting that such regulations will explain much of our poor productivity performance.   But in the PMR indicator we score poorly in a quite different area of government involvement.

The OECD publishes the data broken out into two “high-level indicators”.  One is “Barriers to domestic and foreign entry” and the other is “Distortions induced by [direct] state involvement.   Here is how we did in 2018 on the first of those.

PMR 4

Not too bad I suppose –  5th equal, and very close to the couple of countries just above us.

But here is the other high-level indicator

PMR 5

In turn, there are four sub-components to public ownership bit of this high-level series, and on each of them we score less well than the median OECD country.

PMR 6

On the “involvement in business operations” sub-components of the “distortions induced by [direct] state involvement high-level indicator we are the OECD median on one, and do a little than the median on the other two.

Of the other sub-components in the overall indicator, there were six where New Zealand scored materially differently than the median OECD country: three better, three worse.  Of the “worse” ones, only six countries score worse than New Zealand, and on the FDI one (and I know the interpretation is contentious) we score worst of all: none look like the sorts of areas a small economy, with persistent current deficits, should aim to score poorly.

New Zealand Worse
Assessment of impact of regulations on competition
Complexity of regulatory procedures
Barriers to FDI
New Zealand Better
Admin requirements on new companies
Barriers in service sectors
Treatment of foreign suppliers

One could go playing around in the relevant spreadsheets (economywide, and the additional sectoral ones) at great length.  Perhaps I will come to them in another post next week.

One can also debate just how much regulatory and state intervention poor scores really matter in terms of overall economic performance.  It is no doubt easy to point to any of the sub-components and find some highly successful country scoring poorly.  But when you are starting as far behind the leaders as New Zealand now is, then even if regulation and state control issues –  of the sort captured here –  aren’t the key factors, if we are serious about improving productivity we should be doing whatever we can wherever we can to provide a more facilitative climate for firms to prosper on their merits.

UPDATE: An OECD economist, in comments below, has helpfully drawn my attention to some methodological changes in the 2018 PMR which mean that scores cannot be compared (reliably) across time (the 1998 to 2013 ones should work, but there is a discontinuity to 2018).   I think her comments leave most of this post looking okay (the relative rankings should still be meaningful, and the identification of where we now do poorly) but one should be a little cautious about the time series chart (noting, however, that the trends I was highlighting were already apparent by 2013).

A speech from the new Secretary to the Treasury

Michael Reddell New Zealand economic performance, Treasury

Early last month the new Secretary to the Treasury, Caralee McLiesh, gave her first on-the-record speech in the new role.    The Treasury was a bit slow to release the text, but it is now available here.     It wasn’t a long speech, but it was to a fairly geeky audience –  the Government Economics Network’s annual conference – most of whom wouldn’t yet have seen much of the new Secretary.  With not much else to go on yet, it seems reasonable to look at what she said for any indications of whether/how The Treasury is changing for the better under new leadership.

I’ve been uneasy about the new Secretary for several reasons:

  • first, because she isn’t a New Zealander and has no background or experience in New Zealand issues or people, no domestic networks, and (most probably) little in-depth understanding of the idiosyncrasies of New Zealand, including its longrunning economic underperformance, and
  • second, because she has no work experience in a national economic agency/ministry, dealing with national economic issues (financial crises, monetary policy, exchange rates, immigration, trade, or even very much exposure to fiscal or tax policies), and yet is now the principal economic adviser to our government (itself light on economic expertise or experience).

On the other hand, she has some fairly good academic qualifications and may well be quite capable as the sort of generic public service manager favoured by the current State Services Commissioner.   Whether she can bring to the table more than that –  and New Zealand economic policy, and The Treasury (weakened over the previous 10-15 years) needs more than that –  remains to be seen.

The topic for the GEN Conference was “the role of regional and urban development in lifting living standards”. It is fair to say that my response to the title was along the lines of “there is no such role”, but it was still going to be interesting to see how the Secretary chose to respond to the topic, and perhaps to nest any specific insights on regional/urban issues in an understanding of the much bigger national productivity failings.

Of course, there are distinct limits to what serving senior public servants can and can’t say.  One could argue they mostly shouldn’t be doing public speeches –  their job is primarily to advise ministers, not to spin government PR (or to explicitly challenge it).  But successive Secretarys have chosen to give speeches.

Here is McLiesh running spin for the government

The theme of today’s conference is how well-performing regions and cities can contribute to our wellbeing and raise living standards for all. Those of you familiar with the Government’s Economic Plan will know that the Government has identified ‘strong and revitalised regions’ as one of the key economic shifts it is working towards. And work on government’s urban growth agenda and resource management reforms is well underway.  So this is a significant and substantial topic for New Zealand.

She, if no one else, I guess has to take the government seriously, at least in public, when it says it has a (30 year) Economic Plan.

But in the rest of speech there really wasn’t much substance.  There was the best part of two pages recounting the Living Standards Framework – in text that is fine, but which offers nothing fresh.  At least it ended with a reminder that economic performance matters

The Treasury always has an important role to play in advising government on how to lift economic productivity and performance, and this remains a core part of our LSF thinking. A roomful of economists doesn’t need to be told, but I will say it anyway, that high living standards depend on strong economic performance, and that markets that operate well – and I emphasise, “well” – can, and do, powerfully lift living standards. They enable people to participate in labour markets, earn higher incomes, and apply those incomes towards whatever wellbeing means for them. The story of development is basically a story about investment in the institutions and mechanisms that enable people to flourish in deep and complex markets – that is, to grow.

But really that should be “motherhood and apple pie” stuff to an audience of economists.  And sadly, there hasn’t been much sign of rigorous or systematic advice on lifting productivity and economic performance in recent years.

She moves on to highlight that there are regional differences across New Zealand.  There is quite a nice graphic drawing on OECD data, but she conveniently omits to highlight that (according to the graphic) not one New Zealand region has incomes in the top third of OECD country regions.  Productivity is a huge failing in New Zealand, and that failing just isn’t region-specific.  If anything, the gap between highest and lowest income regions within New Zealand is unusually small by OECD standards.

And thus when the speech says

Regions may contribute more to national economic development if we can tap unrealised economic potential.  A policy approach that emphasises strengthening regional comparative advantage means we may be able to lift national economic performance rather than just shifting economic activity around the country.

it has the feel of someone who is stuck with the Provincial Growth Fund, rather than someone who has thought hard about New Zealand (and what does that counteractual –  “just shifting economic activity around the country” – mean: who has been doing that?)

The next paragraph isn’t any better

There can be a role for government in helping communities to identify strengths and opportunities or strengthening local governance. There can be a role in working across agencies, local authorities, local people, and the private sector to coordinate and facilitate private investment. Or in investing in infrastructure where this directly unlocks economic opportunities. And can we do more to coordinate between social interventions and economic opportunities to ensure these approaches are complementary?

I guess bureaucrats would like to think so, but is there any evidence of governments being able to specifically catalyse regional economic development in a useful and sustainable long-term way, other than by getting the overall national policy settings right, and understanding the national failings?

There are some strange observations

More than a third of New Zealanders live in Auckland, a city with house prices vastly in excess of the marginal cost of supply.

But house prices aren’t “vastly in excess of the marginal cost of supply”, rather national and local regulatory policies have driven the marginal cost of supply –  especially the land component –  well above where it would otherwise be, so that there is no huge gain on offer to people developing new houses.

It was encouraging to see the Secretary allude to Auckland’s longer-term economic underperformance

Between 2000 and 2018 our national population grew by 26 percent, but all of the above-average population growth has been from the Bay of Plenty northwards, with Auckland the fastest growing at 37 percent. Contrast that with population growth of 7 percent in Southland, 5 percent in Gisborne and 4 percent on the West Coast.

This population growth is despite the fact that Auckland’s GDP has grown at only 82 percent of the national average in the 2000 to 2018 period.  In contrast, GDP growth was well above the national average in every region of the South Island, while Bay of Plenty and Northland had above-average growth too.

But there isn’t much sign that she or her department have thought hard about a compelling narrative that explains what has gone on.  Instead we get this rather confused paragraph

Other cities and regions may have plenty of available land.  However, they will need to improve their quality of business and quality of life attributes too if they are to significantly ease pressure in Auckland. And worldwide we see that agglomeration into major cities continues despite congestion and high property prices. Clearly, both employers and employees often see better long-term prospects in these major cities, despite efforts to develop other regions.

In both New Zealand and Australia, we certainly see more people in major cities, but little evidence of the vaunted productivity gains from continued concentration of people in these places.  Natural-resource-based economies tend to be like that, but there is no hint of that as an issue in the Secretary’s story.

And from there the speech heads downhill again

Central government has created more capability through urban growth functions in HUD, and appointing senior regional officials to lead engagement and coordinate government across regions.

Of course lifting wellbeing across the regions is not just up to central government, which is why we see more partnering with local government and regional economic development agencies over recent years to develop action plans.

Lots of busy bureaucrats, lots of meetings for ministers and officials to open and attend, but not much sign of any understanding of quite why the overall economy has performed so poorly over so long (when almost all the tools of economic policy are controlled at the central government level).

Of the final page, I could commend her sense of humour, including this old Tom Scott cartoon (if memory serves from back in the late 80s or early 90s)

scott

But then it is straight back to the self-congratulatory stuff

In closing, I want to acknowledge that being an economist working in public policy is incredibly rewarding, but it can also be challenging. We are a community of professionals that sometimes has to be loud to be heard. When people want the comfort of policy that is simple, certain, and swift, we can find ourselves the sometimes uncomfortable voice of technical rigour, nuance, and realism.

I guess that it might have been music to the ears of some in the audience.  But we don’t –  or shouldn’t –  hire senior public servants to tell people (including ministers) what they want to hear.   Sadly, there has been little consistent sign of The Treasury offering that “uncomfortable voice of technical rigour, nuance, and realism” in recent years, especially on these big-picture economic performance failings.  They seem to have been content to just go along, to maintain access (perhaps) by not addressing the hard issues, and playing distraction with the fluffy stuff while the economic prospects – the living standards prospects –  of New Zealanders, regional or urban, drifted further behind.

It is still early days for McLiesh.   I have heard a few positive things about the new Secretary, including hints of renewed emphasis on rigour. I hope this particular speech isn’t a foretaste of the standard we can expect, but that the Treasury really does begin asking the hard questions, doing robust analysis, not simply going along with conventional political verities (eg regional development).   Perhaps there isn’t a political demand for such advice and analysis –  are there any politicians who really care? – but shouldn’t stop The Treasury being a voice, perhaps at times crying in the wilderness, pointing to how things might be such better here.  As a hint, regional economic development agencies aren’t likely to be any substantive part of the answer.

 

Business investment and SNZ

Michael Reddell New Zealand economic performance, Statistics, Uncategorized

The calendar says it is summer, but “summer” seems to have bypassed Wellington.  We’ve been back for 10 days and on not one of them has it been warm enough for a swim.  Right now, my phone says it is warmer in Waiouru than in Wellington.  And so, between driving lessons for my son, I’m still pottering in the national accounts data released late last year, although this will be the last such post for now.

At the end of November, I ran a post here on investment and capital stocks, drawing on the annual national accounts data released a few days earlier.  One of the central charts was this one

What about business investment?   SNZ don’t release a series for this –  but they could, and it is frustrating that they don’t –  so this chart uses a series derived by subtracting from total investment general government and residential investment spending.  It is a proxy, but a pretty common one.

bus investment to marc 19

Business investment as a share of GDP has been edging up, but it is still miles below the average for, say, 1993 to 2008, a period when, for example, population growth averaged quite a lot lower than it is now.  All else equal, more rapid population growth should tend to be associated with higher rates of business investment (more people need more machines, offices, computers, or whatever).

So common is this proxy for business investment that for a long time it was how the OECD was doing things, including in cross-country comparisons where New Zealand mostly did poorly.    Note that none of this approximation would be necessary if Statistics New Zealand routinely published a business investment series.  There is no obvious reason for them not to do so –  no individual institution confidentiality is being protected (as an example of one reason SNZ sometimes advance for non-publication).

My working assumption has long been that government-owned business operations designed to make a profit (notably SOEs) were not being included in “general government”.    I didn’t just make up that assumption; it is a standard delineation advanced by the OECD themselves.  Here is their own definition

Definition:
General government accounts are consolidated central, state and local government accounts, social security funds and non-market non-profit institutions controlled and mainly financed by government units.

In other words, “general government” would include government types of activities, including things –  even semi-commercial things –  mainly funded by government units (whether large losses, or direct subsidies or whatever).   Core government ministries would count.  State schools would count as part of “general government”, but fully private schools would not.  And nor, on the standard interpretation would the investment of New Zealand SOEs (required to aim to generate profits for the Crown) or fully market-oriented trading companies that might happen to have a majority Crown shareholding.    Such trading companies are mostly funded by their customers (and private debt markets) not by the Crown.

But it turns out that this isn’t how SNZ has actually been doing things in New Zealand, at least as regards the “sector of ownership” data I’ve used (and which the OECD has typically used for New Zealand).

I learned this because of a pro-active outreach by an SNZ analyst, to whom I’m very grateful.  This analyst emailed me noting that he had enjoyed my posts on the annual national accounts, but…

In that post you include a chart showing general government investment as a share of GDP. It appears that for your analysis you have utilised the sector of ownership and market group breakdown of our GFKF data, combining both market and non-market activities of entities with central or local government ownership. I wanted to make you aware that this includes state owned enterprises – market orientated units with government ownership. As a result your government investment figures will include, for example, Air New Zealand’s investment in aircraft and electricity units with government ownership.

I suppose it makes sense when one thinks about it (Air NZ and most of the electricity companies are majority government owned, and SNZ confirmed that they do not pro-rate).

As it happens, help was at hand.  The SNZ analyst went on

An alternative source for general government investment data is our institutional sector accounts which include GFKF for each institutional sector.  In recent years we have adopted a new sector classification – Statistical Classification for Institutional Sectors (SCIS) – to give more visibility to the roles of the various sectors in the economy. SCIS sector 3 (General government) GFKF is held under the series SNEA.S3NP5100S300C0 . We are currently expanding the range of sectoral National Accounts that we regularly compile and disseminate on both an annual and quarterly basis.

The following chart compares the sector of ownership basis with the SCIS basis for general government investment as a share of GDP.

poole 1

This then goes on to impact the presentation of business investment as you have calculated it:

poole 2

What are the implications?  “True” general government investment is lower than in the chart I’d shown (the blue line in the first SNZ chart).  But it also marks even more stark how stable the share of GDP devoted to general government investment has been (over 20+ years) despite big swings over that period in the rate of population growth).

On the other hand, business investment as a share of GDP is higher (over all of history) than I have been showing it.  But the extent of the recovery in business investment is even more muted than I had been suggesting.  Despite rapid rates of population growth, business investment in the most recent year was little higher than it was 6-8 years ago, and not that far above the lows seen in the 1991 and 2008/09 recessions.

The helpful SNZ analyst went on to note that SNZ could do things better.

I acknowledge your point that we can improve our presentation of investment data. We are looking at what we can do to improve this, particularly in giving more prominence to the government and business investment dimensions that your post highlights. We do want to support a consistent basis for the monitoring of government and business investment. Our development work to expand our sector based accounts will support this and allow us to improve both our annual and quarterly presentation. Note that the institutional sector accounts have a shorter time series available, but as we work through this we will consider extending the length of the SCIS based GFKF time series.

A quarterly “business investment” series should be treated as a matter of some priority.

The other aspect of my proxy that had bothered me a little over the years was the possibility of an overlap between residential investment and general government investment.  If the government itself was having houses built that should, in principle, show up in both.  I could, therefore, be double-counting my deductions.  I was less worried in years gone by –  the government itself wasn’t having many houses built –  but the current government has talked of large increases in the state house building programme.

SNZ’s analyst suggested I didn’t need to bother.

Apart from needing to make a choice over how to define general government investment as discussed above, the proxy you are using for business investment seems fit for purpose in the interim.

  • There is very little overlap between residential building investment and government investment, so subtracting both from the total is not doubling up on the subtraction much.
  • We represent households ownership of investment properties through separate institutional units to the households themselves. These units are classified to SCIS class 121 (non-corporate business enterprises). There is not a lot of business sector investment in residential property outside of this SCIS class, so subtracting all residential investment in your proxy is fit for purpose.

And yet I was still a little uneasy and went back to him

Thanks too for confirming that there is little overlap between residential building investment and government investment.  That had been my clear impression in the past –  and I know the OECD has done “business investment’ indicators the same way I was doing them –  but had been a little uneasy that with building of state houses ramping up again the overlap might be increasing.  If there still isn’t much overlap is that because (say) the construction only moves into Crown ownership when it is completed?

To which he responded

With regards to your question about the state housing ramp-up and whether that is causing the overlap between government (sector of ownership) investment and residential investment to be increasing… conceptually we should be capturing the state housing under government ownership. This is below our published level, and I’d want to look into the data sources and methodology used before being confident in the quality of the government residential investment data. But based on what I can see, Government residential investment does look to be a small share (typically around 1-2%) of total residential building investment, and there is not a clear trend of change in the share over the last 15 years. The values involved are not large enough to alter your interpretation of business investment in the way that you have derived it.

I was still a bit uneasy –  1-2 per cent didn’t really seem to square with talk of thousands more state houses –  but would have left it for then.  Except that the SNZ analyst came back again

A colleague has reminded me of our building consents release in February (https://www.stats.govt.nz/news/40-year-high-for-home-consents-issued-to-government) where we said:

Home consents issued to central government agencies reached a 40-year high in the year ended December 2018, Stats NZ said today.

Central government agencies, including Housing New Zealand, were granted consent for 1,999 new homes in 2018, which is the highest number since the year ended November 1978 when 2,105 were consented.

“There has been significant increases in new home consents issued to central government agencies in the last few years, with levels approaching those last seen in the 1970s,” construction statistics manager Melissa McKenzie said.

However, private owners (including developers) accounted for 94 percent of the 32,996 new homes consented in the year ended December 2018.

Partnerships between the government and private developers to build new homes may not be reflected in the central government numbers as the results depend on who was listed as the owner on the consent form.

Now, the building consents data then forms the basis for the compilation of our building activity statistics, through a combination of survey sampling and modelling. There is a lag between consent and building activity. So the timing is uncertain, but we should expect the higher consents to flow through to increased building activity. As the last paragraph notes, there are some practical aspects that may impact on the quality of the sector to which the building activity is assigned.

The building activity statistics are a key data source for our residential investment statistics in the National Accounts, but I’d want to look into the National Accounts methodology more to understand whether there are any other aspects impacting the quality of the government residential investment data.

So there seem to be a few problems to be sorted out at the SNZ end, leaving users of the overall investment data –  and particularly anyone looking for a timely business investment proxy –  somewhat at sea.   It probably isn’t a significant issue for making sense of the last decade or two, but if the state is going to be a bigger player in having houses built for it the data for the coming years will be murky indeed.

Unless, that is, Statistics New Zealand treats as a matter of priority the generation and publication of a timely “business investment” series.  They are only agency that can do so, that has access to the breakdown of which government-owned entities are investing, and what proportion of residential building activity is for government.

I guess this is just one among many areas where we see the results of SNZ not really being adequately funded, over many years, to do core business (even as they have funding for extraneous purposes, notably the collation of wellbeing indicators, some sensible, some barmy).   There aren’t many votes in properly funding such core activities, but it doesn’t make them less important.

I really do appreciate the pro-active amd helpful approach of SNZ’s analyst.  I hope his managers are receptive to the need to improve the quality of the investment data SNZ is publishing.

And the bottom line?  So far as we can tell, business investment has remained very weak, and quite inconsistent with what one might have expected in the face of the unexpected surge in the population over the last five years.  Firms, presumably, have not seen many profitable opportunities.

Decomposing the NZ economy…and Australia’s

Michael Reddell Australia, Exchange rate, New Zealand economic performance, Uncategorized

Continuing on with updating my regular charts in light of the national accounts revisions released last month, I got to the one distinguishing (indicatively) between real growth in the tradables and non-tradables sectors of the economy.    Recall that for these purposes the primary sector (agriculture, forestry, fishing, and mining) and the manufacturing sector count as tradable, together with exports of services.  The rest of GDP is classed, loosely, as non-tradables.   As I’ve noted in an earlier post

The idea is to split out those sectors which face international competition from those that don’t.     It is no more than an indicator, and people often like to point out the components of “non-tradables” where, at least in principle, there is international competition.   But as a rough and ready indicator, it serves its purpose.   It was first developed by a visiting IMF mission about 15 years ago to help illustrate how one might think about the impact of a lift in the real exchange rate.

Here is the latest version of the chart, with both series expressed in per capita terms.

T and NT to sept 19

In per capita terms, there has been no growth at all in (this indicator of) the tradables sector since about 2002.   That is 17 years now.  The economy is increasingly concentrated in the non-tradables sector, the bits (generally) not very exposed to international competition.

One can –  people do –  quibble about adding up these components, so here is a chart of the individual components of the tradables sector measure.    It starts from mid-2002, when the tradables aggregate first got to around the current level.

T and NT components NZ to sept 19

None of these sectors has done particularly well,  The best performer –  oft-cited hope of the future –  services has averaged per capita growth of 0.6 per cent annum.  The mining sector is smaller than it was, and agriculture, forestry and fishing (taken together) has managed no per capita growth since 2012.

Perhaps there is no connection at all between this performance and developments in the real exchange rate

OECD ULC RER 2020

but I doubt many detached observers would think so.

It can get a little repetitive making the point, so this time I decided to put together –  for the first time in some years – the comparable charts for Australia.

Here is the aggregate chart for Australia

Aus T and NT to sept 19

Australia’s tradables sector had also gone more or less sideways for a while, but no longer.     Here is how the two countries’ tradables sectors look like on the same chart.

T and NT tradables

The 1990s were pretty good for the tradables sectors of both countries.  And although Australia has again been performing better in the last few years, even that growth is slower than Australia experienced in the 1990s.  As for New Zealand….well, no growth at all.

Here, for completeness, are the non-tradables sectors of the two countries.

NT components

Our non-tradables sector has been growing a bit faster than Australia’s in recent years.  That looks to be mostly because we’ve had a period of faster population growth –  rapid population growth tends to require more resources devoted to non-tradables sectors (notably construction).

nz and aus popn growth

And what about the breakdown of Australia’s tradables sector?

Aus T components

It is very different from the New Zealand picture in almost every respect.    The mining line didn’t surprise me –  it was the story I expected to be telling –  but the others did, including the continued strong growth of services exports.  Back in 2014 and 2015 it looked as though something similar was happening on both sides of the Tasman, but no longer: services exports here (per capita) have simply stagnated again.

New Zealand and Australia have both enjoyed pretty strong terms of trade in the last couple of decades (Australia’s more volatile than ours).  But over the decades, New Zealand average productivity (real GDP per hour worked) has kept dropping further behind Australia’s –  roughly 42 per cent ahead of us now, compared to about 25 per cent in 1970.   And yet OECD data suggest our real exchange rate has risen relative to Australia’s over that half-century.

aus nz RER

It isn’t that much of a rise –  around 15 per cent –  but the longer-term economic fundamentals pointed in the direction of a fall at least that large.      Policymakers here have, unwittingly (although that isn’t much of an excuse after all this time) delivered a climate –  a combination of factors –  that mean it is very difficult for the tradables sector to grow much in New Zealand.     Unless that changes it is difficult to envisage New Zealand not continuing to slip further behind, not just Australia but other advanced countries as well.

If the government were at all serious about responding to the productivity failings, these are sorts of imbalances they’d be instructing the Productivity Commission to investigate and make sense of.

Wages and the economy

Michael Reddell New Zealand economic performance, wages

Getting back to taking a look at the revisions to the national accounts data published just before Christmas, I thought it was about time to update my chart about how wages rate have been doing relative to the underlying performance of the economy.    There isn’t, and sbouldn’t, be anything mechanical about the relationship between the two series, but looking at how wage rates have moved relative to movements in GDP per hour worked at least opens the way to some further questions and analysis.

In this exercise I am looking at:

  • the analytical unadjusted series of the Labour Cost Index (available for both just the private sector and for the whole economy).   This series holds itself out as measure of changes in wage rates before any adjustment/deduction for productivity growth. and
  • nominal GDP per hour worked.  Nominal both because official wages series (including the LCI) are nominal, and because nominal GDP captures the direct effects of terms of trade changes.  In a country where the terms of trade move about quite a lot, those changes make a difference in understanding changes in returns to investment and, over time, capacity to pay labour.

There is general inflation in both series, of course.   Here are the two individual series starting from 1995q1 (when the LCI series starts).

wages 2020 1

And in this chart, I have shown the changes in the ratio of wage rates (this measure) to nominal GDP per hour worked.   A rising line indicates that, on these measures, wages have risen faster over the period in question that GDP per hour worked.   Doing so strips out the effects of general inflation (in both numerator and denominator) and enables us to better see when changes in the ratio of wages to economywide “productivity” or earnings capacity happened.  The blue line is the quarterly series, and the orange line is the four-quarter moving average of that quarterly series.

wages 2020 2.png

Over the almost 25 years of this data series, wages rates have risen about 10 percentage points more than nominal GDP per hour worked.    Even over the period since the last recession begain (the peak of the previous business cycle was 2007q4), wages rates have risen in total 4-5 percentage points more than nominal GDP per hour worked.  It isn’t the smoothest series in the world, and there are measurement challenges in quite a few of the underlying components, but the overall direction of movement –  over quite a long period now – is pretty clear.  (And it isn’t just a public sector wages story –  private sector wages have, over time, risen faster than public sector ones.)

In and of itself, this series is neither good nor bad news, regardless of whether you are “a worker” or “a capitalist”.     After all, as is well-known, New Zealand’s productivity performance has been poor for a long time.  One could readily envisage an alternative world in which there was much stronger productivity growth, and really rapid business investment growth associated with those opportunities, in which wages (real and nominal) rose materially faster than they did over history, and yet a bit slower that nominal GDP per hour worked grew.  A comparable chart for Australia (included here) suggests something like that may have happened there.   In New Zealand, however, business investment –  and, in particular, growth in the productive capital stock per hour worked –  has also been pretty weak for a long time.

But to the extent –  pretty feeble as it is –  that the New Zealand economy has grown, wage rates have grown faster.

Here are a few associated series.   Here is growth in real GDP per hour worked, where I’ve shown both the time series and the series of five-yearly averages in the growth rate of labour productivity.

wages 2020 3.png

Productivity growth over the last decade has averaged worse than at any time in the history of the series  (yes, that may partly be a global phenomenon, but (a) that is no consolation to wage earners, and (b) remember that we started so far behind leading OECD countries that we should have been looking for some convergence).

And what about the terms of trade, the other component in nominal GDP per hour worked?

TOT 2020

Our terms of trade lifted a long way in the decade from about 2003 to 2013 –  enough to lift average incomes nationwide by about 6-7 per cent.   And yet there was none of the sort of business investment boom one might otherwise expect in a country experiencing such a favourable, exogenous, shift in its external trading conditions.   As it happened, this was however the period in which wages rose fastest relative to growth in nominal GDP –  which again has a somewhat anomalous feel to it.

And here is one last chart: New Zealand’s real exchange rate, using the OECD’s relative unit labour cost measure.  I’ve also shown the average for the last 15 years, and it is easy to see how much higher that average is than the average of the previous couple of decades.

OECD ULC RER 2020.png

In many respects, the real exchange rate measure is just a variant on the earlier chart, highlighting the relationship between wages growth and growth in the underlying productivity capacity of the economy. But it is more telling, in context, precisely because it introduces an international dimension.    New Zealand has lost a lot of external competitiveness in the last couple of decades, even though the terms of trade performed strongly.

Perhaps not surprisingly, our export sector (and imports) as a share of GDP has been falling and (at best) flat.   Business investment has been pretty weak, and strongly focused inwards.  And productivity growth has been poor.

To be clear, I’m not suggested at all that these outcomes are the fault of workers as workers (as voters it might be another matter).  Wage negotiations –  employers and employees –  occur against a backdrop that neither individual firms nor individual workers (or unions) can do much about.  The overall picture is much more the responsibility of broader policy settings –  at least on my telling very rapid policy-driven population growth into an economy with few things going right for it.  That has had the effect of skewing the economy inwards.  It boosts the demand for labour, and so workers have done ok given the mediocre overall performance of the economy. But that should be no consolation for anyone given that, overall, we kept drifting further behind the leading group of advanced economies and are increasingly being overtaken by former Communist, formerly fairly poor, eastern and central European countries.

A government that was really serious about fixing the productivity failures would be asking the Productivity Commission and The Treasury to focus on these big picture issues and challenges.

 

Poor answer, poor economic performance

Michael Reddell New Zealand economic performance, Productivity

I don’t generally watch or listen to Parliament’s question time. But my teenage son has finished school for the year and, being a nascent political junkie, turns on the TV each afternoon to watch the jousting.

I was doing something else yesterday afternoon when this exchange caught my ear

Hon Paul Goldsmith: Isn’t the most relevant current economic indicator the fact that New Zealand has the highest terms of trade in recent modern history and we’re still growing very slowly and running a deficit?

Hon GRANT ROBERTSON: We can all pick our most relevant economic indicator, but the one I want to leave with the member is this: we, as a country, are growing faster than the UK, Australia, Canada, Japan, and the eurozone. No country with which we trade or compare ourselves is growing how they were two or three years ago. We are ahead of the pack and we’re doing well as a country.

…

Hon Paul Goldsmith: Which of the countries he listed in the answer to my previous question are we growing faster than, on a per-person basis?

Hon GRANT ROBERTSON: On a per-person basis, I don’t have the information the member asked for, but what I can tell the member is this: when we came into Government we ranked 34th in the OECD on GDP per capita, and we’ve improved that. We’re up to 32nd and we will keep moving forward. On another measure that the OECD has in terms of per capita on real expenditure, when we came into office we were at 30th and we’re now 18th, so we’re making good progress.

That “34th in the OECD” I knew to be wrong.    There are only 36 OECD countries and without even checking the others everyone knows Chile, Portugal, and Mexico are poorer than we are.  I had a very quick look at some data and put it in this tweet.

I checked the IMF numbers because –  with so many more members and countries in their data –  being 34th sounded about right.  Perhaps the Minister had his IMF and OECD confused: it certainly looked like a first for any Minister of Finance to be boasting that New Zealand was 34th (or 32nd) on anything in the OECD.

But out of curiosity I decided to take a closer look.  There are, after all, both constant price and current prices GDP per capita measures, each converted at respective PPP exchange rates.   And you’d have to be pretty sceptical of putting much weight on movements over just a year or two, give both measurement and conversion challenges.

The IMF numbers go back to 1980.  Here is how our rank looks on these two measures and across time (2019 being an estimate/forecast).

GDP per capita, PPP, New Zealand rank
Constant price Current price
2019 35 35
2018 34 34
2017 34 34
2012 37 37
2007 40 40
2000 34 35
1990 31 31
1980 29 29

On these measures we were indeed 34th in 2017 –  looks like that was what the Minister might have had in mind.  But, if anything, there is a little slippage in the last couple of years.    Over the longer run of data, there has been some improvement in our rank since 2007 –  back then subsequently crisis-hit places like Greece, Italy, and Puerto Rico had got ahead of us (and Equatorial Guinea too) –  but we are in much the same position we were in 2000.  The significant worsening in our ranking occurred in the 80s and 90s, and there has been no consistent improvement since.

But our more usual comparators –  the comparison the Minister claimed to be making –  is with the OECD countries.

GDP per capita, PPP, New Zealand ranking
Current prices Constant prices
2018 20 21
2017 20 20
2016 20 19
2012 20 20
2007 21 22
2000 22 21
1990 20 21
1980 20 17
1970 11 12

It is mostly a pretty similar story.   People most often focus on the constant price numbers.  Again, if anything there has been a little slippage in the last year or two, but on these numbers our ranking is broadly where it was as long ago as 1990, and the real drop down the rankings occurred in the 1970s and 1980s  (and no doubt earlier if the consistent data went back further).    Those long in the tooth will recall that in 1990 we were about half way through the extensive reform programme –  itself implemented in response to the deterioration in New Zealand’s economic performance –  that was going to be lift us back up the OECD rankings.  Shame about that.

But what about productivity?  It wasn’t what Paul Goldsmith was asking, but it is the foundation of all sustained improvements in material living standards.   Here is the OECD data for GDP per hour worked

GDP per hour worked, PPP, New Zealand ranking
Current prices Constant prices
2018 27 26
2017 24 25
2016 22 23
2012 22 21
2007 23 23
2000 22 21
1990 21 20
1980 19 17
1970 15 15

(I mostly refer to the constant price series, in all such international comparison on this blog this is “real GDP per hour worked”).

If I were a Minister of Finance I wouldn’t be boasting anything here.  Then again, if I were the Finance spokesperson for the other party that governed New Zealand for large chunks of this half-century I’d probably keep quiet too.

The data are what they are, for now.   That said, I don’t want to make much just yet of the apparent sharp fall in our ranking over the last couple of years (and even if it is for real, it isn’t yet this government’s fault any more than that of its predecessor –  it is 2018 data and policy, or the lack of it, works with a lag).    It both looks too bad to be true and we know that there are significant revisions being published tomorrow by SNZ which are expected to raise productivity growth a bit over the last few years.  In the grand scheme of things, the differences are unlikely to be very large but a levels shift of 2 per cent –  which might happen –  would be enough (just) to lift us from 26th to 24th on the constant price measure.

On the data as they stand today, here are the 10 OECD countries with the next highest productivity and 10 (all the rest) with the next lowest.

OECD real GDP phw 2018

Three former communist countries are now ahead of us, as is Turkey, and the Czech Republic and Poland have had recent productivity growth records that mean they will almost certainly go past us in the next couple of years (even with New Zealand data revisions).

So, to revert to where this all started, what about the Minister’s claims

We are ahead of the pack and we’re doing well as a country.

No

when we came into Government we ranked 34th in the OECD on GDP per capita, and we’ve improved that. We’re up to 32nd and we will keep moving forward.

No.  Hasn’t happened so far, and no sign things are about to improve.

And there was that final puzzling claim

On another measure that the OECD has in terms of per capita on real expenditure, when we came into office we were at 30th and we’re now 18th, so we’re making good progress.

I have no idea what he has in mind, but whatever he had in mind perhaps the Minister should keep in mind the old mantra that if a number sounds too good to be true it probably is.

Sure in cyclical terms the economy isn’t in a dreadful state.  But in any longer-term sense we are underperforming, have underperformed for decades, there is no sign of any structural improvement underway now, and neither main party shows any sign of serious policy thinking that might finally –  decades after those promises from both major parties –  make a difference for New Zealanders.   As things stand –  and by reference to that final chart –  if we just keep on doing policy as we have it isn’t inconceivable that in 2030 we could have the third lowest labour productivity in the entire OECD.   Convergence with Uruguay may still happen.

 

UPDATE: In the House this afternoon the Minister made clear that he had been talking about annual growth in real GDP per capita.  Per the OECD data –  as it stands today, before significant SNZ revisions to be published tomorrow – New Zealand’s growth rate did rise from 34th (of 36) in the OECD to 32nd (the latter for calendar 2018).  It seems very odd to boast about having the 5th worst per capita GDP growth among the OECD countries (and quite clarifying given the rhetoric the PM and Minister often use claiming New Zealand’s growth record is materially better than that of advanced countries we typically compare ourselves too).  Clearly –  given that this was an off-the-cuff response to a supplementary question – they’ve known the dismal (on official data) per capita picture all along.

 

HYEFU thoughts

Michael Reddell Fiscal policy, New Zealand economic performance, Treasury

I don’t have that much to say about the HYEFU and the Budget Policy Statement released yesterday.  If governments are going to keep on with the insane and destructive (to the economic wellbeing/prosperity of New Zealanders) policy of supercharging population growth then, sooner or later, they are going to need to spend more on increasing the associated public “infrastructure” (roads, schools, hospitals etc).  One can, of course, question the quality of some of that expenditure –  baseline or projected –  but more people pretty reliably means a need for more capital.

That said, if the population is growing rapidly you’d usually expect to see all sorts of investment growing quite strongly.    As I illustrated in a post last week both government and business investment have been really rather subdued in recent years.  The Treasury doesn’t give us forecasts that separate out government and business investment, but here is a chart of their forecasts for total non-housing investment (public and private) as a share of GDP.   The first observation is an actual, the rest are forecasts.

inv hyefu 19

Note the scale.  These are not huge moves, but they are falls.  Treasury expects that non-housing investment will be a smaller share of GDP in the coming years than it has been in the recent past.    Something doesn’t seem right about the economic policy settings, at least if the governments cares about lifting average material living standards of New Zealanders.  Treasury forecasts on the basis of policy as it is, and (fiscal) policy changes the government has told them it will be making.

The picture in the forecasts also doesn’t look very good if we concentrate on trade with the rest of the world.  Here is exports as a percentage of GDP.

exports hyefu 19.png

When it first took office, the government occasionally used to talk about a more export-oriented economy and all that.   No sign that the Treasury thinks that policy settings are consistent with delivering that.  I didn’t include imports on the chart, but the fall in imports as a share of GDP over the forecast period is slightly larger than the forecast fall in exports.     Taking on the world and winning, consuming more of the best the world has to offer, it isn’t.

And it isn’t as if The Treasury is forecasting doom and gloom: they expect overall GDP growth to pick up and be running at around 2.75 per cent per annum.

You’d hope that, faced with projections like these, the Minister of Finance would be demanding from the Secretary to the Treasury –  and that the Secretary would be proactive in offering –  robust advice on what might, after all these years, begin to reverse New Zealand’s woefully poor long-term economic performance.    It doesn’t seem very likely, but the Secretary is new.  Perhaps she is genuinely shocked at how poorly New Zealand does.  Perhaps she is demanding answers, analysis, and advice from her staff.

On page 2 of the HYEFU I noticed this claim

The Treasury is in a unique position to focus on improving the way our economy can raise New Zealand living standards. Along with delivering first-rate economic and financial advice,

Treasury certainly is in a unique position.  They have a lot of staff, have had their budget increased, and have (or should have, if they are doing their job) ready access to Ministers and input across all major areas of policy.   And yet, the actual performance has been poor, and there is little visible sign of that “first-rate economic and financial advice”.  It might be bad if governments were consistently rejecting such advice, but that is their prerogative.   But there isn’t much sign that The Treasury has been offering hard-headed searching advice on the failures of overall economic performance, whether or not successive governments had been inclined to give it heed.

All that said, one can’t argue too much with the fiscal performance.    Here is a chart of the best of the debt indicators Treasury publishes forecasts for.

net core crown debt

Modern New Zealand governments manage debt and the aggregate public finances in a pretty responsible way (I’m not one of those who thinks low interest rates mean governments should take on more debt: rates are low for a reason), and government debt levels near zero seem pretty prudent given the way other government policies remove some of the need for private savings.   And while Treasury thinks we have a small positive output gap, my own inclination –  and the balance of the other estimates they quote –  is that things are a bit weaker than that.  Commodity prices are pretty high to be sure, which always flatters the public finances a bit, but overall I’m pretty comfortable if the operating balance is somewhere just either side of zero.

Successive governments have done aggregate fiscal management pretty well.  It is just a shame they’ve haven’t shown the same degree of interest, passion, commitment etc to fixing the longrunning productivity failures.  Overall fiscal management matters, but in terms of the long-term material living standards of New Zealanders, it is a bit akin to keeping the garden pretty and the fences well tended even as the house itself slowly –  ever so slowly but surely –  rots.

 

Spin….just spin

Michael Reddell New Zealand economic performance, NZ politics, Uncategorized

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

Michael Reddell New Zealand economic performance, NZ politics

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.

2 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.

3 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.

4 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.