This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
In an opinion piece in the New Zealand Herald, John Gascoigne claimed that New Zealand was a ‘tragic tale of economic decline’. He gave no evidence for the claim – which is understandable because it is hard to make rigorously.
Essentially what has happened is that in most of the postwar years, the New Zealand economy has grown at roughly the same per capita GDP rate as the rest of the OECD. There was a thirty-year period after 1966 when it grew more slowly.
There were two phases. The first was following the 1966 fall in the wool price, when New Zealand’s single most important export industry, earning over half our foreign exchange, collapsed. Economics 101 will tell you that when that happens, an economy will struggle; it did for a decade but recovered and then began growing at the same rate as the OECD again. However, it had taken a knock; the new growth path was about 14 percent below the level it would have been if the track before the wool-price crash had been maintained. That is how important wool was then to the economy.
The new growth path did not last long. In 1985 the economy went into a decade of stagnation, presumably as a result of the neoliberal economic management of the times. There was a recovery from the mid-1990s back to growing at the OECD rate, but this time the growth path was 17 percent below the previous one and almost 30 percent below the pre-1966. But other than those two periods, New Zealand has grown at much the same rate as the rest of the OECD.
We are hesitant to acknowledge the neoliberal stagnation. The huge tax cuts for those at the top meant that the well-off were hardly affected. Ther high-income tax cuts were paid for by the rest, who experienced lower real incomes from higher taxes, lower benefits and reduced government services. Moreover, even today many of those who benefited from neoliberalism are still in positions of importance or carry the ideological baggage from that time and prefer to ignore the economic record.
But if you do, you end up with stupid analyses like Gascoigne’s. Does he really think he can explain the sharp relative fall in the period from 1966 to 1996 by exceptional population growth? That is certainly not what the demographic data says.
It is true that rapid population growth can dampen per capital economic growth but the magnitude of the effect is quite small. I explored it in my 1996 book, In Stormy Seas. (There are some who will snort that it is not unusual for New Zealand Herald opinion pieces to be a quarter of a century behind the research frontier.)
If the population growth is from higher fertility, then a larger proportion of the population is young and caring for the young, which means there are fewer paid workers in the total population which reduces per capita GDP. If the growth is from increased longevity among the elderly who don’t work, then a similar reduction occurs.
What about if the population growth is from external migration into the labour force? The traditional view was that the migrants – especially skilled migrants – would enhance per capita GDP and hence economic growth, at least by boosting the proportion of the population in the labour force. That seems to have been a foundational assumption of the Key-English growth strategy.
I am not sure that is quite right. The traditional analysis may have underplayed the infrastructure problems or we may be in a new phase of development where infrastructure is more problematic. The issue has yet to be fully elaborated, so I can only sketch it here.
Auckland has been seen as a key element in New Zealand’s growth strategy but what about its infrastructural needs? It is said that the country’s largest car park is the jamming on the central city motorway. We – I mean the whole country – are spending a fortune un-jamming it: widening the M1,while the Western Ring Route and Waterview Tunnel are relief roads and there are plans for a second (expensive) harbour crossing. The City Rail Link and the proposed light rail from the CBD to the airport have similar purposes.
On the whole, the extensions seem to be containing the Auckland jam rather than resolving it because traffic demand is rising. One source of the rising demand is the newly arrived migrants. We do not know how much of the infrastructural spend is for their needs but I have seen rough calculations which suggest there has been little improvement in New Zealand’s roading structure per person.
The problem arises in part because of the confined Auckland isthmus which is not like the models of disc-like urban centres we were taught (if we were taught any urban economics at all). Christchurch, for instance, is probably not as expensive a problem but its population is not growing as fast.
There are other parts of the infrastructure which are becoming increasingly expensive to extend – for instance cheap hydroelectricity power sites are exhausted – all suggesting that when we think about population policy we need to think more about such issues.
It is far from clear that we have a coherent population policy – although the Productivity Commission is due to report on immigration soon. So there is some acknowledgement that we need to think more coherently. It may well be that we find the issue is more about wellbeing than economic growth – that the infrastructural extensions may have some impact on the latter, but we need to focus more on the former. The people-flow consequences of the Covid pandemic have highlighted some of the related issues such as the skill balance. But there are also distributional ones. Do the higher incomes all accrue to the migrants or are there some benefits to those already here?
I would regret if we were to ignore those issues and return to the unthinking Key-English approach. But I would also regret our abandoning immigration altogether. Every one of us is descended from immigrants; I should hate to see us follow the many narrow-minded ‘nativist’ Americans who forget their origins and are violently (yes, I mean that word) opposed to more immigration. But we can only head the development off by a more thoughtful coherent alternative.
Envoy: As I was writing this I learned of the death of Ian Pool at the age of 86. He is described as the ‘father of New Zealand demography’ (although of course he had ancestors). I was very aware of his immense contribution when I wrote Not in Narrow Seas. It is a better book for his and his ‘children’s’ research. Thank you Ian.
*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
66 Comments
"or we may be in a new phase of development where infrastructure is more problematic."
Wendy: "You're getting it, Peter".
"It may well be that we find the issue is more about wellbeing than economic growth"
Now you're getting close. We will, and it is: All about (not more about).
Hardin's 1974 'Lifeboat' essay is essential reading.
http://www.garretthardinsociety.org/articles/art_lifeboat_ethics_case_a…
I always read with great interest whatever Brian Easton writes. And here I applaud his taking up of the population issue. However, the fundamental conditions of the next 30 years are going to be very different to the last 70 years which Brian uses as reference points.
New Zealand's economic growth of the last 70 years was built on resource-based export-focused primary industries. Further productivity gains in those industries will be limited by the constrained resource base. We will continue to make gains in labour productivity. However, there are no transformational export-focused industries on the horizons to create rapid export growth. Also, and with good reason, there is no evidence of significant development of industries to replace imported products. Accordingly, there is limited wealth to pay for the imports required by a rapidly growing population.
There are indeed limits to growth that arise from a constrained resource base.
KeithW
KeithW,
"There are indeed limits to growth that arise from a constrained resource base"
But surely there are limits to growth and since the resource base is not infinite, it must necessarily be constrained. Raworth is surely right in saying that we must adopt a more circular economy to survive long-term..
linklater01,
My concern is that the term 'circular economy' has potential to become a term that is thrown around far too loosely.
Much of my own work relates to nutrient flows and how nutrients can be captured and recycled. But in practice it is not particularly easy.
In recycling one nutrient, we sometimes end up using more of other resources.
KeithW
KeithW,
Thank you. That is why I used the term 'more circular' as there can be no perfect system. There will always be some wastage, but we have a very long way to go before that becomes an issue.
I think my main point still stands. While I am a great deal more optimistic than say PDK, I nonetheless believe that the economy into which we transition is very likely to be less energy efficient than our current fossil fuel based economy. We will have to consume less and painful though the transition will be for many, we can survive and thrive on less.
I think we need a population policy, but that policy needs to account for quality of life factors rather than just the economic factors all the discussion seems to be focused on. GDP is great and all but what about hospital waiting times, class sizes in school, commute times, house prices, and whether I can find a spot on the beach in the summer? New Zealand is (or rather, was) a nice place to live because we have a beautiful country, a relatively high standard of living and an egalitarian society. I'd like to see a population policy that focuses on protecting those things.
Most of our politicians would tell us that those long commute times, class sizes etc. are all signs of success.
The good sheeple of NZ fell for Labour's election promise of sweeping immigration reforms twice over. GR still has the gall to come on national radio and state immigration is terribly unsustainable at 70k or so a year, when this government continues to have a worse track record on net migration than Key's.
OK. Justify the huge losses in productive and personal family time if no one over 15 drove a car.
Or are we all meant to act like our time is worthless and accept never seeing our families just so someone in a developing country can keep building coal-fired power stations?
Ahuh, and given that I am now also 'doing less', am I still going to be able to feed and clothe a family?
Like, this is all well and good, but at a practical level, people have to be able to afford to live and stuff - the ability of people to take a relentless financial caning is not limitless, which I'm sure you in particular can appreciate, PDK :)
This is the conundrum
Can we increase standards of living in a recessionary environment with a lowering population?
I believe we can do this but we need to be wise with where we spend our energy. It requires a total rethink of how we utilise our resources and best we do that now rather than wait for it to be forced upon us, which as PDK keeps reminding us is an inevitability.
No this is not the case. India is still a developing nation with significant poverty issues, their resources are required for their own existence not plundered by colonists. In fact if you go to India you will see the impact of the infrastructure that dates back to those times. Same goes for Indonesia. Same goes for Vietnam.
Doing less is unlikely we are solving our issues with innovation and that has by it's construct a rapid pace of iteration due to the advances in machine learning and the pervasive access to information.
We may reduce travel by virtual travel but we will not slow.
The biggest problem is that while Key moved National to the left and became closer to Labour, Ardern and Robertson have made Labour even more again like National. Now they're basically one and the same and refuse to even acknowledge and deal with too many of the biggest problems.
One of the few remaining differences is Luxon wants to give investors a free ride off the back of working Kiwis once again...
No one voted for the last million that has arrived, and it has more or less ruined what Auckland used to be. That said some like it now, but many don't. This debate absolutely needs to be had, and in the public domain. Governments then have mandates for their policies and, hopefully, they actually need to stick to what they campaign vs the likes of recent others.
Wasn't that supposed to be the subject of yet another study led by the Productivity Commission? More waste of good paper that will just end up on the pile with the ComCom supermarket study, tax working group recommendations and investigations into NZ's looming literacy crisis.
I remember seeing a MAGA demonstration against immigration during the Trump era. A Native American guy walked up and called them out on it. They had no idea how to respond, absolute gold.
Also learnt that in the construction industry alone, one million worker days were lost last year in ACC claims. Reducing that would surely boost productivity no end.
You need to do some homework, relativity-wise. Hint - Adan Smith was writing with a before-fossil-energy mindset.
We use fossil energy, as if we had a few hundred - or thousand - slaves apiece, 24/7; one barrel of oil is said to be the equivalent of 4.5 year's hard labour.
So productivity gains have, for a long time, really meant 'energy efficiencies'. And those run into thermodynamic limits.
Problems will also begin with resources before the theoretical endpoint that applies if we all carry on as "Normal" because the West will start hoarding those resources ahead of time. Climate change is already proving fatal in many countries and even fresh water will be a resource that starts wars. The long term outlook is pretty bleak really, best just to enjoy my coffee and think of something else.
Is hoarding really possible? Developed countries are generally those that depleted resources first, leading to their colonisation era. Hoarding would first mean acquiring. Unless changing the economic system from top to bottom, hoarding is a very short term prospect. The wisdom of using finite resources as rapidly as possible, bloating the return on investment line in quarterly reports, will increasingly look like questionable behaviour?
Sure hoarding is possible. When your way of life is threatened you just invade another country for their resources and sure up your future whether it be short term or not. Its not like it has not happened already, just invade another country on the pretext of something else to essentially "Stabilise" the region for future supply of that resource. As things become more and more scarce its going to be one giant bun fight for what's left. Hopefully I will not still be here when it happens.
Hard to disagree with that with the cost/benefit ratio under the latest legislation which is primarily about the PCBU ticking boxes to cover their legal exposure. The NZ legal framework came directly from Oz/UK so thats to be expected.
However it's important to note that the direct & indirect cost (excluding the emotional & tragic consequences for the individual) of workplace injuries are both rarely counted & are mostly socialized away from the employer.
I managed 24/7 manufacturing sites for decades. I well remember the lax attitudes & blame game played in the early 1970s. The last place I worked up to 2015 had gone 13 years without a LTA and 10 years without a MTC. The real business benefits in productivity, morale & quality far exceeded the nominal cost of the staff education training and management time involved.
It all depends on how practical and effective H&S is implemented.
I’ve worked in businesses that are OTT in areas, binding up employees and supervisors alike filling in checklists etc. e.g. is every day for every workplace vehicle a check has to be done, this includes WOF, tyre pressures and conditions etc. I call this a waste of time and resources.
In my experience the most effective action is to empower all staff to be able to stop any process until a critical safety or quality issue is addressed. The people doing the work generally know what is right & wrong, they need to be fully supported from the CEO down. For management, these occasions become "moments of truth" in your credibility: the standard you walk past is the standard you accept.
If (big if) the government are serious about co2 reductions then surely any policy around future population size will be based around reducing our carbon emissions (less fossil fuel used worldwide) then it would be for economic reasons.
In my opinion this would require population to significantly decrease if we want to keep the same standard of living.
Currently Government do not have a robust enough systems in place to deal with unproductive unemployed that is costing the NZ tax payer billions and they've had generations to sort it out.
Industry needs must continually coordinating with secondary schools before students they leave to ensure they have clear an employment career path matched to their interests and ability
The 188,000 kiwis on the job seeker benefit must be required to work at the low skilled employment to maintain work discipline and encouraged to build / developed those skills to higher income earning roles through on the job training and tertiary institutions.
Only immigrants with financial independence, highly specialised skills that we don't have in NZ but need; they must have excellent English communication and ability to manage and train Kiwis to do this task should be allowed citizenship and be carefully monitored on ones pathway to residency.
At the moment it's all short term solutions to suit corporates bottom lines that's having long term negative outcomes affecting Kiwis lives - such as insufficient, expensive infrastructure and dysfunctional communities.
What have we really gained from this past immigration splurge?
1 Unaffordable homes
2 a low wage economy
3 increased pollution and CO2 emissions
4 A low wage, low productivity economy
5 A health, education and infrastructure deficit that has set us back decades and future generations will be paying for for decades
6 A sharply increasing divide between the haves and the have nots and all the social deprivation misery and social turmoil that this brings.
7 A huge increase in the stress and frustration of living in a country that is grossly over populated for it's infrastructure and services
FOR WHAT?!!!!
As I have said before based on my own extensive research. There is no positive correlation between population growth and GDP/head growth rate, in-fact there is a slightly negative correlation. Surprisingly many of the worlds most successful and sustainably wealthy economies have reducing populations. This is because they are not saddled with the overhead of having to play infrastructural and services catch up with the population and their increasing prosperity is anchored on achieving more with a decreasing population. i.e. increasing productivity.
Both major political parties are as bad as each other. In-fact the last 2 decade splurge was kicked off by the Labor party. National will certainly never change this, particularly with the present unimpressive leadership. Labor, if it had any sense would make it an election issue, most average Kiwis can see the folly of it. The only supporters seem to me to be the pointy headed nitwits in Wellington and Lazy National voting employers who vote National anyway.
Labour would support it if Labour listened to low paid workers. Low paid immigrants may be good for the wealthy (house prices, cheaper services) but they are a kick in the teeth for unqualified Kiwis. They lower wages, reduce opportunities and undercut training schemes.
Well paid immigrants may be good for NZ.
It does and indeed in IT we are facing a global market place. Our capable IT people are seen by the West Coast dev shops as an easier way to extend their teams now the Ukraine folk have other things to do. Given than none, and I mean none, of the dev teams meet each other in person anymore and all their work is done in the cloud, it only makes sense that NZ talent is sought. They can double their wages (yes double) so of course they do.
Guilty, though I "only" make 80% more than I did for a NZ company a year ago. But now I'm a service exporter so I'm helping to diversify our exports from agriculture.
Time zone difference to the US west coast from here isn't too bad, 3-5 hours depending on daylight savings
Yeah and as a manager of a local IT team when my boss sucks his teeth at a less than inflation wage rise (in fairness I work in a regulated industry) it makes for hard conversations.
I suspect this will critically disable our productivity ambitions as a country but unfortunately there is little to be done about it.
100% Agree, we need a proactive approach to population growth aligned to infrastructure plans
This is the exact problem under National that caused housing prices to start skyrocketing (alongside QE money printing)
Misaligned or simply NO alignment of population growth relative to infrastructure, hence a housing shortage and high house prices alongside infrastructure that is behind where it needs to be
As is often the case, policy alignment is lacking and problems caused are difficult and extensive to fix i.e. housing, it's taken years, a pandemic that halted immigration, drastic central bank policies and major tax law adjustments to just stall the housing market...
House prices took off under Labour in the 2000s because personal tax rates were high, the gains on property were effectively tax-free and they took their eye off the ball in terms of keeping the Income Tax Act up to date and fit for purpose as prices took off.
The idea that houses prices were flat until National got in is partisan garbage that doesn't match objective reality.
There is no Nat plan to stop the next bubble.
Luxon's direction seems to be to remove taxation from property investors to let them freeload again, so more interested in pouring fuel on the fire while making productive working Kiwis pay for all of society and its services.
House prices took off for the 1st round in Mid 90's. Due to employment contracts act. Lowering workers income making home buying more expensive
Accommodation Supplement. Making property investing more profitable and tax effective. Then 1st Wave Asian immigration under "investor" visas from Hong Kong, Taiwan, South Korea. Suburbs of Dannemora, Botany sprang up from farmland. Auckland boomed for a bit.
Successive governments have gone for the immigration boost ever since.
It was funny that the visa required the person to bring 400k into the country and that the absolute max price of the builds in those new suburbs was 400k. How anyone in Wellington ever thought that it was not a blindingly obvious and relatively open-door immigration policy I will never know. Having worked on the last phases of that build I can say the predominant language of the suburb was Cantonese not English.
Well, yes...and that's one of the reasons why many of us voted for John Key, because he campaigned on addressing the housing crisis and the productivity problem, two sides of the same coin. That's precisely why he was such a massive disappointment.
As someone on NBR put it: He came, he saw, he left.
I'm an immigrant myself so my views should be suitably discounted as those of an outsider and not a New Zealander but...why do you make this so bloody difficult for yourselves?
In the long term immigration can provide manifold economic benefits as people pay tax. There is however a high up-front cost of building infrastructure, housing, increasing public services etc.
Agreed so far?
So just charge an immigration fee equivalent to the up-front cost and offer an annual income tax rebate of an equivalent amount over the working life of the person who paid it. Occasionally a simple solution is actually a good one.
"why do you make this so bloody difficult for yourselves"
A lack of trust in central govt to fund the infstructure to support the population they keep front-loading in. It really is that simple. If Auckland had modernised at the same rate we added people, then this would almost be a non-argument. But we've ended up with all of the downsides and the arguments about how to do anything about it are yet to progress from a make-work business case exercise for civil servants in Wellington - who don't have to deal with the fallout of a rapidly-growing city with no clear path for growth.
That is roughly what should happen. But it would reduce both the supermarket checkout operators and the care home nurses.
There would be accusations of it being racist since many poor countries are non-white. However most of our low paid immigrants driving Uber etc have paid agencies in their own country large sums in order to get to NZ - often involving expensive spurious tertiary studies too - by the standards of their country of origin they are wealthy.
No, we don't have a population strategy and desperately need one.
It was in the draft productivity commission findings but I believe the recommendation could have been a lot stronger.
The governments job should be to attempt to maximise wellbeing per capita growth (economic+social+environmental). This goal needs to be written into legislation and would be better than the tax law David Parker is proposing as it would encapsulate tax implicitly.
Given the absolute carbon targets and the housing crisis one would expect that any output population strategy using the goal above would in the short term seek to limit population growth such that the gdp/capita (or other better economic measure) is just positive allowing the housing deficit to be recovered, and limit the growth in total carbon emissions through population growth alone.
I don't see how it is a difficult problem to solve, just put a cap on it, decide a number and job done. The problem is that immigration will have to drop to very low numbers or that cap will just blow out in no time. I also don't understand why people worry about a falling population, NZ was a far better place with half the people so why do you think its going to get better with ever increasing numbers here ? If you ever have to meet carbon targets in the future your going to have a far easier time of it with a falling population not a rising population. Each person has a huge carbon footprint just living and thats before they start to travel anywhere.
The problem is the liability of the aging population, there's less workers and more dependents. You can't have that, retain services, invest where needed, and not break those of earning age.
As for the carbon target, one of NZs issues is our emissions per capita and I believe private households are the lesser problem.
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