What does Productivity and Prosperity look like in New Zealand?
Quick Answer: Not like this.
Shaun Hendy and Sir Paul Callaghan’s (2013) famous book Get off the Grass powerfully opened with, “New Zealanders work harder and earn less than most other people in the developed world.” That was a tough pill to swallow then and it’s not going down any easier now. I know this isn’t a new insight and I don’t want to bore you with another gloomy, negative, opinion piece. Understanding the origins of New Zealand’s economic decline is interesting though, and potentially helpful, because looking backwards can help us look forward. Harvard correspondent Aaron Lester suggested, “To a large extent, history can be defined by the ways that humans interact with the unpredictable – including disasters both human-created and natural.”
New Zealand’s standard of living began to decline with the collapsing wool price in 1967 and accelerated with the impact of Britain slipping across the channel to join the European Economic Community (EEC) in 1973. Before these events took place, New Zealand had one of the highest standards of living anywhere on the planet and whilst it might not look like it to some, it is well positioned to recapture that glory. That point is suggested along with one or two caveats. The big one being not repeating historical mistakes. For example, not being over-committed and over invested in one or two industry sectors. Staying away from commodities as much as possible, investing in long-term strategy at both governmental and industry level and structuring organizations and their leadership to enable more proactive responses to global disruption. And to cap that lot off, seriously invest in R& D to leverage science and technology. Stuff Kiwis are really good at. Look at Sir Paul Callaghan’s work in Advanced Materials and Nanotechnology. Moving slowly or failing to heed warning signals in today’s world can be brutally defining. Working smarter in smart industries makes a lot of sense to me.
During the 44 years since the beginning of the decline many New Zealanders have experienced a very different world in relative terms to their forebears. They have felt the impact of lower productivity on their lives through the options they have open to them, which influences the choices they can make. Making ends meet in a low wage economy isn’t fun, no matter how beautiful the landscape is. Strong productivity performance is critical too. Nobel winning economist Paul Krugman suggests, “Productivity isn’t everything, but in the long run it is almost everything.” The strong connection to the past and the factors that caused the decline haven’t completely gone away either. New Zealand is still focused on expanding agricultural commodities and dramatically increasing tourism. The late Sir Paul Callaghan passionately argued that both came with significant downside risks. I think dairy has had a huge and very positive role to play, but as we’ve all heard, it’s now rapidly approaching its scale limit. Some say it’s gone past it. And what happens if something happens to dairy? What does New Zealand do then? What happens to the productivity and prosperity metrics in that situation?
Before going on, I will declare I’m a Western Australian, married to an awesome Kiwi girl and currently living in Christchurch. I can also honestly say living here has been a real eye opener. I’ve seen everything from tenacity, grit and creativity to the darker side of people and politics. I’ve seen go-fast, and go-slow, and I’ve seen those views compete with each other in the same room. I’m not sure how many people outside of Christchurch appreciate the scale of the 2010 and 2011 events, but they were enormous. 185 people died, 164 people were injured, up to 100,000 buildings were damaged and close to 10,000 buildings needed to be demolished. The rebuild cost has been estimated at NZD $50 Billion.
In many ways, I feel very fortunate to have had the opportunity to experience the highs and lows of a city dealing with a natural disaster challenge of the Christchurch magnitude. I’ve witnessed broken people with broken businesses in a broken city fight for their future and win. At times doing things that defy logic. Head offices became garages, containers became shopping malls and empty lots became communal vegetable gardens. During my time here, I’ve seen businesses boom and I’ve seen businesses bust. And I’ve learned that where there is a will, there is a way, and sometimes just doing the little things that really matter is what counts the most. Sometimes that little thing might just be showing you believe in someone. Building confidence comes before building ideas.
In my opinion, these are the lessons that need to be scaled up and shared across the country. In Christchurch, after the quakes it was obvious what was wrong and people just got on with fixing things up. Was it slow and messy? Yes, it was, still is, but it’s heading in the right direction. When it comes to prosperity and productivity in New Zealand we know what’s wrong. We know why wages are low…we just need to fix it, bit by bit, the way they have in Christchurch. Pretending something isn’t there won’t make it go away and nor will constant rhetoric. The issue of productivity and prosperity will not be solved by bureaucrats of any colour or persuasion and that’s mainly because the political system doesn’t embrace or encourage desperately needed bipartisanship. They can certainly help by setting the policy dials for advantage, absolutely, and thank you, but they can’t do the heavy lifting. That’s not their job, it’s ours. Evidence that the current settings have not been optimized is demonstrated by zero increase in productivity over the previous 5 years. It’s hard to put a positive spin on that metric.
Currently, there appears to be a lot of energy being wasted playing the blame game. Endless debates seem to rage across the country lobbying for dominance. Each interest group champions its vested interest across climate change, the environment, sustainability, water, the dairy industry, the red meat industry, the logging industry, the seafood industry and on it goes. It is becoming so divisive it risks wasting time, money, human resources and most of all…opportunity. There is no question all of these debates have merit and they need to happen. They are happening. And no one is saying these conversations are not all hugely important. However, the spirit in which these debates are being engaged with is disappointing. Currently, they appear to be devoid of good will and good intent. Look at the barrage of negative sentiment farmers have to deal with. It isn’t helpful.
The country’s primary industry producers know they need to change some things and as the old adage goes, you catch more flies with honey. The important thing is surely encouraging people to work together in the best interests of New Zealanders. Isn’t being small meant to equal agile, fast, flexible, responsive and dynamic? Something has gone wrong, because these key traits have gone missing, which is a shame because these advantages help New Zealand firms outmanoeuvre global competitors. I’m not sure that’s happening. When I arrived here in 2008 the conversation was all about closing the wages gap with Australia. The only thing that has closed since I’ve been here is the conversation about the gap, disappointing. Then it was double exports. Looking at the numbers, that’s not happening either. MPI set the country’s sights on reaching $64 billion in annual exports by 2025 back in 2012. You would need to be a real optimist to back that horse. Not impossible, but arguably improbable, at least on the current strategic pathway.
It can be done though. High levels of prosperity and productivity can be achieved by small countries in today’s landscape. Finland and Singapore are close to the same population size as New Zealand. Finland has 5.495 million people and a GDP of 236.8 billion USD. Singapore has 5.607 people and generates a GDP of 297 Billion USD. New Zealand in contrast has a population of 4.693 million and posts a GDP of $185 Billion USD. That is 112 Billion less than Singapore and 51 Billion less than Finland. What is the difference? Maybe it is because Singapore is a global trade and finance hub and Finland is a highly industrialised and diverse economy. Both are not as exposed to commodity trading. They are not price takers.
What the Christchurch experience demonstrated to me was, when faced with disaster on an unprecedented scale you need to be fast on your feet, you need to be resilient, you need to ask hard questions and you need to act. Even when that means knowing some things won’t work out quite the way they were planned. The point: you try something, and if it doesn’t work, you try something else, and you keep on trying until something works. And that right there, is the insight I’ll take away from Christchurch. Living here has provided me with a microcosm for observing the way people deal with challenges. It’s been a mini R & D Lab and it directly relates to the title of this narrative. How so? Simple, when faced with adversity, innovation thrives, collaboration prospers, risks are taken, people step up, capital gets found, stuff that people thought was impossible before, becomes possible. I’ve seen this over, and over, and over again. Proactive Kiwis don’t wait around, they just get on with it. Sure, they might rock a few boats and tussle a few feathers, but good on them I say. New Zealand can always do with some more boat rockers.
Clearly, New Zealand has enormous potential to prosper, but it might mean thinking and doing things a bit differently. Fig 1.0 highlights the country’s top 10 exports in 2016. It is quickly evident that much of the country’s exports are concentrated in the commodity space. Continuing to battle with other countries (Australia) selling similar stuff is ultimately a lose-lose game. And of course, the problem with commodities is simple and well-understood. If one product looks like another product, price becomes the clearance mechanism, and being a price taker isn’t much fun. We know all about that. The question is, what to do about it?
I know, there is stuff happening out there, I totally get it…and it is great to see, but part of me wonders whether it is happening fast enough. As previously stated, current productivity metrics don’t tell a great story. In these times of merciless disruption, it’s dog-eat-dog, the quick and the dead. Amazon, electric cars, AI, IoT, Brexit, Trump, pick one. Their impacts are either here, or on their way, along with a bunch of other stuff we haven’t even considered yet. Defending New Zealand’s standard of living from a she’ll be right bunker with a bit of dabbling here and there won’t be enough. Many of the discussions I’m hearing today I was hearing back in 2008 when I arrived. I can’t help wondering whether New Zealand could be or should be working faster to transition to high-value spaces where high quality returns are waiting. Paul Callaghan alluded to this in his now famous presentation. You can view Sir Paul’s vision for New Zealand here: https://www.youtube.com/watch?v=OhCAyIllnXY
So maybe, it’s time to step up to a new challenge so future generations can state, “New Zealanders works smarter and earn more than most other people in the developed world.”
By Jim Wilkes