Why isn’t New Zealand richer and more productive?

Here is a new study from the New Zealand Productivity Commission, and here is the basic puzzle:

Based on its policy settings, the authors estimate that New Zealand’s GDP per capita should be 20% above the OECD average. But it is actually over 20% below average, making New Zealand a clear outlier. The size of the gap indicates an apparent “productivity paradox” that costs more than 40 cents in every dollar of output.

Here is one problem:

The increasing importance of global value chains – where production activities are spread across countries – may have worsened the impact of New Zealand’s geographic isolation on trade in goods.  Because global value chains typically require intensive interaction and just-in-time delivery, they tend to be regionally based. For New Zealand, international transportation costs for goods are about twice as high as in Europe. This reduces access to large markets and the scope for participation in global value chains , where the transfer of advanced technologies now often occurs.

More generally, the “gravity equation” — also known as distance — makes it harder for New Zealand to trade with the rest of the world.

Another big problem has to do with problems of underinvestment in knowledge-based capital:

Most of the rest of New Zealand’s productivity gap…appears to come from an underinvestment in knowledge-based capital. Knowledge-based capital encompasses a wide range of assets including product design, inter-firm networks, R&D and organisational know-how. Knowledge-based capital can be used simultaneously by more and more firms without re-incurring the initial development costs.  This generates increasing returns to scale – an important property that makes ideas and knowledge a key engine of productivity growth.  It can also be difficult to prevent others from using knowledge-based capital, an example of “spillovers” of knowledge and ideas between firms.

While comprehensive data on knowledge-based capital are currently not available, indications are that New Zealand ranks well in software investment and trademarks but very poorly in R&D and, to a lesser extent, patents. Indeed, R&D intensity in New Zealand – particularly business R&D – is among the lowest in the OECD. This not only reduces capacity for frontier innovation but also the ability of firms to absorb new ideas developed elsewhere, constraining technological catch-up.

In part, New Zealand suffers a low return on R&D due to its limited access to large markets, which reduces the likely payoff from the successful commercialisation of new ideas. New Zealand’s economic structure may also play a role. The industries in which New Zealand specialises typically have low R&D intensity. For instance, across countries, R&D in agriculture rarely exceeds 0.5% of value-add.

Here is a good FT summary blog post on the study.

I would have liked more comparison with the time when New Zealand was one of the world’s wealthiest nations per capita, and when, pre-1973, privileged access to British markets for Kiwi lamb and dairy was enough to maintain such high living standards.  And might we be reading a very different piece if the Chinese had a stronger taste for milk?

I recall the Michael Porter report from the 1990s, arguing that New Zealand did not have enough strong economic sectors which could lead to the accretion of cumulative advantages.

Overall, if there is any nation which should be aiming to double or triple its population, it is New Zealand.

Comments

Given New Zealand's location, I have always thought that it did pretty well for itself.

I wonder if it would have done differently if were a state of Australia.

I do think that it is a sitting duck for a disastrous tsunami.

Earthquake is a bigger problem than Tsunami. Wellington is waiting to go off.

I don't think much would be different if NZ were an Australian state. For several decades now there has been substantial free trade and free movement of people between the two countries. Given that baseline, I don't see what NZ (or for that matter the Aussie states) can gain from being ruled from Canberra.

Not completely relevant, but most of New Zealand was once part of New South Wales.

More relevant to your point, I wonder how much of a comparison could be made with Tasmania? Although I note the much reduced distance between that state and mainland Australia.

I was also wondering about the comparison with Tasmania, and I was surprised to find that Tasmania had slightly higher GDP per capita than NZ.

As for NZ once being part of NSW, this seams to have been in name only. Much like the Aussie east coast, it was nominally assigned to NSW even though the actual NSW government didn't actually bother governing anything much beyond the Sydney area.

This made sense since Sydney was the base of operations that people set out from. Nonetheless, in those days the proposition that "settlement X has a government" was nearly the same thing as "settlement X is independent from NSW".

Hawaii is another underachiever. It's remarkable how much Hawaii has receded from the American consciousness over my lifetime.

One problem is that all the hyper-ambitious Hawaiians -- e.g., Barack Obama, Steve Case, Bette Midler -- leave. A lot of the same thing happens to New Zealand.

Cause or effect?

I often marvel that it's not every U.S. citizen's ambition to find a job in Hawaii or go to college in Hawaii. Then I realize that I've never perused the Honolulu want ads nor did I consider Chaminade amongst my college choices. I'm still not exactly sure why not -- inertia?

Because it's tiny, so property is expensive, and an island, so goods are expensive and you're not close to anything.

It's like the Star Trek episodes about landing on a planet that is too perfect. Eventually the crew senses they don't belong in paradise and they have to leave. Query whether the crews get it right.

No free shipping.

Yes distance is a problem, but I think the low return on R&D is exactly as you say, the high achievers leave.

Are bulk shipping costs from NZ much worse than from China or Australia? On a distance basis doesn't seem too different. Maybe the economies of scale matter?

Distance matters in between parts of the value chain, so... kinda?

The small countries making up Southeast Asia get a lot out of value-adding to the goods sailing past them from China to the West or vice versa. Exports as a percentage of GDP are remarkably high - in the neighbourhood of 80% for Thailand, Vietnam, and Malaysia. But this doesn't add incremental shipping costs since the ships have to go past them anyway - this is how Singapore, with exactly no oil, winds up with one of the world's largest oil refineries. Going to New Zealand would involve going far out of the way.

Economy of scale is likely a big part of it. It is a country of only 4.5 million people, and it is 1400 miles away from even the nearest port in Australia.

New Zealand has been competitive in CGI for movies over the last decades. I can't think of anything high tech in which Hawaii does well. Maybe it's too nice outside to sit inside?

Another under-recognized problem is time zones. A few early-rising financial titans like Mike Milken and Bill Gross have managed to operate out of California, with its 3 hour gap from New York's markets, but Hawaii's 6 hour difference is a bear. The NYSE opens at 3:30am in Hawaii.

"I can’t think of anything high tech in which Hawaii does well."

Oh come on, now. You're disregarding Hawaii's nation-leading, best in class meth labs and their constituent chemists.

>Thinking that meth labs are high tech...
I guess it's all about perspective. One man's "high tech" meth lab is another's toxic waste site. Of course, most of Hawaii's meth is imported so don't let facts distort your perceptions.

As for true high tech ventures in Hawaii, look no further than the observatories on Mauna Kea which have been making discovery after discovery in the farthest reaches of the universe.

Astronomy isn't tech, it's fundamental science. More important in the long term, but less lucrative in the short term.

It's not like people in Hawaii came up with the advances in astronomy, it's that mainland astronomers were looking for a high elevation location with smooth airflow (tradewinds) and Hawaii's volcanoes fit the bill. Similarly, New Mexico's culture didn't invent the atomic bomb, although Oppenheimer's taste for New Mexico had something to do with Los Alamos being chosen.

Not sure if it's fair or reasonable to compare a sovereign nation versus a state. Also, NZ has about 10 times the land area of Hawaii & 4x times the population. All that matters I think. For one, NZ can independently & quickly decide what sort of human capital to import. Hawaii depends on US whims.

Then again Hawaii is much less remote than New Zealand, and anybody in America is free to move there, including the rich and powerful.

Thus, it was widely assumed one and two generations ago that Hawaii would evolve into an elite economic center specializing in high end finance, software, research and so forth, much like the most attractive parts of coastal California have. The President's parents, for example, moved to Hawaii in 1960 to cash in on its seemingly glittering future.

Hawaii has done fine, but it seems like it is still, after all these decades, reliant on tourism, real estate, agriculture, the military and the like, rather than on software, finance, or biomedical research.

Comparative advantage. So long as it's doing fine why be picky about sectors. Can't blame it for capitalizing on it's strategic military location or fantastic beaches can you? Household income seems to beat California.

It ought to be probably paradise by your housing selection arguments: with the median house costing twice the US median no worry about getting nasty poor neighbors?

But the standard of living in Hawaii is pretty low, well below the U.S. average due to the extreme cost of a middle class life there. And yet Hawaii's demographics are pretty similar to, say, Santa Clara County in southern Silicon Valley: lots of East Asians, the whites are often from a New England background, the tiny number of blacks tend to be solid-achieving folks who got to Hawaii because they could pass the AFQT military enlistment test, etc.

@Sailer:

I just don't get it. Gallup's survey rates Hawaii as #1 for overall well-being of all 50 states (2012 study). CNBC rated quality of life in Hawaii as #1 in 2013. This happiness study from Science magazine (*) rates Hawaii as #1 by analyzing 1.2 million American responses on both self reported & objective metrics.

Studies can be flawed so let's take raw data: Hawaii is #5 state by median household income (~$68,000). Unemployment seems pretty darn low: 4.5%. Murder rates are among lowest in the nation. Household Poverty rates are 5th best in the nation.

In spite of all this what does it mean to say standard of living is low? By what metric? And even if it is, should we care? Sure cost of living is high (partly due to stupid protectionist policies) but so it is in Switzerland.

With a median home selling for $600,000 I am sure you won't be complaining about low quality neighbors!

* http://www.sciencemag.org/content/327/5965/576

The basic measurement of middle class American life is whether you can afford to buy a home with a yard: that's hard for young people to do in Hawaii without a trust fund. So, the standard of living as measured by firms like ACCRA, that calculate costs of moving mid-level corporate managers, show Hawaii as below even California. If you just want to be a renter, Hawaii is not quite as expensive, which is what shows up in most government cost of living stats. But ACCRA is serving a genuine demand from corporations and their employees by focusing on mortgage, not just rent.

People who think that Hawaii should make software instead of resorts seem to be missing the concept of comparative advantage. Hawaii has stunningly beautiful coast and not much habitable land. Wasting space housing people trading stocks or writings apps is a huge waste of its natural beauty. California's different because it has an infinite amount of space that stretches out inland. You can have beautiful resorts and million dollar mansions on the coast of California, then stick your bankers in Pasadena and their back-office staff in Riverside.

I don't know. Oahu, Maui, and especially the Big Island all have substantial inland agricultural areas that could theoretically be developed for middle class worker housing if there was enough demand, just as the orchards of Santa Clara Valley got plowed under.

But there never seems to be much interesting economic development in Hawaii. I think that it's an interesting dog-that-doesn't-bark case study since plenty of people in the past assumed that it would eventually become a home for high end boutique businesses in, say, hedge funds or whatever. There are a lot of finance firms whose average employee makes hundreds of thousands of dollars and thus could afford Hawaii. The point, of course, is that the right to live and work in paradise ought to attract the kind of people who can make enough to live and work there.

But, maybe it turns out that you need face to face contact to make the really big money? Or maybe Hawaii's climate is too nice for staring at a Bloomberg monitor 70 hours per week?

I don't know exactly why Hawaii just putters along, but it seems interesting to look into.

For example, here's the Conspiracy Theory version of why Hawaii doesn't host a lot of hedge funds and extremely expensive Greenwich, CN does: because, as the Efficient Markets Theorem suggests, you can't beat the market routinely without inside information, and you can only safely trade inside information via non-electronic communications (e.g., at a nice restaurant in Greenwich, CN) because electronic communications can be entered into evidence against you in your insider trading trial if the feds wiretap you.

How true is that? Obviously, it has to be at least a tiny bit true, but I don't know how true it is overall ... If Hawaii replaced Greenwich as the home of the most successful hedge funds, then I'd have to say, "Oh, I was being paranoid. These super successful hedge funds in Hawaii are obviously thriving because they simply analyze the data on their Bloomberg terminals better than anybody else in the world does, not because they are trading secrets over lunch in Manhattan or Greenwich."

But that hasn't happened. It's hard to think about things that haven't happened, but it can be potentially revealing.

Comparative advantage? There is no area in the world where you cannot write software. Comparative advantange is nonsense.

There is no area in the world where you cannot write software. Comparative advantange is nonsense.

And yet, software developers seem strongly to prefer to locate in places with good climate and lots of nice restaurants and green space rather than, say, locating to Detroit or Camden to take advantage of those cities' large pools of idle labor.

For that matter, they could relocate to China or India and their employees could just walk to work instead of the company having to hire $400/hr immigration lawyers and high-powered lobbyists to try and ship them here.

Or maybe they just plop down wherever they are--Green Bay, St. Francisville, Des Moines--and just use e-mail and conference calls or something. I don't know how this new-fangled stuff works.

You can have beautiful resorts and million dollar mansions on the coast of California, then stick your bankers in Pasadena and their back-office staff in Riverside.

I think you're missing the point of being a banker.

Reply to Steve,

Hedge funds and banks are setting up shop here in Florida. Most of the weather and sunshine benefits of Hawaii, but only a three hour flight to NY when necessary. Also the same time zone as NY, and able to work first half of the day with people in London.

So the idea of Hawaii's paradise attracting knowledge-workers wasn't entirely wrong, it just come out-competed by Florida.

Thanks, I think the time zone thing is an overlooked big deal. This suggests it's less stressful (i.e., permanent jet lag) to move north-south rather than east-west.

> Hawaii is much more remote than New Zealand...

Um, I think you have that backwards. Look at a map sometime?
It's 2400 miles from Hawaii to California. 1300 from New Zealand to Australia.
Perhaps New Zealand is further than Hawaii is from your location, but this doesn't lend credence to your erroneous claim.

http://www.huffingtonpost.com/2014/01/31/hawaii-space-photos_n_4706183.html

this might be a question of loading, though.
Phrased alternatively, Hawai'i is 2.4k miles from a state w/ 38M people, which generates 1.8T in GDP. (let alone the rest of the us)
NZ is 1.3k away from a place with 20M people and a GDP of 0.9T. And THAT place is pretty far away from anywhere else worth mentioning.
As a "weighted" average of distance / PeopleGDP, NZ is more remote

Right. I mean, when it comes to software, Hawaii is the next stop west of Silicon Valley.

Perhaps I'm beating a dead horse here, but it's pretty striking that the od promise of the Information Superhighway -- you can live anywhere! -- has so completely failed to come true in the Information Superhighway business itself, which rather than spreading out to nice new places like Hawaii, is squeezing itself ever more tightly into one old place.

It's almost as if it were true in business that it's not what you know, it's who you know.

New Zealand was one of the first Western countries to go full-out socialist. The level of government intervention and welfare statism that the EU countries are at, New Zealand hit in the early 1970s. New Zealand's low GDP is the hangover of a major government debt and spending crisis from the early 1980s. Because of its embrace of austerity and economic deregulation in the late 1980s it has converged back to Western European levels. This is a lesson that it can take decades to clear the aggregated mal-investment in the economy resulting from socialist economic planning. Let that be a warning to present-day Keynesian who would risk all this for a few quarters of boosted consumer spending.

Like the Labour party in the UK, the NZ Labour party got caught off-guard by the independence and power of the unions they empowered, in particular the dockworkers's unions, in the immediate wake of World War II. Both shattered dreams of uncontested socialist central planning, leaving only the welfare state as the only legacy of Labour ideology in the 1940s; Labour in both countries could (and did) nationalize but it could not stop industrial disputes from causing disruptions in supply.

Dockworkers pre-containerization were particularly adept at militant strength: urban, young, male, intrinsically organized into work gangs, unskilled and therefore low-market-wage, prone to seeing themselves as literal guardians of the nation's lifeblood and prosperity. Not something that featured on the typical Labour minister's mental landscape.

Interesting comparison to the UK. It always seemed to me that Britain got off quite lucky from its socialist midcentury misadventures. It very easily transitioned to a market economy right as global financialization was taking off with the City of London a quite natural fit as the banking center of Europe. Thatcher's timing was near perfect, coinciding with an exploding financial sector. The UK basically dodged the need for any painful or politically difficult austerity that's normally required to dismantle extensive socialism. Had history gone slightly different it's quite easy to imagine Britain still working on passing Italian GDP levels.

"The UK basically dodged the need for any painful or politically difficult austerity"

Please read about the miners' strike.

In the UK, the early Labour governments included a very large contingent of men from the unions. Among the 1945 secretaries of state, Bevin and Isaacs had been national union leaders, Bevan and Shinwell had been significant organisers and agitators, and several others had served in leadership roles. They weren't trapped by the unions; they served them as their allies and paymasters, in the same way the US Republican party serves its allies and paymasters. I can't speak for NZ Labour, but strong labour movements generally created strong labour parties, rather than vice versa.

ummm, I think you got our political parties backwards there Millian.... While both parties have corruption, the Democratic Party is by far the dirtier of the two.

In reading old journalism, stevedores play an outsized role in the national news. It's pretty funny that San Francisco Bay, a fantastic natural port, has been displaced by the wholly artificial Port of Los Angeles / Long Beach. One reason is that the mountain barriers inland from Los Angeles aren't as severe as the Sierra Nevadas that divide San Francisco from the rest of the U.S. But another reason is that Los Angeles' dockworkers were more amenable to being bought off, while San Francisco dockworkers, under the Australian-born Harry Bridges, were remarkably corrupt and Communist:

http://en.wikipedia.org/wiki/Harry_Bridges

One reason for containerization was that it reduced the striking amount of goods that got stolen by stevedores.

Didn.t the post state the exact opposite: New Zealand started to lag *after* neoliberal reforms...

No, look at the GDP data. Going back to 1960 New Zealand sits at 80% of US GDP per capita. By 1984 that falls in half to 39%. That's the year New Zealand implements Rogernomics, basically Reaganomics on steroids. Full on supply-side, deregulation and austerity. Since then you see a steady re-convergence, with NZ GDP almost back to 1960 levels at 73% of US GDP per capita.

http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&hl=en&dl=en&idim=country:NZL:AUS:CAN#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=log&ind_y=false&rdim=region&idim=country:NZL:USA&ifdim=region&hl=en_US&dl=en&ind=false

http://en.wikipedia.org/wiki/Economy_of_New_Zealand#Liberalisation

Doug, your data appears to be in nominal values. We need deflated measures to make comparisons: NZ GDP at PPP per person is only ~55% that of the US, not the 73% that you claim:

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

If you want to infer causality based on simple correlations between political system (socialism vs. neoliberalism) and correctly-measured output per capita, you would conclude that the socialist period was the golden period.

What you've failed to mention, Doug, is that in the years that followed the implementation of Rogernomics, the number of New Zealanders living in poverty grew by at least 35%. Yes, the economy grew, but only by a small amount when compared with other OECD nations. Foreign debt also quadrupled and unemployment rose. Today, NZ has one of the worst child poverty rates in the OECD and our property market is the 3rd most overpriced in the world.

Sweden is and always has been far more socialist than New Zealand could dream about. Yet Sweden beats New Zealand hands down on things like standard of living, number of tech jobs, and happiness in general. One problem with Kiwis is that they tend to have a very short sighted view of the world, and what is good for them. A simple case in point: why spend money on silly things like public transport? Just keep widening the motorways!

Related to this, is that Kiwis don't have a lot of savings, so there is very little onshore capital available for investment or lending. Most Kiwi banks are owned by Australian banks and are dependent on foreign lenders. Interest rates in NZ are lowest in 50 years, but a mortgage costs 5.5% (and now rising), twice what it does in Sweden.

Interesting comment about the motorways. I did a road trip last year from Auckland to Wellington via Tauranga, Rotorua and Taupo, then along the west coast of the South Island down to Te Anau and then up to Christchurch via Akaroa, and rarely remember finding roads that had more than one lane going in either direction. Do recall a fair amount of work being done in the South Island, but it seemed to be more repaving than widening.

Also not sure how much public transport (defined as light and heavy passenger rail) makes sense for NZ given its low population density. Perhaps the greater Auckland area, but outside of that not sure it would be all that viable. Buses would seem to do the job just fine.

NZ's golden decade and half began to go wrong around 1967, when wool was being supplanted by artificial fibres. The Nixon Shock ruined the post-war consensus on monetary policy, which wouldn't get resolved until the Reserve Bank Act 1990. Oil crises, the Common Market and Muldoonism wrecked the economy, culminating in 1979, when the exodus of talent was so large, the gender balance has never recovered since.

Then, as now, a farming elite sees every problem as something can be solved by farming and only farming. This was amply demonstrated when I worked for a meat exporter around 2003, and the CEO asked me into his office once to show him how to bookmark a webpage.

There's hope yet. The geeks are still warming up. Come back in 2020.

I honestly think that this has some weird similarities with Argentina. A too large and powerful agricultural sector which was wealthy enough to confuse the country into thinking it could afford a West European Social Welfare state on a grand scale just when the agricultural commodity collapsed in value.

The comparison goes beyond that, both suffered from having lost privileged access to British markets.

Definitely a similarity. The difference is that New Zealand had much better political, legal and civil institutions, preventing the rise of populist politics, military rule etc.

New Zealand has a chronic shortage of equity capital, exacerbated by a generous pay-as-you-go state pension and a tax system that favours passive landholding as a wealth accumulation vehicle. The country consequently imports a large amount of capital to meet the savings-investment balance and this requires a high equilibrium rate of interest. As a result the exchange rate is chronically high, the returns to exporting are lower than they should be given the country's bounty, and the hurdle rate of return on investment on new equity investment is high. (Apart from this, the policy mix is pretty good). Many good innovative businesses emerge only to be bought by American corporations or funds before they get to more than say $100m in value, as there is a paucity of domestic investors.

Ah, that explains a couple of odd observations I made when I lived there briefly. Thank you.

BP-

All true. The Macleod Review of tax policy nailed it exactly in 2001, and was promptly ignored by the government.

Another major issue is the Resource Management Act -- a piece of environmental legislation which gives local government, neighbours and green activists an effective veto over any development. This makes the cost of housing ludicrously high (especially in Auckland). NZ has rejected red-flavoured socialism, but the green version still has a lot of appeal, and it has a major dragging effect on the economy.

NZ has been doing a killing selling powdered milk to China, as Chinese parents refuse to feed their children domestic milk or formula since the melamine adulteration scandal a few years ago. Unfortunately, there was another scandal a year ago, involving botulinum-infected NZ dairy this time, that has tainted the Kiwi brand. Dairy producers from as far as France are lining up to fill the gap.

You're out of date, if what I've read is true the botulism scare was a false positive.

And I just read about Chinese demand for NZ lavender.

The lavender is from a farm in the Australian state of Tasmania, not from NZ. (The WSJ item mentions NZ as a source of powdered milk with a growing market in China.)

Re Tyler's comment re immigration: actually the policy of high immigration, combined with harsh restrictions on land use (most of Auckland is zoned for bungalows on 380m2 or more, thanks to the interference of a few ageing NIMBYs), has created a demand for infrastructure greater than the country can finance given its meagre savings pool. This has exacerbated the exchange rate problem. Interesting paper by an RBNZ economist here: http://www.rbnz.govt.nz/research_and_publications/seminars_and_workshops/Mar2013/5200823.pdf.

Restrictions are not always wise. But just start to build the infra - and savings will follow, induced by either inflation or higher interest rate or taxes or whatever.

One part of the puzzle is that New Zealand decimated its union movement in 1991. Since then, real wages have fallen, to the extent that it is often cheaper for an employer to take on another low wage employer than to invest in more up-to-date plant and equipment.

This paper prepared by the NZ Treasury and Statistics NZ has an interesting graph on p. 16 (Figure 3). The point where NZ's labour productivity starts to lag permanently behind Australia's labour productivity is 1992.

Taking on the West Island: How does New Zealand's labour productivity stack up? (Link goes to a Statistics NZ webpage where the report can be downloaded as a PDF.)

De-unionization may shift GDP output from wages to capital and corporate profits. But I see no plausible economic mechanism under which de-unionization could be responsible for depressing GDP. Unions act as a monopsony on labor, as such they shift labor equilibrium to a lower quantity, higher priced point. That might even increase labor productivity, as companies reserve labor spending for higher marginal product tasks. But that in turn will be accompanied by fewer hours worked and the net effect will be to lower overall production.

"Overall, if there is any nation which should be aiming to double or triple its population, it is New Zealand."

I can't agree with this more. I've known and worked with several highly innovative New Zealand companies and all of them have packed up and left because the whole country doesn't have enough people to support decent market opportunities or provide sufficient capital for investing. The latest one just moved all of its operations to a suburb of Chicago this year.

This is one huge factor we take for granted in USA. The ease of hiring comparatively complex teams or niche skills to join a business. EU comes close in size but for reasons of language etc. cannot rival the mobility of the US + Canada labor pool.

N Dakota greatly benefits from a mobile, English-speaking continent to pull workers from.

Part of the problem may also be difficulty in attracting highly skilled workers; I am a chemical engineer by trade, and I had a job offer from a company for a position in Taranaki that was offering exactly half the salary of the position in Perth, Western Australia that I ended up accepting. If this is representative - and anecdotal evidence from other people in my industry suggests that it may be - it could be a contributing factor.

Have you also considered cost of living in Naki vs Perth?

Given that I am single, and therefore am supporting no one but myself, a lower cost of living in Taranaki is not enough to make up for 256K AUD in Perth vs. 130K NZD in Taranaki.

Well, with 130K and being single, you would have a very high-end lifestyle in NZ, not only in Naki ...

"Overall, if there is any nation which should be aiming to double or triple its population, it is New Zealand." What, irrespective of the calibre of the immigrants? Are all immigrants really interchangeable?

Where did you get that "irrespective of caliber" bit from?

Because he made no mention of their calibre, as is so common in American pro-immigration assertions. Double or triple is what he said, not let in lots of x , y, or z.

New Zealand's population has grown 35% since 1990, but a lot of that has come from Polynesia. That does wonders for New Zealand's rugby team, but not much for its software industry.

Obviously, New Zealand could throw the door open to China and India and have its current population inundated within a few decades. But it's not obvious how New Zealand would attract millions of people from Europe and North America. The "Lord of the Rings" movies were extraordinarily good advertising, but there are similarly beautiful places in the Pacific Northwest and Norway. New Zealand isn't exactly a tropical paradise like Hawaii is.

The PISA test report shows that New Zealand has a quite high immigration rate, and the immigrant students and their children unto the next generation average lower than New Zealanders as a whole in terms of school achievement:

http://www.oecd.org/education/school/Untapped%20Skills.pdf

Presumably, a lot of New Zealanders like the fact that New Zealand looks kind of like the Shire in a Tolkien book and don't want to turn it into Calcutta East quite yet.

Are there PISA nations where immigrant students, on average, do better than the natives in school achievement?

Canada and in some years Australia. They use points system to harvest high human capital immigrants and their children.

NZ cannot afford to be picky.

Immigrants who can somehow get into Australia generally will go there instead of NZ. If they can't, then they go to NZ, get citizenship and then go to Australia.

So, not much point in expanding your population with second rate immigrants. You just end up like Imperial County, California, with its 21% unemployment rate today. But, hey, the population has grown!

I thought NZ had a points based system too? No?

doesn't help that New Zealand has the rep of where you go to have sex with 12 year old girls.

INTERNET TROLL ALERT!!!!!!

You know John, the average person associates NZ with rugby/hobbits/sheep. But maybe you just hang out in different social circles to the rest of us?

Overall there is a high correlation between GDP/capita and reported subjective well-being, but there are outliers on that also. Could New Zealand be such an outlier?

I just returned from several weeks in New Zealand, and the general cost of living is already somewhere between California and Hawaii, and real estate prices have exploded in the last decade and are already jaw-dropping (even for a DC-metro inhabitant). I heard a lot of people blame this trend partly on recent population growth (largely through immigration), and a lot of complaints about how, "Ordinary Kiwis like us can't make it comfortably anymore with ordinary work like we used to. It's great for the rich and the elite, but not at all for us." I met a few people who were, essentially, economic refugees from Auckland, where they had once enjoyed a comfortable lifestyle, who said they felt they were losing their country.

To be clear, these were some of the most tolerant and diversity-friendly people I've ever met, and their complaints were economic and would have applied equally to immigrants of any ethnic or national origin. When they said they were losing their country, they meant they were nostalgic for the type of society and lifestyle to which they had become happily accustomed and which was rapidly disappearing without, they judged, adequate compensatory gains.

Nevertheless, these people would have reacted to the assertion, "Overall, if there is any nation which should be aiming to double or triple its population, it is New Zealand," with both bewilderment and shocked disdain at the cavalier indifference to their real, growing struggles. 'Creative Destruction!' isn't much of a salve to those wounds.

You must be talking about North Island. On South Island I saw numerous headlands looking out over the Pacific that had no houses on them; sheep and cattle were enjoying the ocean views. Small towns with main streets where half the shops were vacant. We stayed with a sheep farmer who said low prices for wool were driving young people out of agriculture.

I lived in NZ for a couple years, including a year in Auckland. I would return at the drop of a hat.

Things were indeed expensive. I paid friends to mail basic necessities like contact lens solution, which could be done cheaper than buying the stuff at Pak 'n' Save (which didn't even have it all the time--often I had to go to a Chemist).

There does seem to be increasing unease about housing costs. But recall that Auckland routinely lands in the top 20 of The Economist's liveability rankings. As for the more rural areas, it is not uncommon to hear someone living in small towns around Gisborne or Whangarei say that they tried Auckland and didn't like "the fast pace." That is, while migration trends do reveal a preference for Auckland, many people choose to stay away for quality of life reasons. Life is good on the East Cape. If you ever visit, don't skip it like most tourists.

My unscientific, anecdotal impression of average Kiwis was that, despite some occasional complaining about falling behind Australia, they may not care about growth and productivity as much as many Americans. This is indirectly the thesis of the David Hackett Fischer book of a few years ago. The lifestyle is pretty good in NZ, even if many people don't own a dishwasher and have to use separate hot/cold faucets. I have not had decent fish & chips since leaving. Eric Crampton routinely points out the quality of life perks associated with having a less nannyish state. The weather is mostly excellent, and the natural and cultural environment is second to none. They would probably welcome more economic growth, but many of them might not be willing to give up much for it. Probably people more familiar with the country will disagree with me, which is fine, but these are just my impressions.

It's also important to recall that NZ punches well above its weight in many other categories, like sports and econ blogging.

Seven years ago I co-founded a high tech startup in Austin TX. We received an interesting offer to move the company to New Zealand with a guaranteed path to citizenship and some tax breaks and matching investment money. We briefly considered it but knew the labor market there would kill our business plan for any growth. At the time I thought it was pretty creative for a government recruiting drive.

It is possible to overestimate the isolation effect. After all, imagine a New Zealand run by a Lee Kwan Yew with a zealous desire to foster and promote international trade of all sorts. Education policy, customs, and social policy would be aligned to promoting growth and cosmopolitanism while constraining labor demands. I could easily see such an area vastly outperforming the Pacific region in per capita terms given NZ's natural resource endowments, especially if investment in urban areas and immigration policy were explicitly targeted to promote very high skilled migrants. Add in tourism and it would make Singapore look like a laggard. To say that such a policy would not be politically popular is not the same as saying it's difficult as a function of physical constraints.

Every place doesn't need to look like every other place. New Zealanders are hardly poor. Maybe they like a quiet, underpopulated country.

Speaking of empty land, what's the deal with everything in California north of San Francisco? Balmy climate, coastline, national parks just inland. Why aren't developers getting municipal charters and plopping down towns all over the map there, like they did with the Florida coast?

The north coast of California is quite rugged and steep with little in the way of natural ports, so you see very few towns on the coast there, quite similar to California's central coast (except that IT is between LA and SF). There is a reason the one interstate connecting California and Oregon is in the interior.

Two things that New Zealand and the United States have in common: they're the only countries in the world where prescription drugs can be advertised to the public, and which impose a One Drop Rule for determining ethnic background.

I don't think they "impose" a one drop rule. Maybe you can elaborate? Perhaps people are ALLOWED to claim a certain ethnicity if they have one drop of ancestry? Heck, I don't think you even need a single drop, I think you can just make up whatever you want.

All that's needed for the government to consider someone Maori is for that person to tick a box saying they're Maori. There is no blood quantum rule.

Amazing how ideological a lot of these comments are.

The main drivers in my opinion are

1) lack of access to capital as mentioned above - equity and debt. This is a product of New Zealand's low saving rate. The contrast with Australia which implemented compulsory superannuation provision is striking.
2) New Zealand's distance from major markets.

I've written some of this up - again contra lots of ideological diagnoses here.

http://clubtroppo.com.au/2007/12/14/australia-v-new-zealand-ideology-to-the-rescue-part-two/

The superannuation/savings point is a good one. However, any attempt to explain the divergence between Australia and New Zealand over the last 20 years that doesn't mention mineral mining in Australia is lacking, to say the least.

i.e. it's a bit like asking why Yemen is so much poorer than its peninsular neighbours Saudi Arabia, Oman and the UAE, without mentioning oil.

But the divergence happened before the mineral boom. One other thing is that your central bank has a penchant for pain. Don Brash gave you a recession you didn't need to have during the asian crisis.

Hence, Xero, Valar ventures, etc

why should New Zealand aim to triple its population? for what outcome? increasing GDP? who cares about GPD? economists I guess. what do the people of New Zealand care about? probably culture, tradition, living space, and a clean environment. tripling the population will work against all of those goals.

Funny that you don't list any monetary metrics in the list of what people care about.

" if there is any nation which should be aiming to double or triple its population, it is New Zealand."

Well, only economist and journalists believe the solution to problems are "more people", sp hardly anyone aims at doubling the population.

But why should the people of New Zealand realle want to double its population?

It a pretty good place to live, and the people living there probably have different preferences than people living i New York. But even if not, why should they want to turn New Zealand into something like Bangladesh or Java.

A lot more New Zealanders move from low-density NZ to high density Sydney, Singapore or Hong Kong than vice versa. Revealed preference indicates that New Zealanders probably do want higher population.

I loved the show "Almighty Johnsons". New Zealand should be able to make some money from television and movie production. Transport costs are not high for that. A friend just came back from a month in New Zealand and absolutely loved it so tourism is another potential economic success - your customers pay to transport themselves to you.

work, work, work you little neoslaves, work harder so the rich can get rich!
GDP Uber Alles!

As others have noted, plenty of NZers don't necessarily care about pursuing the holy grail of economic growth.

I can go deer hunting 2hrs from here any time of year (open season), Trailbiking 1 hr from here in a free public bush park, I can snorkel anywhere on the coast apart from a couple of tiny marine reserves and get a feed of shellfish, you get the idea.

Wages here are low but so what? Money is not the only thing in the world.

7odd billion people on this planet and we need more? It ain't necessarily so..

Glad to see a little sanity here. GDP is not the end-all be-all of metrics. http://www.alternet.org/news-amp-politics/global-rankings-study-depicts-america-warp-speed-decline?paging=off&current_page=1#bookmark

If you're after a good description of the last part of your post, I'd recommend picking up a copy of Shaun Hendy's Get off the Grass.

New Zealand is one of the most beautiful countries in the world, with magnificent outdoors. To triple its population (and spoil its wonderful nature) in order to have a dubious 20% increase in GDP? This is really having your priorities wrong and not understanding how some of the best things in life don't have a money value...

Not much has been made of the free immigration zone between Australia and New Zealand. What other OECD country has over 10 per cent of its citizenry living in a single other nation? >500,000 New Zealand citizens live permanently in Australia from a population of 4.4m. Further, is a rapidly increasing population even possible while this policy remains if new migrants have a preference for living in Australia over New Zealand? Net migration to New Zealand has only just risen above zero after a substantial period of negative value.

The joint Australia-New Zealand Productivity Comission study into common relations has an excellent paper on people movements between the two countries (http://transtasman-review.pc.gov.au/sites/default/files/13-D%20-%20Cross%20border%20movement%20of%20people.pdf) which I wrote about here http://henrysherrell.wordpress.com/2013/04/18/new-zealand-migration-to-australia/

The geographic fact of being one of the last bus stops on the earth and a small population means we have to improve on the margins of virtually every item of public policy - Resource Management Act and its open-ended facilitIon of regulatory indulgence, near-monopoly supply of education and the attendant marginalization of too many - these are merely two of the biggies.

Marginal improvements across the board, even within the constraints of geography, population and historical challenges to forming capital for investment and infrastructure, will not only be synergistically cumulative but are entirely within our control

- our policy settings are full of too many outdated sacred cow beliefs, these beliefs include false linkages between the preferred kiwi way of life and what it takes to upgrade productivity and gap growth. After all the preferred kiwi way of life was formed as a consequence of the era when NZ gdp was at its relative highest.

The political communicator who can unpick these linkages and sell them to the electorate will be undoing one the of biggest constraints of all

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