Bill English is reported to have the numbers to become leader of the National Party and, thus, our next Prime Minister.  And if he does succeed in that quest he has indicated that Steven Joyce will become the Minister of Finance.

That news had me digging out a couple of posts I’d written this year on Mr Joyce’s comments and claims.  He has been Minister of Economic Development for some years –  years in which, as throughout the term of this government, there has been no progress towards closing the large productivity gaps with other advanced countries. In fact, over the last four years official statistics suggests New Zealand has had no productivity growth at all.

In a post in April I posed A Question for Steven Joyce after an interview in which as Science and Innovation minister he argued for even more migration to meet the needs of the tech sector.   He went on

“That’s one of the reasons I’m leery of calls to halt immigration – apart from the fact there’s not much reason to because of the economic gains,” he said.

I noted that

In the last fifteen years, we have had huge waves of immigration,  under both governments, and yet there is not the slightest evidence of economic gains accruing to the New Zealand population as a whole.  Tradables sector production per capita has gone nowhere in fifteen years, productivity growth has been lousy, and there is no sign of any progress at all towards meeting Mr Joyce’s own government’s (well-intentioned but flawed) exports target.

My question was (and remains)

“what evidence can the Minister point to suggesting that the very high rates of immigration to New Zealand in recent decades have done anything to lift productivity in New Zealand, or lift the average per capita incomes of New Zealanders?”.

….

Mr Joyce and the other MBIE ministers have huge resources, staff and budgets, at their disposal.  Surely they should be able to point to clear demonstrated economic gains for New Zealanders as a whole from such a large government intervention.  Our non-citizen immigration programme is already one of the largest (per capita) in the world.  Citizens might reasonably ask for evidence that such an outlier programme has benefited them before considering calls from Ministers for “even more immigration”.

A few months later Mr Joyce was on TVNZ’s Q&A programme defending the government’s economic record.   My post on it is here .   There was an attempt to defend the skills focus of New Zealand immigrants, all the time ignoring data from the same survey indicating that New Zealand already had some of the most skilled workers in the OECD.

TVNZ’s interviewer pushed Mr Joyce on the failure to make any progress in meeting on the centrepiece target in the government’s so-called Business Growth Agenda.

The goal, announced several years ago, was to lift exports as a share of GDP from around 30 per cent to around 40 per cent by 2025.  I thought the formal target was daft and dangerous, even while sympathizing with the intuition that motivated it – small countries get and stay successful by selling lots of stuff, competitively, in the rest of the world.

….

Here is chart of exports to GDP, going back to the start of the quarterly national accounts data in 1987. This time, I’ve also shown the average export share for each of the last three governments.

Plenty of things cause fluctuations in the series, and not many of them are under the direct control of governments.  Nonetheless, the average export share of GDP is materially lower under this government than it was under the previous government, and the latest observations are below even that average. Since the start of 2009, exports have averaged 27.7 per cent of GDP.  Under the previous National government –  one that first took office more than 25 years ago, that average was 27.5 per cent.  The government’s goal was to lift the export share by 10 full percentage points, and there is now only nine years left until the target date.  On performance to date –  and policy to date – we might be waiting several more centuries to achieve that sort of goal.

It is time Mr Joyce and his colleagues faced the fact that they are simply failing on this count.  A rather different approach is needed –  one which permits/facilitates a sustainably lower real exchange rate, orienting the economy more strongly towards investment in the tradables sector, and enabling more able firms to grow (and locate here doing so) by successfully selling to the rest of the world.  As I’ve noted before, per capita output in that vital outward-oriented part of the economy hasn’t increased at all for 15 years now.  It seems unlikely that that sort of reorientation will occur, all else equal, while we continue to bring in, as a matter of policy, so many not-overly-highly-skilled non-citizen migrants each year.

I haven’t written much about our export education industry and the huge increase in the number of student visas in the last few years –  a strategy championed by Steven Joyce as Minister of Tertiary Education.    In general, I’m keen on export education –  if New Zealand firms have good products that the rest of the world wants, good luck to them, and over time those additional sales should benefit us all.  But there has been more and more sign that most of the growth in export education in recent years hasn’t been about the quality of New Zealand’s educational institutions, but about immigration access.  We aren’t getting (many) top-notch students at all, they aren’t going to our best tertiary institutions, and in many cases they fund their stay here by competing directly in the labour market against relatively unskilled younger New Zealanders.  And there are more and more stories of rorts and exploitation –  well captured in the Herald’s series this week –  that really should leave New Zealand policymakers –  and perhaps especially the responsible minister –  ashamed of what is being done, and permitted and even encouraged, in our name.  It is all very well for officials and ministers to say they have now identified problems and are responding to them, but these sorts of rorts and outright exploitation were pretty predictable from that start.  And is there any sign that Steven Joyce cared?  Export incentives and lightly-disguised subsidies, all in pursuit of a short-term kick to economic activity, with little regard for any evidence of likely long-term gains to New Zealanders, or for the shorter-term damage to the good name of New Zealand and its institutions.

One could go on and talk about the dubious deal that MBIE and their Minister were party to, such as those around Sky City and the convention centre.

The prospect of Joyce as Minister of Finance isn’t encouraging.  Perhaps his Prime Minister will restrain his impuluses to intervene here or there, subsidise this firm or that, this industry or that.   But after eight years, isn’t it perhaps more likely that the purse strings will be loosened to pursue even more of these sorts of “smart active government” strategies that successive governments have pursued for decades, all the while watching New Zealand drift slowly further behind productivity levels in the rest of the advanced world.

At the end of one of the earlier posts, I wondered if perhaps Mr Joyce could point us to the evidence that guides his interventions (or those he favours).  Reflecting on that it reminded me of a seminar I was at some years ago.  Asked by one attendee why there was no cost-benefit analysis for some fairly expensive project, Mr Joyce responded “because I already knew the answer”.

The quality of regulatory impact statements, and associated cost-benefit analyses, emerging from Mr Joyce’s MBIE in the last few years have often been disturbingly weak.  Ministers and departments will do that if they can get away with it.  As Minister of Finance, Mr Joyce would have responsibility for Treasury’s work in trying to lift/sustain the quality of regulatory impact statements.   They have largely failed in that goal under Bill English.  It is not hard to see the quality of policymaking deteriorating again under a Treasury overseen by the activist Mr Joyce.

Mr Joyce is reputed to have troubleshooter skills –  he was, eg, the minister charged with sorting out the Novopay debacle.  But it is difficult to optimistic about the directions in which as Minister of Finance he would guide the overall approach to economic policy.

Fidel Castro is dead.  Sadly, the same can’t be said for the brutal regime that has controlled Cuba for 57 years now –  the regime that suppresses speech, religion, and the exercise of democratic freedoms that we take for granted; the regime that executed thousands of its political opponents and which, to this day, imprisons many of those brave enough to stand against it; the regime that suppresses free economic activity; the regime that actively tries to stop its own people leaving.  There have been plenty of awful Latin American regimes in the last 100 years or so, but fortunately most of the worst have now passed into history.  But not the Cuban regime.  I won’t rejoice in anyone’s death, but consider what type of man this was:  Fidel Castro had enthused about the idea of a nuclear attack on the United States, and had to be put in his place, in no uncertain terms, by Khrushchev.

Last week I happened to be reading Stephen Ambrose’s history of the Eisenhower presidency –  the last non-politician to become President of the United States.  Never having read that much about Cuba, I was surprised to learn that US government agencies –  and this at the height of the Cold War –  were genuinely uncertain what to make of Castro at first, were reluctant to conclude that he was a communist, and (in parts of the government at least) were initially reluctant to see him toppled, for fear that others, notably his brother (the current President of Cuba) would be worse.

But this blog is mostly about things economic.  I knew that pre-Castro Cuba had been a reasonably prosperous place by Latin American standards.  The southern countries (Chile, Argentina and Uruguay) were richer, and so was oil-abundant Venezuela.  But Cuba in the 1950s is estimated to have had real GDP per capita higher than, for example, that in Bolivia, Brazil, Paraguay, Honduras, El Salvador and Ecuador.    Most Cubans –  including Castro –  were descendants of Spanish migrants, and in the mid to late 1950s, real GDP per capita in Cuba is estimated to have been around 75 per cent of that in Spain.

What has happened since then?  Like all countries, Cuba has had its relatively good and relatively bad periods –  the latter, notably, after the fall of the Soviet Union.  And data sources for such a controlled economy aren’t that abundant, or probably that reliable.  However, Angus Maddison’s international database does have real GDP per capita estimates (all on a PPP basis) for Cuba from 1929 through to 2008 (the successor Conference Board database doesn’t include Cuba).

Here are estimates comparing real GDP per capita estimates for Cuba with those for other various other countries/groupings.  Here I’ve shown averages for (a) the thirty years prior to the Castro takeover, (b) the 1950s immediately prior to the takover, and (c) the forty years from 1968 to 2008.   And I’ve shown comparisons between Cuba and the United States, Spain, and New Zealand and also those with Maddison’s Western Europe measure and his measure for the eight largest Latin American countries for which there is annual data all the way back to 1929.     Using these averages masks the shorter-term volatility, but in looking at the Castro period the picture wouldn’t be much different if, say, I’d used just the 2008 observation rather than the 40 year average.  The big decline in Cuba’s economic fortunes took place in the 10 years after Castro’s revolution.

Against all these countries/groupings, Cuba’s performance in the Castro period has been worse than it was previously –  dramatically so when compared to the Latin American grouping, Western Europe, or to Spain, the former colonial power.

Having said that, I was a little surprised that the deterioration had not been even more marked.  If the numbers are roughly reliable –  and that is a significant caveat – then in 2008, Cuba’s real GDP per capita was still higher than those in El Salvador, Honduras, Nicaragua, and Paraguay.

Looking around for something a little more up-to-date, I found the World Bank had data showing PPP-adjusted current price per capita GDP estimates for the period 1990 to the present.  In Cuba’s case, “the present” only being up to 2013.

This is how Cuba has done relative to New Zealand over that period.  I’ve just set both countries’ GDP per capita equal to 100 in 1990 and so shown the relative growth since then.

It is a little depressing.  1990 was just before the collapse of the Soviet Union, and you see the subsequent sharp fall in Cuba’s performance in the early 1990s.  But over the entire 23 years, on this measure, there has been no change in New Zealand’s performance relative to that of Cuba.

(Here is a link to a post that puts Cuba’s economic performance in a rather more gloomy overall light.  I think it is a little unfair to compare any country’s performance to world GDP over recent decades, given that China is a significant chunk of the world and China had –  and has – so much ground it had to make up after the self-destruction over much of the 20th century.)

Of course, one of the other salient features of Cuba’s experience since Castro took power was the emigration to the United States.  Cuba’s population in 1958 was around 6.8 million.  Current estimates are that the Cuban-American population is around 1.2 million.  That outflow –  which would, presumably have been much larger if the Cuban government had not put tight exit controls in place –  was large enough that Cuba’s population growth in the 50 years after the revolution was the second lowest of all the Latin American countries Maddison reports data for (only Uruguay –  with its own large scale emigration-  had a lower rate of population growth in that period).

New Zealand is, of course, another country that has experienced a large scale net emigration of our own citizens.   Since 1958, it is estimated that 975000 New Zealand citizens (net) have left New Zealand permanently (and in 1958 our population was only 2.3 million).

I don’t want to make much of the Cuba/New Zealand comparisons. They can be crass, and risk trivialising the appalling oppression, persecution, and suffering of the people of Cuba, many of whom had –  and have – no way of escape.  And I’m not sure I believe the Cuban GDP numbers anyway –  and I see Tyler Cowen also highlights that issue.

But, equally, it is too easy to come to simply take for granted the massive outflows of our own people over recent decades, and the disappointingly poor relative economic performance.  Freedom is a great blessing, as is democratic choice (and legitimate exit options likewise), but our democracy –  and decades of chosen leaders –  has kept on failing our people.  We really should have been able to do a great deal better.

UPDATE: Various people have commented on the possible achievements of the Castro regime, especially in literacy and health.  Tyler Cowen had a link to this post, which I found useful in making sense of the merits of the case in that area.

I had a post half-completed the other day when my computer failed –  a failure that proved terminal.  Add in an egregious decision by the Reserve Bank to leave trustees of its pension scheme potentially personally liable for some really bad past calls by the Bank (a decision that has already contributed to the resignation of our most eminent trustee) and a worsening cold, and my energies were elsewhere.  And, of course, for the last 24 hours, the US election has been much much more interesting than anything New Zealand-related that I might have written about.  Even my 10 year old came home from school yesterday telling me that her class had been following the early results intensely, even if (she reported that) some of the offspring of liberal Island Bay had apparently somehow become convinced that Donald Trump would soon be bombing New Zealand.

I wasn’t a Trump or Clinton supporter going into the election, and am pretty sure that if I’d been American I’d have voted for neither of them (although one of the interesting things in the last few weeks had been the collapse of the third party candidates’ vote share).  I laid out some of my reasons on my other blog.  So unconfident was I in either candidate that I thought a least bad outcome might be one in which one party controlled Congress and the other had the presidency, and (as I noted somewhere else a few days ago) the numbers suggested that if that was going to happen, that probably meant Clinton in the presidency.

But, of course, we now know that hasn’t happened.   Donald Trump will become President on 20 January 2017.  None of my reservations has gone away.  Character matters, temperament matters.  And Trump doesn’t have either of those in any sort of form that makes me think him fit to be President.  I suspect he will be a poor President.  Then again, with what we know now John F Kennedy and Lyndon Johnson wouldn’t pass the character test.  Nor Bill Clinton, nor Hillary Clinton.

For all the media vapours in the last 24 hours, the polls were always relatively close –  as late as yesterday morning I noticed that two new polls on the RCP presidential polls site had a slight lead for Trump –  and the popular vote (not, of course, the basis of the election) looks set to end quite close.  Towards the end of the campaign detached analysts had been saying that Trump had perhaps a 30 per cent chance of victory.  This outcome was always a serious possibility –  the more so perhaps as no one had adequately understood Trump’s surprising success since he first declared his candidacy in the middle of last year.  Perhaps in the end it was a bit like Brexit.  The polls were always close but (a) most of the media and political elites were appalled at the idea of Brexit, and (b) even supporters ( I was one) couldn’t quite believe, despite the polls, that a Brexit victory could actually happen.

Of course, as regards the US election, those sorts of sentiments were accentuated among elite observers outside the US.  According to polls New Zealanders (and Australians) overwhelmingly favoured Obama (in 2008 and 2012) and then Clinton, and that predilection will have been even more marked among our media and political and opinion leaders.  And so the subsequent coverage has been marked more by incomprehension and abuse than anything else –  although in a breath of commonsense the Prime Minister did note that New Zealand is unlikely to be one of the new President’s concerns.  Between the Dominion-Post and Morning Report (and a quick glance through the Herald),  the coverage has been so one-sided that it can only have appealed to the emotional uncomprehending side of liberal readers/listeners, offering little in the way of analysis.

I’m a free market-oriented, small government, social conservative.  There aren’t many of us in New Zealand.  Even if it weren’t for the character and temperament issues, much of Trump’s policy/rhetoric makes me deeply uneasy.  I believe in free trade –  although not preferential trade agreements of the sort of TPP –  and I’m very sceptical of the sort of infrastructure spending programmes that Trump and Clinton were falling over themselves to champion.    And if China has a hugely distorted economy, that mostly disadvantages China –  the idea of officially deeming China a “currency manipulator” isn’t appealing at all (and to extent it is an accurate description, it was truer 15 years ago than it is now).

Then again, there are some things I’m unambigiously happy about in last night’s result:

• seeing the back, surely finally, of the Clintons (all of them).  Failings of character, a strong sense of entitlement, a strong whiff of corruption, and so on.   As someone noted, probably not many foreign governments will be donating to the Clinton Foundation today.
• the probable death of TPP.  That agreement had very little in common with “free trade”.  ISDS provisions, which provide foreign investors access to different dispute resolution procedures than domestic investors or ordinary citizens have access to, should have no place in a democracy governed by the rule of law.  And the intrusion of international agreements into trying to set parameters for eg domestic labour market regulation should be firmly resisted.  Domestic laws should be argued over in domestic political debate.
• the likelihood that new Supreme Court justices will be people inclined to read the Constitution as it was written, rather than as individual judges might wish it to be written.  There is an established procedure for amending the Constitution, and further politicising the Court isn’t that procedure.
• a halt in the relentless push towards normalising abortion (the Democrats campaigned on restoring federal funding for abortions).
• a pause –  though probably only a pause –  in the relentless push by federal authorities to compel private people and entities to accept/endorse policies that are anathema to their traditions and religious beliefs (eg same-sex marriage and transgender issues).
• less risk of a hawkish interventionist foreign policy, and especially the serious risks that would have surrounded Clinton’s preference for a Syrian no-fly zone.

And others where there is some –  perhaps small –  hope of better policy:

• smart people on both sides of US politics recognise there are serious flaws in the US corporate tax system. This means it is one possible area of serious reform, especially with the Republicans in control of the House and the Senate.  Lower capital income taxation, and a more conventional tax treatment of the offshore earnings of US companies, would be material steps forward, lifting the prospect of stronger private business investment,
• steps towards a rather better healthcare policy, perhaps including much greater scope for innovation in the healthcare and drugs sectors, and perhaps a step towards comprehensive catastrophic risk cover (the latter a stance favoured by many Republicans pre 2008).
• perhaps even Trump and a Republican Congress could be the vehicle towards a viable long-term solution for the huge number of illegal immigrants in the US.  In parallels with Nixon to China, perhaps only someone like Trump has the political positioning to be able to resolve the issue. I don’t have strong view on what the “right” outcome should be, but the existing legal limbo can’t be good for the illegals, or for confidence in the US system of government.

And in the last 15 years or so –  perhaps especially under Obama –  there has been a huge increase in the discretionary use of the powers of the administrative state, rather than relying on Congress.  No doubt each side of politics dislikes many of the uses the opposite side’s presidents have made of such powers –  and there are some serious challenges around the legality of some of those interventions (including, for example, Obama’s on immigration), but  in general, the heavy use of such power isn’t really consistent with visions of a democracy in which legislatures make laws and the executive carries them out. No doubt, Trump and the Congressional Republicans will have differences –  often large ones –  on many things, and it still takes 60 votes to get major things through the Senate –  but there must be more scope for relying on legislation rather than executive orders than there was in years when the presidency and Congress were controlled by different parties.  To me, whatever the specific policies, that is an unambigously good thing –  superior process.  And as the Republicans aren’t defending many Senate seats in 2018, if anything the Senate majority could actually increase a little for the last two years of the presidential term.

Am I very optimistic? No, not really.  It was always extraordinary that a great country was reduced to such a bad set of presidential options.  And no doubt the political environment for the next few years will be at least as toxic as the last few have been.  But from a small government social conservative perspective, even a deeply flawed vessel might still end up being agent for some modest gains (even amid the substantive and rhetorical dross).