Archive for May, 2010

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Productivity – where we do well and where we do poorly

Thursday, May 27th, 2010

The concerns I’ve stated about New Zealand’s comparative economic performance aren’t unusual. They’re shared by others, often in spades. In a recent edition of Idealog magazine, Vincent Heeringa writes:

In 1909 . . . New Zealand’s GDP per capita was at the head of the pack with the US, Australia and UK. By 2001 . . . we’d been leap-frogged by 16 countries and sat level with Taiwan. At present rates, we’ll be pegged with Kazakhstan in 2025.

Cue the Borat jokes. But how bad is the situation really? As I’ve said previously, I’m keen to get beyond the scary headline statistics, and understand what this all actually means for us in practical terms.

Policy Progress reader Achela has made the point a number of times in comments that our labour productivity — how much we produce per hour of work — is more important than our absolute level of production. So I’ve dug up the following stats from the OECD:

Source: OECD

New Zealand’s relatively low productivity rate echoes our low per capita GDP — in fact, our ranking (22nd out of 30) is identical.

It’s rather dispiriting but also, as I set out in a previous post, a bit puzzling. Are we really that inefficient at making things? And is that true across the board, or are we being dragged down by a few weak areas? Perhaps our economy is just focussed on less capital-intensive and therefore less productive industries?

Fortunately, while most papers on productivity tend to focus on national aggregates (and often leap to wild conclusions), a paper that Geoff Mason and Matthew Osborne of the UK National Institute of Economic and Social Research wrote for the New Zealand Treasury a few years back burrows down to sector level and starts to answer those questions.

The paper is entitled Productivity, Capital-Intensity and Labour Quality at Sector Level in New Zealand and the UK. It compares productivity levels in 21 different market sectors of the economy in 2002 and shows that beneath the unfavourable overall picture (NZ’s average labour productivity was only 77% of the UK’s) there is considerable sectoral variation.

Source: based on Mason and Osborne (2007), Table 5

According to Mason and Osborne’s analysis, there are five market sectors that stand out as having a productivity lead over the UK. These are (with their ANZSIC-1996 standard description):

  1. Cultural and recreational services (128% UK): units mainly engaged in providing cultural and recreational facilities and services. Sub-divisions: Motion Picture, Radio and Television Services; Libraries, Museums and the Arts; and Sport and Recreation.
  2. Communication services (115% UK): units mainly engaged in providing postal, courier and telecommunication services. Sub-divisions: Postal and Courier Services; and Telecommunication Services.
  3. Accommodation, restaurants and bars (113% UK): units mainly engaged in providing hospitality services in the form of accommodation, meals and drinks. Sub-divisions: Accommodation; Pubs, Taverns and Bars; Cafes and Restaurants; and Clubs (Hospitality).
  4. Finance and insurance (112% UK): units mainly engaged in the provision of finance, in investing money in predominantly financial assets, in providing services to lenders, borrowers and investors, in providing insurance cover of all types, and in providing services to insurance underwriters and to people or organizations seeking insurance. Sub-divisions: Finance; Insurance; and Services to Finance and Insurance.
  5. Food, beverage and tobacco manufacturing (105% UK): Sub-divisions: Meat and Meat Product Manufacturing; Dairy Product Manufacturing; Fruit and Vegetable Processing; Oil and Fat Manufacturing; Flour Mill and Cereal Food Manufacturing; Bakery Product Manufacturing; Other Food Manufacturing; Beverage and Malt Manufacturing; and Tobacco Product Manufacturing.

In addition, Metal product manufacturing (probably dominated by Comalco) is just ahead of the the UK, with 102%. Between them, these sectors account for 30% of the New Zealand economy.

Also, the figures for the crucial sectors of Agriculture, Forestry and Fishing (which account for 10% of the economy) are considered problematic and may be higher than the 78% estimated.

Plus, there are two sectors — mining and business services — where New Zealand is behind the UK on labour productivity but ahead on multi-factor productivity. The report says, “This suggests that, although New Zealand firms in these two sectors are on average less capital-intensive than their UK counterparts, many of them make more efficient use of existing resources.”

New Zealand economist Brian Easton has cast a careful eye over this paper in Some Notes on New Zealand Economic Growth Research, and adds that, at the other end of the scale:

it would appear that 73 percent of [New Zealand's] productivity deficit can be explained by the weaker performance of the manufacturing sector, 38 percent by the total distribution sector, and 27 percent by the construction sector. (They sum to more than 100 percent because there are some New Zealand sectors which are productivity stronger than their British equivalent.)

Mason and Osborne also address the question of whether New Zealand’s low rate of productivity is because we are focussed in sectors that (both here and the UK) have relatively low rates of productivity compared to other sectors. They calculate that roughly a quarter of the labour productivity gap relates to this.

Easton also notes that “there is a sense that while there are variations in the productivities between sectors, the Brits are better at deploying their resources in sectors where they are highly productive, rather than in sectors where their relative productivity is lower. At the very least this exercise shows sectoral composition matters.”

He contrasts the work undertaken by Mason and Osborne with other reports on this topic:

Too much of New Zealand’s research is about aggregate productivity, and draws policy conclusions based on that indicator with little – if any – attention to the sectoral differences. It seems likely that unless they address these issues, any conclusions drawn from the research must be at best limited and inefficient, if not darned wrong.

I agree. There are possible pointers in Mason and Osborne’s report for where further, sector-specific research could be undertaken. But is also valuable to understand that New Zealand’s labour productivity is not uniformly lower than that of other countries like the UK. Rather, there is a mix of some sectors where we are more productive and others (a larger number) where we are less productive. This suggests that we do not have a single unitary ‘productivity problem’, and therefore there is not likely to be a unitary solution, either.

That will be a useful insight to hang onto as we continue with the Progressive Path to Prosperity work programme.

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Shedding some light on the Nanny State

Wednesday, May 26th, 2010

I had been wondering which political website to hack into to demonstrate my theory that the compact fluorescent light bulb (CFL) proves the case for the Left, by way of a devastating critique of economic rationalism, and immensely entertaining side-notes on Nanny State issues.

But you know what most political blogs are like.  You scroll one or two cm too far down the comments and you are like “oh my god who are these people” followed by “what the world needs now is a more thoughtful and edifying approach to policy development and political discussion on the internet”.

So now I’ve found one, I’ve hacked in, and here I go…

Eighteen months since we Segwayed to the polls to vote Labour out, it is difficult to imagine a world where showerheads and light bulbs could become touchstone issues in the lead-up to a General election.  In these more enlightened times, a government can crush cars, insist on collecting the DNA of the innocent, and refuse to let you buy working ‘flu tablets, and no-one bats an eyelid.

But in those dark days, our leaders had become unfathomably arrogant.  Helen Clark had come into the lounge and said we shouldn’t use those old-style light bulbs.  Then, lordy, she marched on into the bathroom, and suggested limiting the amount of water that should be splashed on the naked bodies of informed consumers.

Let’s dispense with the showerheads thing quickly.  Sometimes Ministers ask departments for options papers. “Can you people give me some ideas around how we can whatever”. The department scuttles around. Papers are written that have options in them.  They are not government policy.  It is dirty pool to pretend that every option in every paper written by every graduate analyst constitutes things you can pretend the government is actively considering.  That is not a standard any government would wish to be beholden to.  But if you happen to have an old government, and the media is of a mind to go along with your mischief, suddenly you’re getting traction out of this stuff. Sigh.

But I said I wanted to talk about light bulbs.  Mr Edison was nearly right – invention, or at least this particular one, is 90% perspiration and 10% inspiration.  Only 10% of the electricity chewed up by an old school light bulb is spat out as visible light.  And there are 12 billion of the buggers.  One-third of those make the USA twinkle.  Happily, it turns out that in the ensuing 130 years, clever people have figured out much more efficient ways to help you stay up late.

Power use by bulb type

source: http://en.wikipedia.org/wiki/Compact_fluorescent_lamp

These new bulbs – largely CFLs but there are other kinds too – require less energy.  You therefore need to produce less energy, and the consumer uses less energy, and so they are easier on your planet and your wallet.  And this is where the humble light bulb, far from being a symbol of the Nanny State, is actually a rather nice example of where a sensible state intervention to regulate and direct the market is the right thing to do.  It is economically and environmentally rational to buy a CFL.

In February 2007, NZ’s Minister of Energy, David Parker, announced that we were going to catch up to Australia, at least in the light bulb department.  Australia has phased out incandescents, all gone by this year.  National scrapped it. “We are not going to be a government of compulsion” said Mr Key. “Consumers should be able to choose” he went on, and “I’ve had nine years of the Labour government telling me what light bulbs I can use!” he crowed at a pre-election tub-thumper in Upper Hutt.

Meanwhile, in the world, governments were moving to regulate in droves. The US – 4 billion bulbs remember – are phasing out by 2014.  In 2007 China, makers of 70% of the world’s bulbs, gave itself 10 years to phase them out.   Philippines – 2010.  Canada – 2012.  Malaysia – 2014. One of the first cabs off the rank incidentally was, ahem, Cuba, which swapped all incandescents for CFLs and banned their manufacture and import in 2005.

In September 2009, the European Union banned standard issue bulbs for the whole of Europe. And they’re serious too – the fine for making or importing a 100 Watt bulb in the EU is €50,000.  I bet Philips has stopped making them.  The market will decide…eventually.

There is a political philosophy that believes individuals are best placed to freely make consumption decisions because they will make self-enhancing and economically rational decisions.  But in order to let the market decide, we must have informed consumers, but they often aren’t.  And it relies on responsible producers, and sometimes they definitely aren’t.  And when it comes to the health of the planet, a common good if ever there was one, it would be nice if people made decisions in a common interest, rather than just self interest.

Those that ascribe to that political philosophy also see it as pretty fundamental that their right to choose in a free market is protected.  The phrase “I should be able to use whatever light bulb I want” might be a counter-argument to a Nanny State, but it also says “I reserve the right to make irrational choices”, which suggests you might need a nanny.  I cannot think of another sphere where anyone would sensibly insist on the right to use a 10 percent efficient and 130 year-old technology when far superior and cheaper options exist. (A chocolate fish for yours.)

The market appears to many to be responding rather slowly to the fact that the planet is choking. Governments  have attempted to come up with crazy schemes to turn things with planet-value into things with dollar value because that’s the value the market understands intrinsically.  We really need some new bottom-lines soon.

Let’s wrap up.  It’s been fun.  People like to imagine that showerheads and light bulbs were trivial (and yet egregious) examples of a more real issue around an arrogant and interfering government.  But they were also and equally examples of the politics of distraction.  When I’ve challenged my right wing friends to provide real and actual examples of Nanny State behaviour by the 5th Labour government, “light bulbs” and “shower heads” usually come second and third behind a particularly pernicious and persistent piece of misrepresentation called “banning smacking” – but that’s a story for another time.

Remember, the current government got elected in no small part because people said they were sick of being told what to do. But all centre-something governments will regulate, that’s what governments do.  The lesson here is about the difference between what old and new governments can do.  Our current  government has, without debate in many instances, eroded rights and restricted activities in a few quite serious areas, and yet the Nanny epithet doesn’t stick – yet.

Progressives have less of an ideological problem with flexing the arm of the State in the interests of society as a whole.   The challenge progressives have is to be clear and confident in our fundamental message that we do things for the common good, that we are interested in the well-being of everyone.  If that makes us nannies, well, then call me Mary Poppins.

National said the right to choose an outdated and inefficient lighting technology was part of what made it different from Labour.   It made the  lightbulb a symbol of the Nanny State. It worked so well for them politically that any sensible move by them on light bulbs is likely to be met with howls of outrage that National has become that which it sought to destroy.

Who knows, maybe people will feel more comfy with John Key rather than Helen Clark in the lounge discussing the filaments. But meanwhile, New Zealand now gets to be embarrassingly out of step with world opinion – and action – on reducing the costs of energy consumption, and it’s politically poisonous for National to do the right thing.

——-

Josh Williams grew up in Whanganui and lives in Wellington and has worked around the Education sector for a while now.  He agreed to write this guest post because David said his new website would have “White Papers” and Josh practically swooned.

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Budget 2010 puts the squeeze on progressive ambitions

Tuesday, May 25th, 2010

I’m going to avoid doing a Budget post-mortem on this blog. I’ve recommended a handful of good progressive analytical pieces in last Friday’s newsletter, and I would add Rod Oram’s Sunday column, Budget won’t budge economy out of morass, to that list.

I want to restrict my own comments to discussing a particular challenge that the Budget poses for the next progressive government, in a way that dovetails into our Progressive Fiscal Policy work programme topic.

Looking at the Budget documentation, I was interested by a graph that, according to Finance Minister Bill English, showed that, “New spending allowances between 2003 and 2008 tended to be large relative to the size of the economy, and even then were repeatedly exceeded.”

I asked the Treasury for a copy of the data for the graph, and was impressed by their prompt response. I’ve therefore reproduced the graph, with the addition of data labels on the columns, below.

Source: Treasury

The ’spending allowance’ for a Budget is set by the government in advance, often at the beginning of the parliamentary term, and gives people an indication of how much the government intends to spend on new initiatives in each Budget.

Personally, I’m not particularly concerned that the Fifth Labour Government exceeded the ’spending allowances’ it set for itself (nor, for that matter, does the figure demonstrate that they were “large relative to the size of the economy”). Without the context of the economic situation at the time and state of the operating balance, these ‘allowances’ have very little meaning. In fact, I’m inclined to feel that their existence was mainly to pacify those who saw additional government spending as a necessary evil, to be kept to an absolute minimum wherever possible.

I would also note that 70% of the cumulative spending in excess of the ‘allowances’ over 2003-08 took place in Budget 2007. Arguably, the main reason for this was the enhancement of KiwiSaver, which cost $1.2 billion by year three. This was a major initiative intended to significantly increase saving levels in the New Zealand economy, which in turn would “strengthen capital markets and contribute to higher living standards”. It should be judged on whether it achieved these aims, and whether it did so in the most cost-effective manner possible — not on how well it reconciled to some ’spending allowance’ set the previous year.

Past years’ spending allowances are therefore of limited use or interest, but this figure provides a valuable service in bringing together the actual amount of spending on Budget initiatives from the past 8 Budgets together in one place.

it is important to emphasise that these figures cover only ‘Budget initiatives’ — in other words, deliberate spending choices of the government of the day. This differs from most of the analysis of government spending (including, by necessity, my earlier post on this topic), which includes automatic adjustments (like population increases to school rolls and CPI increases to benefits) and also the pipeline effect of earlier government decisions.

So it gives a rather different perspective on fiscal policy.

On the other hand, these figures do have their limitations. They relate to different time periods and therefore can’t really be added together to form an aggregate picture of a government’s fiscal record. As best I can tell, each figure represents the average spending on Budget commitments per year over the first four years covered by that Budget — this may tend to understate (or overstate) the long-term costs if the costs of some large initiatives grow (or decline) in outyears. So the figures relate to differing time periods.

Nevertheless, they do provide a good idea of how ambitious (or spendthrift, depending on your perspective) each Budget was at the time. It’s quite apparent how different the Fifth Labour Government’s Budgets were from the two most recent Budgets from National.

Moreover, we can also compare them to the amount available for spending in the next term (and the one after that), because the ’spending allowances’ for those Budgets have already been set.

And this is where the challenge becomes apparent.

In Budget 2009, Bill English adjusted down the ’spending allowances’ for future Budgets as one of his measures to bring down future deficits and reduce the long-term growth in Crown debt. In fact, as Keith Ng astutely identified at the time, this change accounted for a greater impact on Crown debt by 2023 than the deferral of the tax cuts (remember them?), the spending cuts (which brought in relatively trivial amounts in the big fiscal scheme of things), or even the ten-year ‘holiday’ from the New Zealand Superannuation Fund.

These lower ’spending allowances’, which were reiterated in Budget 2010, are set alongside the ’spending allowances’ from 2003-2008 in the following graph:

Source: 2003-08, as above; 2012-17, Fiscal Strategy Model

(From 2014/15, allowances are exclusive of approximately $320 million “that is already included in projected baselines as a result of demographic growth”.)

Now, of course, as the experience of 2003-08 demonstrates, governments don’t always stick to their own ’spending allowances’, let alone those set by a previous government. Which is why English’s ‘wizardry’ in tackling long-term indebtedness is rather illusory.

On the other hand, a government’s ability to exceed those allowances is dependent on them being able to find revenue from somewhere to do so — especially when the Crown accounts are already projected to be in deficit until 2016.

And it is likely that the new flatter tax structure that National has created will be less susceptible to fiscal drag creating unexpected tax revenue windfalls, as happened repeatedly to the Fifth Labour Government.

That places a dilemma upon the progressive movement, as we look towards the next progressive government.

It seems likely that we would need to significantly curb our ambitions, at least in terms of additional public spending, or else come up with new revenue measures with which to fund them.

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Thoughts on the Future State

Thursday, May 20th, 2010

I became aware of the Institute of Policy Studies working paper The Future State in an unusual way.

One of the authors, Stephanie Pride, tweeted about its release, and encouraged me to read it and give feedback when I retweeted that announcement. I felt that was impressively proactive so here’s my thoughts on the report and the issues it covers.

The report is intended “to identify the longer-term issues that would affect New Zealand in the future” and in particular “to identify the big public policy issues for the next two decades that cut across organisational and other boundaries and determine the ability of the public management system to respond to these issues.”

It has some interesting graphs and figures, such as the one below combining measures from the World Bank and the Bertelsmann management index.

The authors comment that “However critical New Zealanders may be about the state of their state, the country is consistently seen internationally as among a small group of top performers.” (p. 32)

I was intrigued by this aside, in light of a prevailing view that public sector mergers are some kind of magic bullet:

Interestingly, most of the countries with high-performing governments shown in Figure 4 have a relatively ‘fragmented’ public sector with large numbers of organisations. Whether this is a correlation or causation is beyond the remit of this paper. (p. 28)

Similarly, given some of the claims made in recent times, I was also struck by how flat these lines are:

As to the main business of the report, it sets out some of the main challenges the public sector is likely to face and some broad ideas of how it will need to evolve to cope. It sets out the main challenges as (p. 37)

  • affordability;
  • complicated problems involving many players;
  • a more diverse and differentiated population; and
  • a world of faster, less-predictable change.
To meet these, the authors posit the need for “two priority system changes: a move towards a whole-of-government focus and greater integration of competing, but potentially complementary, values about how services are delivered.” (p. 41)
While generally complimentary about the public sector reforms of the 1980s, the report does not see them as necessarily suited to the new challenges:

New Zealand’s public management model for formulating and implementing policies is a product of a simpler era, a mechanistic and thermostat-like system for specifying and monitoring outputs and outcomes. Although this approach may have been appropriate for its time, it is best suited to ‘stable contexts, predictable tasks and a government-centric approach’ (Bourgon, 2009b: 11). (p. ix)

I have to say I’m a bit cautious about the way ‘future studies’ analyses of this sort seem to suggest that we’re entering a whole new chapter of human history, where all the old nostrums fall away. There’s a lot of interesting facts and examples given about emerging trends, but I’m wary about the risk of over-recognising novelty and understating points of continuity.

For instance, the report cites a study about Generation Y which claims they see things differently in the workplace: ‘contribution counts for more than credentials’ and ‘power comes from sharing information, not hoarding it’. This reminded me of a section in Jon Johansson’s book (covered in an earlier post) where he was making a case for how distinctive the mindset of Generation X is, and the studies he was citing were over ten years old — when Gen X was in its early 20s and going through its Slacker and Singles phase. Would those finding still hold true today? By the same token, would studies of the Baby Boomer mindset done in the 1960s and 2000s say the same thing?

In other words, to what extent are we looking at life-cycle effects and seeing cohort effects?

In response to the new challenges, the authors see a need for a new style of working:

Many of the policy outcomes that will be front of mind for government (eg,reducing obesity and responding to frailty in an increasingly aged population) cannot be achieved with the provision of public services alone, but require the active contribution of citizens and businesses (co-production). This requires the public sector to develop more trusting relationships so it can better understand how different groups experience the world. (p. 38)

It’s an interesting diagnosis if not entirely new. Labour’s Grant Robertson was making some similar points in a blog post as early as 2007, and he in turn was drawing from a report the UK thinktank Demos did from the PSA. Nevertheless, the IPS report does a useful job of pulling together a lot of work and evidence on this strand of thinking.

Let me, then, finish by adding in two provocations.

Firstly, the idea of ‘co-production’ does spur me to wonder: can the public service get amongst the general public and work with them in an open and honest way — while still being politically-neutral?

Political-neutrality requires (or at least has tended to assume) that public servants will deliver, and stick to, the policy rationales favoured by their political masters when speaking publicly. Their ‘free and frank’ advice is provided for the politicians’ benefit, not the general public’s — you can’t have the departmental chief executive openly disagreeing with the Minister on a course of action. Yet this creates a two-facedness in public servants’ dealing with the publicly that could seem increasingly jarring in this ‘age of authenticity’.

I’ve always been more partial to the professional civil service of the Westminster model than to the alternating political leadership of governmental departments that you find in the US approach. But maybe the latter, where there is genuine commonality of purpose between politician and mandarin, is more suited to the task of co-production with the public.

My second provocation is around organisational form. All around us we see claims that the large corporate behemoths of the mid-20th century are no longer the driving force of the economy, and that lean start-ups are where the action is. Why then do we assume that the large government departments of the 20th century are the right organisational form for the public sector?

There is a significant literature tracking emerging patterns in work internationally, which detects a growing trend away from long periods spent embedded within an organisation and towards a more ‘portfolio-based’ approach to a career, particularly amongst the strata of workers often described as ‘knowledge workers’.

Could it be that recognising and embracing these developments might help us attract some of the brightest and most innovative young minds to public service (if not necessarily ‘the public service’)?

I’d be interested in your views on these ideas, along with your own thoughts about what the ‘future state’ will, or should, look like.

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State subsidisation of low wages

Wednesday, May 19th, 2010

It’s great to see the debate on redistribution vs. altering market power and outcomes rolling out here. I think there’s a great deal of sense in James Purnell’s basic assertion that New Labour’s “unwillingness to be more hands on with the market” had “required it to be too hands on with the state”.

There are several aspects to this debate that I’d like to expand on. But let me start with just one. It has to do with the primary (non?) strategy for dealing with low wages and their emergence from the restructuring/ post 1987 recession, the ECA and the hollowing out of labour markets/ growth of the low wage service sector.

It is possible, though by no means exhaustive of the possibilities, to call this strategy ’state subsidisation of low wages’. I’ll expand a little below, but a fuller/ complementary account of important aspects of this can be seen in Gerry Cotterell’s recent University of Auckland PhD comparing Making Work Pay policy in the UK and in NZ [not online].

Essentially, (in my words not Gerry’s) starting in 1996 under the Nats with the child tax credit, there have been moves back towards a kind of (unwittingly) social wage. These have almost entirely involved using fiscal measures/ tax credits/ variously redistributive policy to subsidise low wages for families (not for individuals, who have remained classic standalone/ exemplary liberal subjects: and paid the price for it!). Obviously, as David notes in his post, more of this happened via the In Work Tax Credit and restoration of family support levels under Working for Families.

But importantly it didn’t stop there. Another ’state subsidisation’ measure was the accommodation supplement, introduced again targetted at families as a way to smooth a move towards a wider market model for housing provision; and since ensconced as a key subsidiser of that vital engine of growth, the (rental) housing industry.

But wait, there’s more: subsidisation of costs of work for families through subsidised childcare, 20 hours ECE, and other active labour market inklings.

And still more: subsidisation of training costs for employers (new apprenticeships) and professionals (interest free student loans).

And, finally, massive subsidisation of (mainly middle class) savings through Kiwisaver, which did also move to obtain some support from employers.

Now, I don’t think for a minute this cumulative effect was what the architects of  what John Kay in the FT called ‘redistributive market liberalism’ intended. But it accrued anyway, largely for reactive and political reasons: and largely driven by the state through executive means. It was highly borrowed (from the UK, and the Greens pushed some of it) and I think largely incremental/ path-dependent (as opposed to consistently strategic), as surprising and incremental fiscal headroom emerged. It responded to, perhaps rather than harnessed, a kind of viscerally felt ‘enlightened reaction’ or pushback against to low wages and wider neoliberal/ marketised insecurities. Karl Polanyi (The Great Transformation) and his seminal notion of the ‘double movement’ should be wheeled in at this point to explain!

On the other hand, it could be argued, given that neoliberal reform here as elsewhere itself relied heavily on the executive to ram through and protect its reforms, maybe the reversal needed the same executive action.

But either way, the main political points relevant now are:

  1. It benefitted mainly people in families, though student loans and kiwisaver also ‘helped’ more widely. So single people fell behind: both workers, and, if you are really looking for victims, single beneficiaries, who went furthest backward of any group against the average wage under Labour.
  2. There was massive fiscal churn going on here, especially as WFF In Work Tax Credit got shunted up the income levels.
  3. There was ongoing undermining of the labour market relations themselves (and especially any duty on employers) as a mechanism having to bear the brunt of worker and family costs: these were sent back to the state, which dipped into its burgeoning fiscal pockets and paid.
  4. With tax cut enthusiasm, liberal fears over Leviathan in the Economist, rising questioning of even the most basic fiscal aspects of the welfare state (eg in the current Welfare Working Group), and the sense that for all Labour did, child poverty is still unfinished business, we are in for a scrap over the fiscal pie, that could see some real half-thought radicalism, and prompt some of the basic/ turbulent binarism we see in US politics over tax happening here.

But meantime the net effect, as David and James Purnell note, is dulling of pressure on employers in an industrial bargaining sense. The state  subsidisies that away; or, a bit more helpfully, legislates that employers will pay more through minimum wage arrangements (but doesn’t put teeth back into the industrial relations legislation).

And, of course, all this did little or nothing to rein in the other great beneficiaries of unbridled market power in the distribution of assets and income, the rental properteers. Rather it started a pattern of subsidisation there that is only now starting to be reined in.

So, and not for lack of state effort, we are still stuck after 20 years of reform with this pattern of risen inequality.  Inequalities now need to fall, and low incomes rise: but leviathan is running out of grunt.

Real equivalised household incomes (BHC): changes for top of deciles, 1988 to 2008

So, some propositions:

  1. We have nearly reached the limits of fiscal based subsidisation (though there is more room in supporting family work/ care costs: watch this fiscal space).
  2. We all want higher wages, but have taken away incentives and mechanisms to re-organise industrially for them.
  3. Employers have been somewhat left off the hook, and unions left impotent, but no-one is the long term winner.
  4. We need a return to a better relationship between the employers, workers and the state that doesn’t involve the state in large-scale palliation of workers demands through Fabian style executive order/ fiscal churn/ policy based expansion of subsidy.
  5. This might in time spill over into better / more demands for political representation, including from underpaid singles and the folk currently referred to as the enrolled non vote.
  6. We need to continue to reassess as a whole the state’s contribution to housing, and in particular to the rental housing industry, and see whether the tax payer is getting value for money, etc.
  7. Interest free student loans? Compulsory or subsidised Kiwisaver instead of a pay as we go pension? Hmm.

So the irony/ disappointment is that, for all the well intentioned interventions so far, it seems we haven’t seen the shifts in real market and political power that might sustain equity. The market and the middle classes still have it pretty much their way, albeit now via a churnier state and all the backlash that causes.

One thing seems clear: to quote David and Jordan Carter, and channel Purnell, if real policy progress is to happen, the state can’t be the one to be doing all the heavy lifting here!  The beneficiaries of all this state subsidisation need to do their part too: and we know who you all are!!

But for this to happen (and to happen substantively and anytime soon), basic tripartite relations and powers — and political/ representational relations — may need to shift again.  And, as on the ‘Nixon goes to China’ principle perhaps only a Tory government could do, someone needs to continue to take on the landlords, and incentivise returns to industries workers can be a part of.

——-

David Craig is senior lecturer in Sociology at the University of Auckland, where he teaches around the history and political economy/ sociology of liberalism; colonialism and development; and urban sociology.

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Domestic, but not national

Tuesday, May 18th, 2010

The comments for last week’s post on Krugman and commodities were, as always, thoughtful and interesting. Greg critiqued Krugman and queried the durability of profit motive; James Caygill highlighted trade-offs between commodities and environment; BigCake talked about the opportunity for non-commodity agricultural products. And David Craig sounded a note of caution:

The thing I wonder/ worry over more is the extent to which NZers themselves will be the ones prospering. The processed/ manufacturing food industry is already one in which rates of international/ foreign ownership are extraordinarily high. Basically Fonterra is an outlier here. I will trawl around at some point to find the graphs which shocked me on this point in 2007.

The other thing is that on a global scale the extent of our invaluable good soils/ productive crop and farmland areas are not large: go have a look at a map of the dairy industry, for example, and realise how fragile territorially we are there. By comparison, the budgets of those looking to corporatise primary aspects of production here — along with assets/ land — are enormous. I predict that within 15 years, short of protective action in this area, 40% of dairy and related land with be owned offshore, and selling commodities through corporate value chains which don’t send much at all back here.

The issue of foreign ownership is, I think, one we’ll have to talk about to some extent in the Progressive Path to Prosperity work topic.

I did some number-crunching recently, originally spurred by a comment-thread discussion involving Matt Nolan and Achela about terms of trade and the difference between national income and domestic product.

Take a look at this graph:

Source: National Accounts of OECD Countries: Detailed Tables, Volume II, 1996-2007, 2009 Edition

You can see, especially in the trend-line, that New Zealand’s Gross National Income has fallen pretty consistently as a proportion of Gross Domestic Product since 1970, from 98.8% to 92.5%.

To understand the significance of that, it’s necessary to explain the difference between GNI and GDP. For this, we can turn to the OECD’s Understanding National Accounts:

GDP measures the total production occurring within the territory, while GNI measures the total income (excluding capital gains and losses) of all economic agents residing within the territory (households, firms and government institutions).

To convert GDP into GNI, it is necessary to add the income received by resident units from abroad and deduct the income created by production in the country but transferred to units residing abroad.

The publication then gives some examples:

For large countries like Germany, the difference between GDP and GNI is small . . . But it is larger for a small country like Luxembourg, which pays out a substantial percentage of its GDP as workers’ earnings and other so-called “primary income” to the “rest of the world” . . . Primary income includes interest paid on money invested in Luxembourg . . . Ireland is in a comparable situation to Luxembourg, since it pays out substantial dividends to the parent companies of the American multinational firms that have set up there, partly, but not entirely, for tax reasons.

So what that means for New Zealand is that our net “primary incomes” payable to the rest of the world (such as interest and dividends) have increased from 1.2% of GDP from 7.5% of GDP.

How does that compare with other countries? I’ve selected a handful:

Source: National Accounts of OECD Countries: Detailed Tables, Volume II, 1996-2007, 2009 Edition

As might be expected based on the earlier OECD comments, Ireland’s decline in GNI/GDP has been sharper and steeper than New Zealand’s, and from a higher starting point. Australia’s trend parallels New Zealand but is more gentle. The United Kingdom’s ratio has risen above 100% in the last decade, for the first time since the early 1970’s. And, interestingly, the now-beleaguered Greece consistently had a ratio of over 100% until 2003.

Neither Greece nor Ireland’s current predicament would be an attractive fate for New Zealand. Can we see the fall in their GNI/GDP ratios as some sort of precursor to that? On the other hand, the similarity between New Zealand and Australia, who we don’t generally perceive as having a ‘foreign ownership problem’ is perhaps a bit of a surprise.

These figures and their implications are worth looking into further, I think.

To put my cards on the table regarding this topic, I’ve always tended to be something of a ‘free-trade progressive’. In this, I’ve been reassured by the example of Scandinavian social democracy which, even in the heyday of protectionism, combined a generous welfare state and a significant degree of industrial democracy with an expectation that their exporters should foot it on the international stage without tariffs or subsidies. And along with this, my tendency has also been to see foreign direct investment as something to be sought after (within reason) rather than something to be scared of.

Going into this Progressive Path to Prosperity topic, however, I want to have an open mind. And I do confess that the prospect of foreign investors having claims over an increasing amount of our productive capacity seems like something that, to say the least, is not sustainable indefinitely.

What’s your view? Are these steadily increasing “primary incomes” something we should be worried about? Is foreign ownership a threat to our economic sovereignty? Or do progressives need to get over their aversion to foreign investment and accept that foreign capitalists are no worse than domestic ones?

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Commodities and Krugman

Thursday, May 13th, 2010


Sometimes when I hear stern warnings about the need for New Zealand to move away from its current reliance on primary sector commodities (dairy, wool, meat, wood), I’m reminded of Paul Krugman.

Specifically, an article by Krugman that I read some years ago. At that time, Krugman was known primarily as an academic economist with specialisations in trade theory and economic geography. He was regarded with some scepticism by many progressives for his criticisms of the anti-globalisation movement and of “policy entrepeneurs” “peddling prosperity” through active industrial policy.

Shortly afterward, however, everything changed. Krugman began writing a regular column in the New York Times and became a trenchant critic of President George W Bush on matters ranging from tax policy through to Iraq, at a time (post-9/11) when many mainstream progressives were scared to be labelled unpatriotic. As public opinion swung against Bush and the war, Krugman was embraced as “the most important political columnist in America“.

The fascinating story of how this transformation came about has recently been detailed in a profile in The New Yorker.

Today, Krugman continues to write his column along with a blog, The Conscience of a Liberal. He writes in support of the Obama administration, though is often frustrated by their perceived timidity and quixotic pursuit of bipartisanship. Much of his recent writing has been on health reform, and he is currently focussed on financial market regulation. He has also branched into climate change, with a lengthy feature article in the Times.

But the article that keeps recurring to me is one entitled White Collars Turn Blue, originally published in 1996. It was done for a special centennial issue of the New York Times magazine and written it as if it were in an issue 100 years in the future, looking back at the past century.

Krugman uses this as a device to challenge some aspects of the conventional wisdom about how things are likely to develop. For instance:

In the 1990s everyone believed that education was the key to economic success, for both individuals and nations. A college degree, maybe even a postgraduate degree, was essential for anyone who wanted a good job as one of those “symbolic analysts”.

But computers are very good at analyzing symbols; it’s the messiness of the real world they have trouble with. Furthermore, symbols can be quite easily transmitted to Asmara or La Paz and analyzed there for a fraction of the cost of doing it in Boston.

. . . These days jobs that require only six or twelve months of vocational training . . . pay nearly as much as one can expect to earn with a master’s degree, and more than one can expect to earn with a Ph.D. And so enrollment in colleges and universities has dropped almost two-thirds since its turn-of-the-century peak . . . Today a place like Harvard is, as it was in the 19th century, more of a social institution than a scholarly one — a place for the children of the wealthy to refine their social graces and make friends with others of the same class.

And here we come back to commodities, where Krugman applies a similar argument:

The first half of the 1990s was an era of extraordinarily low raw material prices. Yet it is hard to see why anyone thought this situation would continue. The Earth is, as a few lonely voices continued to insist, a finite planet; when 2 billion Asians began to aspire to Western levels of consumption, it was inevitable that they would set off a scramble for limited supplies of minerals, fossil fuels, and even food.

. . . it became clear that natural resources, far from becoming irrelevant, had become more crucial than ever before. In the 19th century great fortunes were made in industry; in the late 20th they were made in technology; but today’s super-rich are, more often than not, those who own prime land or mineral rights.

So what does this prediction mean for New Zealand? Can we really expect that the decades-long decline in the price of agricultural commodities to turn around over the course of this century?

Well, it is possible. Remember, back before the Global Financial Crisis, there was a boom going on in commodity prices. Indeed, as James Surowiecki wrote in late 2008:

This spring, disaster loomed in the global food market. Precipitous increases in the prices of staples like rice (up more than a hundred and fifty per cent in a few months) and maize provoked food riots, toppled governments, and threatened the lives of tens of millions.

Earlier that year Paul Collier, author of The Bottom Billion, could write in a paper for a Progressive Governance conference:

The current global commodity boom is generating an enormous transfer of income to many, but not all, of the societies of the bottom billion. This transfer dwarfs aid and any conceivable changes in aid.

And Duncan Green of Oxfam could report to the same conference that:

The impact of China may also be refuting the received wisdom that getting out of commodities into industry is the route to development. Booming Chinese demand has reversed the long-term decline in commodity prices and what economists call the “terms of trade” between raw materials and manufactured goods, sometimes presented as the number of bags of coffee (or barrels of oil) needed to buy a truck. For the moment, coffee and oil prices are high, and the price of trucks is falling. Opinions differ as to whether this is the start of an extended period of high prices that defies the normal rules of boom and bust and long-term terms of trade decline.

Maybe the commodity boom was just a blip. Or maybe it has just been temporarily interrupted by the Global Financial Crisis. I don’t know.

And indeed I’m not sure Krugman intended all of his 2096 scenarios to be taken a serious predictions, anyway. I think he was making some general points about economic theory (such as “When something becomes abundant, it also becomes cheap”) and sounding a cautionary note about assuming that things will just keep on the way they’ve been going.

I think this, more than anything, is the lesson for anyone who thinks they can state with certainty what New Zealand’s future economic trajectory is going to be.

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Good policy process – the case of New Zealand Superannuation

Wednesday, May 12th, 2010


There is a disturbing tendency to evaluate government policies and programmes in terms of how much government spending they involve, often in relation to a potentially volatile comparator like GDP. The Brash Taskforce was the worst offender on this front, but similar sentiments pervade recent reports from the Treasury, the IMF, the World Bank and the Business Roundtable. Policy prescriptions derived from this “standard” reflect poor policy process and are based on almost zero real analysis.

A standard victim of this shallow analysis is the state funded New Zealand Superannuation scheme.

“Paying a generous pension to everyone turning 65…. does not seem to fit very well with a serious focus on lifting material living standards…..Other Western countries have state pensions of one form or another. Those schemes are typically quite a bit less generous…than New Zealand’s…..the relatively favoured position of the elderly in New Zealand is fairly firmly established.” etc etc
(all of those quotes are from the Brash Taskforce, page 90).

Having asserted the “generosity” of the scheme, the prescription is obvious: scale it back to “reasonable” or some other acceptable standard.

But is the analysis sound? The key here is the concept of the “state”, in this case in relation to “state pensions”. Economics is simply about how a given set of resources are used, when there are options for using them in different ways. “The state” as an economic agent can tax and spend and clearly impact the form of resource use. But it can do much more: passing laws that dictate what individuals and firms have to do with a set portion of their incomes; putting obligations on other layers of statutory authority like local government and so on. It is the combination of these exercises of statutory authority that defines the role of the state.

Even then, that must be located in its proper context. For example, the level of state pensions needs to be related to average life expectancies: for different groups, and over time. A state pension is more or less generous depending on if it is taxed or not. It also matters what that pension has to cover: how many other services are provided free or at heavily subsidised rates to those above a certain age. While most pensions are indexed, it makes a great deal of difference to the value of those schemes whether they are indexed to price, or average wage movements.

A comprehensive survey of all of these dimensions of “state pensions” in OECD countries has been carried out by a Munich based research team on behalf of the OECD.

Admittedly this is a bit dated (2007), but the essence of the analytical approach remains valid. The report makes the very key observation that it is not sufficient to simply judge pensions policy in fiscal terms: social sustainability is also a crucial consideration: especially in relation to pensioner poverty.

Taking selective measures from that report almost defeats its very point: we really should look at measures comprehensively. However, constraints on length require me to do just that: this is more of a taste of what proper analysis should traverse.

The report shows that workers on average earnings in OECD countries can expect their post-tax pension to be about 70% of their earnings after tax. The countries with the lowest net replacement rates tend to be those which have just basic pension schemes. New Zealand’s is the fifth lowest in the OECD at 42%. That is a bit above Ireland’s (39%) and about the same as for the UK. The United States have slightly higher net replacement rates of around 52%.

A comparison with Australia is interesting. Because NZS is the only mandatory part of our state pension scheme, it delivers 100% of retirement income. In Australia, the mandatory employer contribution means that only 46% of their retirement incomes come from the comparable element. A consequence, however, is that even if our scheme is far less generous, it is also more equitable.

In Australia, a person on half of the average wage will get 84% of that (net) in retirement, not much above 81% for the New Zealand equivalent. A person on the average wage would get 56% in Australia, 42% here. On twice the average wage the Aussie gets a 41% replacement rate through the mandatory state pension system: compared to23% here.

Michael Cullen used to say that basic income security in retirement was the least that the citizens should expect from their governments in a developed economy: but it was also the most they should expect. The state should not aim to replicate in retirement incomes earned during working life (for both equity and efficiency reasons).

“Pension wealth – the present value of the future stream of pension payments – is the most comprehensive indicator of pension promises. It takes into account the level at which pensions are paid, the age at which people become eligible to receive a pension, people’s life expectancy and how pensions are adjusted after retirement to reflect growth in wages or prices.”

Pension wealth in New Zealand is 6.1 years for men and 7.1 years for women, compared to 8.1 and 9.4 years for the respective OECD averages. In Australia they are 7.3 and 8.4.

“Generous?” On what measure?!

By any standard, New Zealand Superannuation is affordable and sustainable. A programme that costs at peak no more than 10% of GDP is both. The legitimate question is whether that is the priority that the citizens want. Debate that by all means, and debate how it is to be funded, but please, as a matter of analytical rigour, do not prejudice the path of that debate by making the assertion that our scheme is “generous”.

Peter Harris is an economist who specialises in public policy, the labour market, and primary industry issues. He has been Economist for the Council of Trade Unions (CTU) and economic adviser to Dr Michael Cullen. Peter was also chair of the Savings Product Working Group, whose report was the founding document for what evolved into the KiwiSaver scheme. Further biographical details can be found here.

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Vote with your feet – or work for change?

Tuesday, May 11th, 2010

Bundesarchiv: Wolfgang Krueger // CC BY-SA 3.0

http://www.flickr.com/ photos/peasandcornbread/ // CC BY-NC-ND 2.0

Progressives should embrace increased consumer choice as the best way of raising standards in areas like health and education.

That’s the view of economist John Kay, who we heard a bit about at Policy Progress last month, and who was interviewed by Kim Hill on Radio NZ this weekend talking about his new book Obliquity.

Explaining this view, Kay stated that ‘exit’ is much more effective than ‘voice’ in raising standards.

But is that really so, and what do we mean by ‘exit’ and ‘voice’ anyway?

As it happens, I’ve written a description of these concepts and an argument in favour of the importance of voice. In fact, I wrote this thirteen years ago as aspects of students’ association submissions to the 1997 tertiary education review.

After mentioning exit and voice in that earlier post, I thought it would be interesting to dig out those submissions and see how my views back then have held up. Having done that, I decided that rather than write something new, which might be influenced by having read Kay, it would be worth presenting what I argued in 1997.

The following paragraphs therefore are from the June 1997 APSU/NZUSA submission Building a World-Class Tertiary Education System:

For students, institutional responsiveness is good in itself. But for the government, it is also a very useful measure for ensuring quality provision.

This can be conceptualised in terms of economic theory, using the exit/voice analytic framework developed by Hirschman. Exit is the withdrawal from a relationship with a person or organisation when one becomes dissatisfied with that relationship. Voice means directly expressing one’s dissatisfaction to the relevant person or organisation.

. . . [as well as using 'exit'] there is also a great deal of scope to influence quality by improving student ‘voice’. This is a underdeveloped area and a crucial one. There is increasing recognition that effective use of voice can be, if anything, more important in fostering good practice than exit.

For instance, in the macroeconomic arena, there is a growing literature on the success of economies which use bank-based financial systems (emphasising ‘voice’) compared to those using capital market-based systems (emphasising ‘exit’). (See e.g. Joseph E. Stiglitz, Banks Versus Markets as Mechanisms for Allocating and Coordinating Investment, 1992); Michael Porter, The Competitive Advantage of Nations, 1990, and Capital Choices: Changing The Way America Invests In Industry, 1992; and Will Hutton, The State We’re In, 1995.)

And from the December 1997 NZUSA submission Looking to the Future:

Exit can be a powerful strategy but it does not have much subtlety to it: it is all or nothing. Yet some matters, while important, are not central enough to the learning experience to contemplate exit over. For such matters, effective voice is more useful. Similarly, exit is good at highlighting matters of concern, but not so good at generating solutions. Where students have something to offer in terms of developing improvements or suggesting alternative directions, then voice is more valuable.

Even where exit is a viable strategy not all students may be able to, or wish to, exercise their right to transfer to another institution if this was possible. Exit may be a response to deteriorating quality, but it can also cause quality to deteriorate further. A programme with dwindling numbers may suffer from reduced resources, poor morale and fewer fellow students to enrich the learning envionment. In a world with perfect information and zero transaction costs, all students could exit simultaneously and none would suffer, but these circumstances seem unlikely to occur.

While the context of these arguments is clearly tertiary student involvement in institutional processes, most of the arguments are applicable more widely across various areas of public policy.

However, as this last passage (responding to claims about the importance of exit that were based on studies in the school context) implicitly acknowleges, the relative importance of ‘voice’ and ‘exit’ may differ from one policy area to another:

The situation of university students is very different from the parents of school children. Students tend to be more concentrated at one site (the campus), are more likely to know one another, and the experience that they have in common (being a student at a given institution) occupies a greater part of their lives.

So perhaps the lesson from this is that, rather than assert either voice or exit as being the superior mechanism, we should look at the particular characteristics of the area that we are seeking to improve. In some cases it may be empowering service-users’ choice (via ‘exit’) that is more likely to make a difference, whereas in others finding ways to give them an effective say (‘voice’) may be more important.

What’s your view about ‘exit’ and ‘voice’? Are they useful concepts for looking at the different ways that people can make organisations respond to their needs? Do you agree with John Kay that ‘exit’ is generally the more powerful mechanism? Or do you feel that, as my 1997 argument implies, it depends on issues such as how realistic it is for people to organise and express themselves collectively?

Postscript: this article has Joseph Stiglitz looking back on his 1992 paper, cited above, in light of the global financial crisis.

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Redistribution v altering market outcomes

Thursday, May 6th, 2010

In Tuesday’s post I covered a speech by James Purnell of the Open Left project that talked about how in Britain New Labour’s “unwillingness to be more hands on with the market” had “required it to be too hands on with the state”. In particular, I identified a theme in what Purnell was saying about the tension between redistribution after the fact on the one hand, and intervening to alter the initial market outcomes on the other.

I think this an important issue, and, as I’ll explain, it’s one that has a lot of relevance to New Zealand.

First, a bit of history. As Frank Castles has argued, during much of the twentieth century New Zealand and Australia had quite a distinctive “wage-earners’ welfare state” that relied more upon ensuring the standard male breadwinner could earn enough to provide for his family than upon generous social provision. In New Zealand, the Industrial Conciliation and Arbitration system was a centrepiece of this approach.

This broke down over the ’70s and ’80s, and by contrast the approach of the Fifth Labour Government has strong parallels to Purnell’s description of New Labour that I outlined on Tuesday.

There were attempts to influence market outcomes — the Employment Relations Act, minimum wage increases, an extra week’s statutory annual leave — but most of the heavy lifting was done through government redistribution, in particular Working for Families. This appears to have been a deliberate preference, as illustrated by the Paid Parental Leave policy, which was quite consciously designed as a government income-transfer programme rather than an obligation on employers, despite the preference of Labour’s coalition partner the Alliance that it be paid for through an employers’ levy.

Of course, there are some sound reasons for the state being cautious about trying to directly alter market outcomes, particularly in a globalised world. But not doing so has consequences.

For instance, I had often been puzzled by the vehement resentment many people seemed to feel towards Labour’s pro-family redistributions. In a time of general growth and prosperity (as it was up until mid-2008), surely a rising tide was lifting all boats, so who could begrudge a little extra assistance to those with extra mouths to feed?

But then I came across a figure in the 2008 edition of the Ministry of Social Development’s excellent Household Incomes in New Zealand series. It showed that for a single-person household without children under the age of 65, the real income of someone at the middle of the in income distribution (i.e. the median) had actually fallen between 1998 and 2007.

Based on data from Household Incomes in New Zealand: Trends in Indicators of Inequality and Hardship 1982-2008 (2009), Table D.4 on page 53. It should be noted however that, in this latest edition, this trend has turned around with the addition of the 2008 data.

Now, this is only one figure, but it does tend to show that not everyone was benefiting from the boom. That reflects the fact that growth during 2000-08 was generally extensive, i.e. it was manifested in employment growth (and thus impressively low rates of unemployment) rather than significant wage growth.

At least, not significant wage growth at the median: high-income earners continued their trend of increasing their incomes more rapidly than other New Zealand, further widening market income inequality (and meaning that any state system of redistribution had to run just to keep up).

To me, this illustrates the risks and limitations of relying primarily on after-the-fact redistribution as our main engine for ensuring inequality. I interpret Purnell’s lecture as indicating that we may need to think more radically and innovatively about how to achieve more equitable market outcomes in the first place.

The challenge, of course, is how to do that.

Here, Purnell doesn’t really offer us that much. At one point he does talk about aiming to “ensure that anyone who works hard earns enough to have a decent life” and suggests a combination of the national minimum wage, campaigns for a Living Wage, and offering a reduction in labour costs (in the UK this could be done through lower national insurance contributions,) for employers who have a higher wage floor.

On the one hand, this doesn’t seem very radical — it hardly seems likely to radically transform market outcomes — and on the other hand it still seems to rely on state spending pretty heavily.

I wonder, is it possible to envisage something that goes further than this? Possibly something that brings back the traditional focus of the New Zealand welfare state to find new ways to ensure that people can earn enough market income to provide a good living for themselves and their children. What would a 21st century distant cousin of the Industrial Conciliation and Arbitration system look like? It would almost certainly be less centralised and restrictive, and probably more focussed on skill development; perhaps it might involve some way of sharing out the dividend from productivity growth.

Is such a thing possible? Could a country like New Zealand find a way to influence the market system towards fairer outcomes? Or do we need to reconcile ourselves to largely accepting the market as it is, and then using the tax and redistribution system to distribute income in a more progressive way as best we can. What’s your view? Leave a comment below.

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