Archive for March, 2010

The Kiwi’s Climb in Context

Tuesday, March 30th, 2010

Sometimes, a fact or figure leaps out at you that seems all the more compelling for being quite incidental to the author’s intention in presenting the information – so you know you’re not being “sold” anything.

One of the writers I follow most closely on the financial crisis and its aftermath is Martin Wolf, the chief economics commentator at the Financial Times. His columns can be found here – you may need to register to read them, but podcast versions (where he reads his column aloud) have, I think, unrestricted access.

Wolf believes in the free market but he is also a Keynesian, and he is appalled by the irresponsibility that led to the financial crisis and by the possibility that meaningful reform may not occur.

Wolf is also a supporter of the savings glut hypothesis, which means he believes that one of the underlying causes of the crisis was trade imbalances. Countries such as (in particular) China had been running persistent trade surpluses while avoiding upwards pressure on their currencies by recycling capital inflows in buying up US dollar reserves, therefore effectively flooding the US in particular and the West in general with soft credit.

This is the theme of his book Fixing Global Finance, which was largely written before the crisis yet still worth reading today – although it seems apparent from his columns that his position has evolved a little in response to events.

Anyway, Fixing Global Finance is not about New Zealand – we barely rate a mention. But, to me, that makes the graph reproduced above all the more striking.

We all know that the Kiwi dollar appreciated quite a bit during the last decade, but I hadn’t realised before seeing this quite what an outlier we were.

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Posted in Progressive Path to Prosperity | 4 Comments »

A Response to Feedback on the Work Programme

Thursday, March 25th, 2010

We’re getting towards the end of the feedback period on Policy Progress’s draft work programme – tomorrow (26th March) is the last day.

Much of the feedback to date has been pretty approving of my original suggestions, which I’ve been elaborating upon in this blog over the last few weeks. I have however received a couple of more challenging contributions, which I want to highlight and make an initial response to in this post.

Firstly, reader Zooey questions the overall balance of the proposed work programme:

Hi! Suggestion for a topic: “nanny state” issues and progressive government. The aim to lift families out of the dark ages of children “seen not heard” and physical punishment, with excellent resources such as SKIP – where does that stand now, considering the backlash we experienced about corporal punishment? How does a progressive government want to interact with society / community – is there a good case for better “social engineering”? Post-post-modern Feminism and “women’s issues” (the childcare debate…)

I hope you will have a slot for childcare / family / education-related issues. Must say so far the website has been a bit “male” (science, money …). Thank you for your time.

I think Zooey makes a reasonable point. In fact, this has been a slight nagging concern I’ve had about the balance of topics for a little while now, as subscribers to the e-newsletter and followers of the Facebook page will be aware.

On the other hand, I think three topics in 2010 is the maximum workload manageable, so if we added something in the childcare / family / education area, we would need to drop one of the ones I’ve previous proposed (Progressive Path to Prosperity, Theoretical Foundations or Fiscal Record).

I have suggested one other topic of more of a social policy orientation, and that’s child poverty and cycles of disadvantage. But I was proposing to do some initial work and thinking on this in 2010 before developing it into a full theme for 2011. In practical terms, that means there would be a number of blog posts this year but no formal report on this topic until after March 2011 when the current work programme finishes. Moreover, that topic is quite a bit different from the one Zooey was proposing, although both move away from the kind of science, money etc concerns Zooey saw as dominating.

Another consideration is the Theoretical Foundations topic. I think I may have created the impression that this is largely about the logic for whether to be economically interventionist or not. But it also applies to the separate but connected argument of when, how and on what basis to intervene in the social policy sphere as well. I’d been thinking about that mainly in terms of welfare state services and support, but the more I think about it, the issues around interventions in support of socially-desirable behaviours would be fascinating to cover as well. (And on a related note, I’ve got a guest post in the pipeline on the role that ‘choice architecture’ can play in that . . . )

What do you think about Zooey’s general point about balance, and specific suggestion? Might the Theoretical Foundations topic as clarified above address one or both of those? Or should we drop one of the previously proposed topics, and if so, which one? Leave a comment below!

Source: Ministry of Economic Development, Economic Development Indicators 2007, Figure 2.1, http://www.med.govt.nz/upload/53549/Indicators-Report-2007.pdf

The second bit of challenging feedback came when I outlined the various barriers to economic success that I saw as being the focus of the Progressive Path to Prosperity topic. I got the following comment from Big Cake, the sobriquet of the author of the bigcake.co.nz website, which is focussed on similar ‘NZ growth challenge’ issues:

. . . the big issue I think with your approach – and with the current Government’s – is the lack of vision. In a way it’s cart before horse.

We need to ask ‘what future do we want?’ and then work back from there.

Prevous economic-reform minded governments I think have come unstuck on this because the reforms they have put in place are often not politically sustainable long-term.

The current Government’s tax reforms and mining in national parks process look to be falling into this trap.

BigCake’s ‘growth sceptics’ who believe past reforms have failed to deliver so have no faith in current ones remain a force to be reckoned with.

We need to follow the track of Ireland and establish a consensus. Difficult if not impossible in the current circumstances.

This ‘cart before the horse’ criticism was echoed by regular commenter Achela who questioned whether pursuit of endless GDP growth should really be the default option.

I’ve given these challenges a bit of thought over the last day or two. I think Big Cake and Achela both raise important issues but I’m not convinced I should radically rethink this work programme topic in response.

I think Big Cake is planning some sort of project to address the “what future do we want?” question on his own site, and I wish him well with that. But I don’t feel that the Policy Progress think-site is really well-suited to tackling that task.

Partly this stems from some doubts I can’t shake about how tractable such an endeavour is. My progressive heart wants to believe it can and should be done, but my policy-analyst head remains to be convinced. (Self-professed non-progressive Nik makes an argument that recent attempts in this area have been fundamentally misguided; without necessarily accepting his argument in total, the experience with Knowledge Wave/GIF/Economic Transformation does probably contain some cautionary lessons.)

Moreover, I’m certain that there are a number of respectable progressives out there who would strongly argue against the government and/or society trying to envisage a particular model of our future economy. I would envisage phrases like ‘picking winners’, ‘manpower planning’ and ‘centralised decision-making’ would crop up a lot.

Therefore, I think the best service that Policy Progress can perform for the “what future do we want?” project is to try to establish (whether there is) a strong theoretical basis for the approach of having a particular economic vision and then taking action to achieve it. In other words, once again the Theoretical Foundations topic seems the appropriate place to address this gap (hat-tip to Achela for suggesting this).

If that’s the horse, what about the cart? Should Policy Progress hold off on identifying (and thinking about how to address) the issues holding New Zealand back economically, until we know where we want to go? I would argue, no.

As the graph above reminds us, New Zealand’s current current economic standing appears pretty dismal – even the low per capita GDP we current attain is only achieved by working more hours than just about everybody else. Yes, we might benefit from having a clearer and effective economic strategy. But I would argue that there are some pretty generic problems and obstacles that are holding us back whatever particular strategy we adopt. I think it’s worth diagnosing these and thinking about solutions alongside the bigger picture ‘vision’ stuff that Big Cake and others are embarked upon.

I also think that low productive output per hour worked shown in the graph addresses Achela’s point too, to some extent. The problems causing that are probably ones we want to tackle regardless of whether we buy into the economic growth paradigm – if we raise our productivity, that gives us more choices (a point Achela also makes).

Perhaps what these thoughtful challenges remind us is that we need to be careful in the Progressive Path topic to stress that this is just about addressing economic barriers and obstacles that block the path, rather than trying to define the destination.

But I’m interesting in hearing from you – do you agree with Big Cake and/or Achela’s critique? Does the Progressive Path topic need to change? Or do you think my response above adequately addresses their points? Leave a comment below!

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Posted in Work Programme | 5 Comments »

Economic Prosperity – What’s under the Umbrella?

Tuesday, March 23rd, 2010

Wikimedia Commons / CC BY 3.0

As I mentioned earlier, the topic about “A Progressive Path to Prosperity”, which is being proposed as part of the work programme, is intended as an umbrella topic.

The approach I want Policy Progress to take with this area is to avoid either simply coming up with a wishlist or grab-bag of appealing ideas, or choosing a few favourite hobby-horses and then working back to argue how advancing them will benefit the New Zealand economy.

Instead, I think we should think carefully about New Zealand’s economic performance and what’s been holding it back, and then figure out – from a progressive perspective – the best way to tackle these problems.

Ideally, this would add up to a list of things that, if they were all tackled effectively, would lead us onto the sort of growth path we’re all looking for.

Obviously, there’s a limit to how systematic you can be with this sort of approach – inevitably there’s a lot of judgment involved – but that’s the basic “lens” I’m proposing.

I’ve given this issue a bit of thought already, and here are my ’starters for ten’ for what we need to focus on. But I’m very interested in hearing from you – what’s missing? What’s on my draft list but actually unimportant (or, just as importantly, which problems have been mis-specified)?

Continuing to encourage/facilitate New Zealanders to raise their savings level
 This was a major theme of Michael Cullen’s, and Kiwisaver should over time make a difference here, but there is still more to do.

Lifting private sector rates of capital formation and R & D investment
The low rate of private sector R & D investment is a well-rehearsed theme, although there are some structural factors involved (firm size). The R & D tax credits aimed to shift this, as did Fast Forward, but both have been abolished. Alongside this, though, general capital investment levels by New Zealand firms are not high, yet this is a key factor in driving labour productivity. There is a likely connection to the previous issue, and to New Zealand’s high interest rates, but there will be other drivers as well.

Addressing the high proportion of New Zealand graduates working overseas
 The crisis rhetoric around the ‘brain drain’ is overblown, and often gives the impression that the consequences are catastrophic (they aren’t) and that the phenomenon is new (it isn’t). New Zealand and Ireland have for many years had a far higher proportion of people born in their country living abroad than any other industrialised country, and there is a (disproportionate?) number of highly-educated people amongst that group. Can we turn that around, and should we make better use of our diaspora?

Improving management capability
It is, I think, fairly well-acknowledged that New Zealand’s management capability levels are fairly weak overall, and particularly in our small and medium-sized firms. This is what often prevents them from making the transition to become the larger, export-oriented enterprises that we need more of. It’s not an easy issue to tackle, but it’s an important one.

Better skill utilisation in the workplace
I’ve already mentioned that productivity at the workplace level is what really counts in the productivity debate. We have good levels of skill development within the existing workforce (through industry training), but where we often seem to fall down is on making sure the skills being developed are made effective use of.

Rebalancing the economy to a more carbon-neutral mix
The climate challenge is a massive issue for our generation, and is widely written about. Policy Progress won’t be trying to add anything to the scientific debate about cause and effects, and even the issues around getting a proper incentive structure (e.g. an emissions trading scheme) have been pretty exhaustively canvassed. But how we restructure our economy in response over the medium to long term, and what challenges and opportunities that will entail, seems a very appropriate thing to consider as part of the “Progressive Path to Prosperity”. Changing our patterns of energy generation and use will be an important component of that.

The role and evolution of iwi enterprises in the economy.
A path to prosperity that’s progressive should give explicit consideration to Maori economic development. As treaty settlements continue, the nature of the challenge changes, and becomes increasingly one about effective resource development – and how that is reinvested in the community. From a wider progressive perspective, iwi enterprises could during the 21st century prove to be an uniquely New Zealand form of major business actor that effectively mixes economic, social and sustainability objectives. Or they could become simply another group of corporates. Is there anything we can, or should, do to influence the likelihood of the former outcome?

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Posted in Progressive Path to Prosperity | 13 Comments »

Productivity Pitfalls

Thursday, March 18th, 2010




Despite often bitter debates on how to achieve it, there seems to be a fair amount of consensus across the political spectrum that increasing productivity is a desirable objective. But what isn’t always acknowledged is that it can be quite a slippery concept to measure in any meaningful way.

As a wise person once pointed out to me, the productivity statistics we fixate on are just an accounting entity, created by the relationship between the inputs in the economic process – primarily labour and capital formation – and the output (Gross Domestic Product).

Therefore, if you look at a period like the last decade, you can say that (up until recently) there was strong economic growth and moreover it was quite job-rich growth, with quite large rates of increase in employment – even for a high-growth period.

But you can also rearrange those figures and come to the conclusion that growth in labour productivity (GDP per employee) has been worryingly low.

You’re basically saying the same thing, just in a different way.

This also means that if we have a ‘jobless recovery’ from the recession – where GDP growth recovers, but employment growth isn’t very strong, and unemployment remains high, then it’s likely this will also show up as being a period of ‘high productivity growth’. (Berkeley economist Brad DeLong makes a similar point here.)

This might reflect that fact that renewed growth has been concentrated in sectors that are more capital-intensive and less labour-intensive than others. Which in itself doesn’t really tell us that our workplaces are becoming any more productive, just that the sector mix of economy is changing (maybe temporarily).

(If you use total factor productivity, this reduces these sort of problems, but doesn’t completely eliminate them.)

This doesn’t mean that productivity is meaningless or unimportant. But it does remind us that we need to be careful about the lessons we take from figures.

And it suggests that when trying to understand productivity it’s important to look at the microeconomic level and what’s going on in individual workplaces, how that’s changing, and why, as well as studying the aggregate figures.

That’s why understanding workplace productivity and what drives it is an indispensible part of any productivity agenda – and particularly for any progressive productivity agenda.

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Posted in Progressive Path to Prosperity | 8 Comments »

Oram v Callaghan: which way should science be going?

Tuesday, March 16th, 2010




Rod Oram has a column in the latest Sunday Star-Times (not online) that discusses reforms to science funding. There’s some good points in the article (and a few others I don’t agree with so much), but the main thing that struck me was when he discussed the scientific and commercialisation work that the Crown Research Institute (CRI) Industrial Research Ltd had done on superconductors:

But it will take many years to develop the product lines into sizable businesses – and the chance of New Zealand being home to much of that is minimal. We have virtually no experience, scale or markets in these areas of science, technology and manufacturing.

From a commercial perspective it was completely the wrong science to pursue. We must focus instead on the life and environmental fields where we have the scale and the leadership to attract international collaborators.

Sounds sensible. But here’s Paul Callaghan, probably New Zealand’s most high-profile scientist, in his 2009 book Wool to Weta. Transforming New Zealand’s Culture & Economy:

Given our capability in physical sciences and engineering, I think we could generate many more start-ups of the Rakon/Navman variety, and if a fraction of them succeed we may do far better than via the biotechnology route favoured by government. (p. 15)

. . . I am not advocating spending less on biotech research. But I am suggesting that we shouldn’t apply blinkers, that we do have a track record of producing great businesses out of physical sciences and engineering and that we have the potential to a great deal more. (p. 17)

. . . We should discard the myth that because we are good at farming, our best high-technology future lies necessarily in biotechnology. (p. 20)

I have a great deal of admiration for both Oram and Callaghan. I think they are two of New Zealand’s most insightful writers on science and innovation issues. Yet on this crucial issue of where we should be focussing our research capability, they fundamentally disagree.

Who is right? I do not know. But I do think this is an important issue, and it’s striking that this disagreement hasn’t really come to light before now. What that says to me is that (while successive governments have set out ‘official’ views) there hasn’t really been any robust public discussion about where New Zealand should be putting its science dollar.

One other thing: Oram suggests that we need “politicians and bureaucrats to give up micro-management and second-guessing and learn how to trust the scientists, their managers and directors to make good science and business decisions.”

Again, sounds good. But if you give the money to Industrial Research Ltd and leave them to make decisions, they aren’t going to invest in the life and environmental fields, are they? That’s where other CRIs are focussed, not IRL.

Key decisions about the appropriate allocation of science funding between different areas have already been made via the creation and funding of the eight CRIs. In fact, arguably the Jordan taskforce’s recommendations, favoured by Oram, would ‘lock in’ the current allocation for longer.

Which is fine. Unless, like (apparently) Oram, you think that we’re focusing too much of our energies in some areas and not enough in others.

If so, then maybe we need a more contestable free-for-all without any ‘ring-fenced’ pots (which Callaghan seems to favour), and trust the [sic] “bureaucrats” who allocate it to make right decisions. But isn’t that exactly the opposite direction from what the Jordan taskforce, apparently uncontroversially, is recommending?

In any case, that won’t really resolve the Oram-Callaghan debate. Anytime the system makes the ‘wrong’ decision, it will still be easy to blame the ‘politicians’ or the ‘bureaucrats’, when in reality maybe it’s just that if you want things to go in a particular direction, then you have to set the basic operating framework with that direction in mind.

To me, that suggests that we need to have a well-informed public discussion about where we ought to be focusing our efforts, and why. If so, it will need to start by acknowledging that there are smart people with good arguments on both sides of the debate, and no easy answers.

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Posted in Progressive Path to Prosperity | 10 Comments »

Proposed Topic: Fiscal Record of the Fifth Labour Government

Thursday, March 11th, 2010

Notwithstanding attempts on the Right to discredit it, the fiscal record of Michael Cullen and his colleagues is a proud one. Even Bill English has acknowledged this, at times. His first Budget Policy Statement, drafted of course by Treasury officials but approved by and attributed to him, sums up the state of play at the time of the change of government:

After peaking at just below 80% of GDP in 1987, debt has steadily declined and was 17.5% of GDP in June 2008. Net worth has lifted sharply, moving from a negative position in the mid-1990s to now be strongly positive, at just below 60% of GDP. These developments mean that New Zealand is coming into a period of weak growth from a stable starting fiscal position. [emphasis added]

(English said much the same thing in person at the time as well.)

Now, Policy Progress is primarily interested in looking forward. We’re more concerned about what the next (progressive) government should do, rather than raking over the record of the current government or the previous one.

Why, then, are we proposing to study the fiscal record of the Fifth Labour Government?

Because it has a lot to teach us, when considering spending (and revenue) plans for the next progressive government.

(Policy Progress reader Achela summed this up nicely in a recent comment by suggesting that this topic be renamed “Progressive fiscal policy – lessons from the 5th Labour-led government”.)

I think it’s fairly uncontroversial to say that the Fifth Labour Government was a competently-run progressive administration that governed for a fairly decent period of time (nine years) during unusually good economic conditions.

This gave it more fiscal headroom than its predecessors have generally had – and probably more headroom than the next progressive government will have, either (particularly given current economic forecasts for the coming decade).

Yet, I think it’s fair to say that it left a lot of its supporters a little disappointed by what it didn’t achieve in terms of spending. Couldn’t it have gone further in terms of eradicating child poverty? Tackling student debt? Achieving a step-change in the levels of investment in schools and tertiary education institutions? Lifting our Official Development Assistance contribution?

I think it’s worth treating the Fifth Labour Government as a case study, and looking at what drove expenditure growth during the period. To what extent did some ‘insatiable’ portfolios crowd out expenditure in other areas? What was the balance between discretionary and non-discretionary initiatives? What was the cost of simply ’standing still’ in terms of inflation and wage pressures? How might different choices on a few major spending areas have altered the government’s overall expenditure profile?

The progressive movement may face some pretty hard choices in terms of spending priorities over the next few years. I think that in this case looking back might provide some valuable guidance for moving forward.

What do you think? Does this sounds like an interesting, achievable and worthwhile topic for the work programme?

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Posted in Work Programme | 8 Comments »

Proposed Topic: Theoretical Foundations

Tuesday, March 9th, 2010

This topic is probably a bit more esoteric than the previous one, but just as important.

An argument can be made that, ever since the decline in confidence in traditional Keynesian macroeconomic management from the 1970s and the demise of a socialist alternative to capitalism as even a long-term goal for the mainstream left, the progressive movement has lacked for both a long-term project (‘what kind of society are we trying to get to?’) and a convincing theoretical underpinning.

Whatever their shortcomings, the conservative movement’s arguments for the primacy of the market – based on neoclassical economics – are precise, elaborately worked through and often seductively elegant.

There have been many good progressive critiques of these theories, but positive theoretical arguments for the desirability and efficacy of non-market action have often lacked robustness, or been too timid or ad hoc.

This hasn’t prevented the growth of a strong popular anti-globalisation movement – but what alternative development path do they propose?

Nor has it prevented progressive governments from winning power in various countries and often achieving important advances in particular areas. But basis of that action has often relied either of ‘just do it’ instructions to a public service whose theoretical DNA is still encoded with neoclassical thinking, or somewhat precarious and limited arguments such as ‘market failure’.

As I have previously argued, the financial crisis of 2007-08 has shaken (but not broken) confidence in the claims about the infallibility of markets. This seems a good time for Policy Progress to survey existing and emerging theoretical alternatives, to try to set out a clear theoretical basis for action by the next progressive government.

The intended approach is set out on our Work Programme page, as follows:

This topic would look at the theoretical underpinnings for the progressive critique of the free-market right, and for its alternative policy programme. How robust, well-grounded and logically consistent are they?

To what extent have the theoretical arguments used by progressives changed over the last few decades, and to what effect?

And what new theoretical insights are being developed today by a new generation of thinkers, perhaps influenced by the lessons from the financial crisis of 2007-08?

As this last question in particular suggests, the point is not that I hope to be able to singlehandedly develop a new rationale for progressive action. Rather, I believe that there’s enough intellectual ferment out there that I will be able to tap into some pretty fresh and exciting ideas in this area.

What do you think? Does this sound like an interesting, achievable and worthwhile topic for the work programme?

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Posted in Work Programme | 15 Comments »

Proposed Topic: A Progressive Path to Prosperity

Thursday, March 4th, 2010


Mapping out a policy prescription to enhance New Zealand’s economic performance isn’t exactly a new endeavour.

In the last year alone, it’s been attempted by everyone from Don Brash through the New Zealand Institute to Bryan Gould to the CTU. But there’s a good reason for that – it’s a critically important task, and in many ways a prerequisite for the various forms of progressive social investment that we all want to see.

New Zealand currently faces a period of economic difficulties. It has just emerged from a recession, the government accounts are in deficit and our unemployment rate is the highest it’s been in ten years. In many ways these problems are more related to international events than to our underlying domestic economic shortcomings, but nevertheless they have focussed public attention on these issues, as well.

The point of undertaking this topic is not so much that Policy Progress can come up with a totally different prescription that has never been thought of before. There is likely to be significant overlap with what other progressive organisations have advocated previously.

But setting out our own ‘take’ on this issues seems to be a useful way of defining our general position in the economic policy area, as a precursor to more focussed work on particular issues in the future.

This would be something of an umbrella topic. We would aim to identify a handful of challenges New Zealand needs to tackle, and then write more detailed reports setting forth a progressive approach to addressing these.

I will write more soon on a first cut of what those challenges might be.

What do you think? Does this sound like an interesting, achievable and worthwhile topic for the work programme?

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Posted in Work Programme | 14 Comments »

2010 Work Programme – Have Your Say

Tuesday, March 2nd, 2010

As I said last week, this blog is just part of Policy Progress’s activities. We also undertake longer-form work, and will produce 3-4 reports each year that aim to advance thinking on particular topics.

We are now developing our work programme for the first year, and invite suggestions from our readers.

A draft of the work programme is now available. It proposes three major themes:

  • A Progressive Path to Prosperity
  • Theoretical Foundations
  • The Fiscal Record of the Fifth Labour Government

There’s a short description of each theme on the Work Programme page, but I will also elaborate on these over the next fortnight on this blog.

This Thursday’s post will cover ‘A Progressive Path to Prosperity’, and then next week I’ll deal with ‘Theoretical Foundations’ (Tuesday) and ‘The Fiscal Record of the Fifth Labour Government’ (Thursday). Hopefully, this will provide a pretty clear idea of what’s being proposed in each area.

A fourth proposed topic, for initial work and thinking in 2010 before developing into a major theme in 2011, is around child poverty and cycles of disadvantage.

I’m keen to hear your feedback, both on ways of tackling these topics or on other issues that you see as more urgent and/or important.

The comments thread on this post will be the central location for feedback on the draft work programme, although you are also welcome to put forward your views in the comments for later work programme-related posts. Alternately you can email us directly at workprogramme@policyprogress.org.nz.

I will close off feedback on the work programme on Friday 26th March, with a view to finalising the 2010 work programme at the beginning of April.

In the meantime, many of my blog posts are going to focus on the proposed initial themes. Hopefully these will be interesting in their own right and will also help to clarify further the direction and scope of proposed work in these areas.

It doesn’t mean, however, that any topic is a fait accompli until we’ve heard from you!

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Posted in Work Programme | 7 Comments »