13 May 2018

Michael Reddell: NZ should back its own people

From Sunday Morning, 9:37 am on 13 May 2018

Poor productivity is behind New Zealand's most persistent economic problems – and high levels of immigration aren't helping, says economist Michael Reddell.

View of colorful containers and cargo cranes in a port.

Photo: 123RF

Reddell regularly questions the perceived wisdom of our domestic economists in his blog The Croaking Cassandra.

'Why improving productivity is important for children in poverty' is the name of a talk he gave recently as part of the Improving Child Wellbeing lecture series.

So what exactly is productivity?

And how does New Zealand measure up with other OECD countries?

Pretty poorly, Reddell says.

"The amount we generate in New Zealand is roughly $42 an hour. In the best performing economies in the northern hemisphere –France, Belgium, Denmark – it's about $70 an hour. Those countries are doing two-thirds better than we are."

And that's not because we don't work hard.

"New Zealanders work some of the longest hours in any advanced country and part of that reflects the fact we've done poorly in productivity for the last 100 years."

More productive countries actually work fewer hours, he says.

"It's about what we get from what we've got. It's definitely not about working harder."

A hundred years ago it was a different story, Reddell says.

"On the best international indications, we were either the richest country in the world or second or third in 1913. Our living standards were among the best in the world. We've been downhill since then. That downhill path really accelerated after the Second World War. Up to around 1950, we were more or less holding our own."

New Zealand took its eye off the ball between the 1930s and the 1980s, when industry was heavily protected, he says.

"We turned inwards, we had a lot of protectionism. We encouraged the production of cars here, TVs here... it was all incredibly inefficient. At one stage, we had 22 TV factories in New Zealand in the 1960s.

"It stopped us finding industries in which New Zealand was more efficient."

Economist Michael Reddell.

Economist Michael Reddell. Photo: Supplied

The productivity problem is compounded by a very high immigration-driven population growth, Reddell says.

"We've been growing the population too rapidly for a land that is incredibly remote. We've got one of the fastest growing population rates of any economy in the OECD – per capita three times the US, three times the UK. It's an extraordinarily rapid rate of immigration in a country that's incredibly remote."

New Zealand's politicians and economists have given insufficient attention to the geographical remoteness which denies us the advantages of close neighbours and populations to trade with, he says.

Reddell also believes the economic benefits of immigration to a country like New Zealand are overstated.

"Most of the literature on the benefits of immigration to productivity is centred on economies in the North Atlantic, places that are very close to other people.

"I argue it hasn't taken sufficient account of the uniqueness of New Zealand's position, but also the volume of immigration we've had here has been so much higher than in almost any of these other countries."

The solution would be for New Zealand to back its own people – and for the government to face up to the limitations of our distance from the rest of the world.

"The hope for New Zealand is by putting our weight behind our own people, our own kids, not looking to some cargo cult mentality that believes that our salvation lies with a better class of people coming from across the water."

Michael Reddell has worked for the Reserve Bank, been a special advisor to the New Zealand Treasury and spent two years on the board of the International Monetary Fund.