On that note, due to NZ's stagnation, the focus is back on our weak improvements in productivity & how to solve the problem. PM Luxon is saying five things are needed to set the economy up for future growth: world-class education, more tech research, better infrastructure, less regulation, and stronger international connections. Yet I remember vividly hearing former PM John Key being asked the same question when he was in power. The answer he gave was a one liner. Geography, he said. Due to NZ's small size, remoteness and distance to other countries, Kiwis had to accept there would never be a high degree of connectedness to the rest of the world. In a small country, economies of scale are harder to achieve. And when one business achieves them, the market is too small to sustain competitors, leading to monopoly powers.
Why did Sir John Key give that answer? Maybe he truly believed it. Alternatively, answering that way to the business folks at the meeting meant he was off the hook. He was saying to them, "Don't blame me mate - there's nothing I can do about it - we're not Ireland - we're not an island just off the UK and Europe - and part of the European Union". What's striking though is that a former National Party PM is directly contradicting the current National Party PM, and Sir John is Luxon's mentor. Should Key be right, then Luxon's often repeated "five ways" to improve productivity won't work. NZ industry will stay concentrated. Even should education improve, those with high skills may still go abroad for exciting work opportunities and not use their talents domestically. Reserve Bank Chief economist, Paul Conway, has again been lecturing us how to improve productivity. He was Chief Economist at the failed Productivity Commission. This past week, MP's asked him whether his forecasts were too gloomy. He challenged MPs by saying, “The best way to forecast the future is to create it.” If you believe Former PM Key is correct, then one cannot create a new geography for NZ, and Conway's answer may miss that mark.
A related answer to Key's "geography" explanation for NZ's low productivity is the role of culture which is also hard to change. The focus in NZ is on quality of life - work / life balance - we're not so obsessed as many other cultures about striving at work to the extent it diminishes our family life, sports & other activities. People say Kiwis just want the three B's, "Boat, Bach and BMW". Once we have those things, we pull back. A symbol of that culture maybe the guy who is our PM, who said, “I’m wealthy & I’m sorted”. Since when did owning some rental properties, a Bach on Waiheke, Remuera house & a few years as Air NZ's boss make one wealthy & sorted? The founder of Apple, Steve Jobs, didn't become a billionaire from that company. He achieved such status by selling Pixar & is reported as having called his friends, Google Founder Larry Page, and Oracle Founder Larry Ellison, after the sale, telling them, "I made it". The bar was a little higher than Luxon's. Should his description of himself be a Kiwi cultural phenomena, then maybe the PM is a reason behind our low productivity. My own position is that the truth probably lies between the two extremes in the NZ case - laws can be changed to improve our productivity, but tremendous disagreement still exists about which ones, and we may have limited room to manoeuvre.
Why did Sir John Key give that answer? Maybe he truly believed it. Alternatively, answering that way to the business folks at the meeting meant he was off the hook. He was saying to them, "Don't blame me mate - there's nothing I can do about it - we're not Ireland - we're not an island just off the UK and Europe - and part of the European Union". What's striking though is that a former National Party PM is directly contradicting the current National Party PM, and Sir John is Luxon's mentor. Should Key be right, then Luxon's often repeated "five ways" to improve productivity won't work. NZ industry will stay concentrated. Even should education improve, those with high skills may still go abroad for exciting work opportunities and not use their talents domestically. Reserve Bank Chief economist, Paul Conway, has again been lecturing us how to improve productivity. He was Chief Economist at the failed Productivity Commission. This past week, MP's asked him whether his forecasts were too gloomy. He challenged MPs by saying, “The best way to forecast the future is to create it.” If you believe Former PM Key is correct, then one cannot create a new geography for NZ, and Conway's answer may miss that mark.
A related answer to Key's "geography" explanation for NZ's low productivity is the role of culture which is also hard to change. The focus in NZ is on quality of life - work / life balance - we're not so obsessed as many other cultures about striving at work to the extent it diminishes our family life, sports & other activities. People say Kiwis just want the three B's, "Boat, Bach and BMW". Once we have those things, we pull back. A symbol of that culture maybe the guy who is our PM, who said, “I’m wealthy & I’m sorted”. Since when did owning some rental properties, a Bach on Waiheke, Remuera house & a few years as Air NZ's boss make one wealthy & sorted? The founder of Apple, Steve Jobs, didn't become a billionaire from that company. He achieved such status by selling Pixar & is reported as having called his friends, Google Founder Larry Page, and Oracle Founder Larry Ellison, after the sale, telling them, "I made it". The bar was a little higher than Luxon's. Should his description of himself be a Kiwi cultural phenomena, then maybe the PM is a reason behind our low productivity. My own position is that the truth probably lies between the two extremes in the NZ case - laws can be changed to improve our productivity, but tremendous disagreement still exists about which ones, and we may have limited room to manoeuvre.
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
6 comments:
Imagine you use your own money to hire a 20 year old student. Would you hire a NZ born student or an immigrant? Certainly, NZ has a backward bending supply curve for labour: many people work the minimum to pay for essentials and not an hour longer. Remember also that NZ must lead the world in producing reports and having endless conversations that add up to nothing....
Nz has achieved excellent productivity with our dairy herd, inventing and using technology such as: artificial inseminatian, fast growing nutritious grasses, milking shed advances, electric fences, etc.
And Zespri has achieved excellent technologically driven gains which have translated into profits for its growers.
Maybe there is more scope for cooperatives in NZ tasked with maximizing their members productivity and returns.
How about a high end meat cooperative, an adventure tourism cooperative selling NZs many adventure tourism products and systems to the world, a movie making cooperative, and an organic produce cooperative?
Whilst cooperatives come with costs and downsides, replicating Fonterra and Zespri has a good chance of overcoming NZs productivity, distance, and size challenges, to achieve the same successes for other industries.
and the window of opportunity to manoeuvre is closing.
OR just read the excellent Breaking Views essay from Sir Roger Douglas where the first income to $62,800 was not taxed but the reciprocal former tax amount $10,800 was invested in the earners name for Health , Education and Pension . The system was balanced by using insurance and compound interest. SIMPLE and EFFECTIVE to get NZ out of the manure we are in . OK Reserve Bank???
Talkfest politics - hallmark of the Left - finally lead to disaster.
So why has the Coalition closed down the NZ Productivity Commission ( with its Left wing Labour appointees gearing up to deliver nothing)?
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