In 2016 Dr Bill Rosenberg, Policy Director/Economist at New Zealand Council of Trade Unions, said: “New Zealand’s problems are in large part due to a model which has it running along a track of low value, low wages and poor productivity growth”.
So what’s his evidence? Well, the office of the OECD first discussed what it called New Zealand’s ‘Productivity Paradox’ in its 2003 annual survey of our country.
It said: “The mystery is why a country that seems close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer”.
Rosenberg also quotes The New Zealand Productivity Commission in 2013.
“New Zealand has both low productivity levels and growth rates in aggregate and at the industry level and, as such, shows no sign of ‘catching up’ towards higher productivity countries.”
In fact, Rosenberg argues, the gap is getting wider.
So what’s causing this? In recent weeks the OECD has cited weak competition rules, low savings and too little investment, especially in R&D. It has identified a mismatch between the skills Kiwis acquire and those they actually need to succeed. This tends to leave many of us overqualified for the jobs available. On the other hand, the OECD described many managers in New Zealand as underqualified mediocrities through lack of competition and a preponderance of smaller firms.
But Rosenberg lists other factors. These include what he describes as a ‘bloated’ banking sector and runaway house price inflation. He argues that the New Zealand dollar’s popularity on the foreign exchange markets helps keep it overvalued, suppressing exports. Meanwhile increasing inequality and poverty are creating a drag on our economic progress.
“New Zealand’s exports are excessively dependent on a relatively narrow range of land-based commodities and tourism,” he says.
So how can we boost high value production, manufacturing and invisible exports?
Rosenberg’s day job means his answers don’t surprise. He argues for increased wage bargaining power, capital regulation and employment law more favourable to workers. But it’s difficult to see how this would be attempted in the political realities of 2017.
Dr Ganesh Nana is Executive Director, Chief Economist of Wellington-based BERL. Last year his State of the New Zealand Economy described a nation where standard indicators might appear positive, but seem strangely disconnected from the genuine well-being of its people. This, he argues, is unsurprising for an inherently vulnerable export-dependent but narrowly focused resource-based economy.
Both he and Rosenberg find the standard moves from the neo-liberal playbook aren’t working. New Zealand isn’t creating the financial climate in which the required investment happens.
“The notion that New Zealand can develop an economy outside its dependence on its raw resource base remains more a symbol of hope than a reflection of strategic intent,” he says.
Today, two thirds of exports still rely on raw resources. And New Zealand tourism relies on natural attractions outside of urban centres. But at the same time our population is increasingly drifting away from the regions, primarily into Auckland, taking its tax dollars with it.
“GDP growth continues to be cited as the measure of performance, yielding rock-star status for the NZ economy,” says Nana. “But, the quality of this performance in terms of well-being outcomes continues to be overlooked.”
John L Walley is a businessman, investor and former CEO of the New Zealand Manufacturers and Exporters Association. His take on the New Zealand economy focuses on the offshoring of manufacturing over the last 30 years.
“There are pockets of success with some specialised products where New Zealand producers of elaborate goods do well in global niche markets but these successes cannot fully offset the decline in well-paid employment and elaborate product export revenue,” he says. “An intent to grow exports in relation to GDP has been voiced by government after government, from both sides of politics, but not much changes.”
His concern is that New Zealand may be losing its capacity to competitively produce complex exports. In the meantime we are bumping up against the environmental limits of primary activity. We are vulnerable to price fluctuations for the eggs, or rather milk, in a basket. And there is a growing threat from the accelerating development of lab-produced meat and dairy products.
Firms wanting to succeed in complex markets have to achieve escape velocity from New Zealand fairly quickly. It’s often the only way to gain access to large enough markets to sustain growth. But this can leave them heavily exposed to currency fluctuations before they have developed the kind of cash flows to shrug them off.
Walley argues government needs to incentivise investment with tax breaks, and cool the real estate boom at the very least.
“A move away from a policy framework that relies on wealth generated from asset rents, or more broadly the financial economy, to wealth based on providing well-paid demanding employment, supplying real things that customers value, an economy that invests in infrastructure, a real economy that works for more people will drive tomorrow’s politics.”
Whoever takes power in the coming weeks, it remains to be seen whether they will finally put their policies where our aspirations are.