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If NZ had a common land border with another wealthier country, I wonder if we’d be so relaxed about our declining relative wealth.
Admittedly we’ve got a great familiarity with Australia courtesy of the airlines, but you have to wonder whether getting on a plane, travelling 2000kms and then having a holiday really jolts in the same way as driving across a border to a nearby town to find more jobs and a visibly richer life on offer.
The growing economic gulf between France and Germany, apparent in the border towns, is figuring the current French presidential election campaign. These towns often have strong economic and cultural links, but at the moment it’s better to live to west than east.
Which of these three scenarios best fits your workplace or, big picture, the way you figure the NZ economy works?
1) A game to collect marbles where you happily and freely share the spoils because you feel the other player has cooperated in the goal of getting more marbles.
2) The marbles are distributed without having to play a game – finders keepers no matter how unfair the distribution of marbles.
3) A variation on 1. Instead of players cooperatively collecting marbles, it becomes clear to participants that getting the marbles doesn’t involve cooperation. Even though the players do equal amounts of work, some players are unfairly awarded more marbles.
[Hat tip - Jonathan Haidt, a psychology professor at the University of Virginia]
By the way, this is my promised response to the Salvation Army’s report “The Growing Divide” on poverty and crime.
This post has sat around unfinished for a few days now because I couldn’t nail what I wanted to say, which was originally, that the report provided an unsatisfactory villain of the piece: the “economic rationalism” of the last 20-30 years.
Scenarios 2 and 3 above of course look a lot like the game played under the rules of economic rationalism – that is a faith in markets to sort out most of life’s issues without too much attention to fairness.
Scenario 1 is an approximation of economic conduct from the mid 1930s to the 80s.
So I think the Sallies are right to point the finger at economic rationalism when it comes to looking for a guilty party for the jump in income inequality between the 1980s and now.
But there are other things going on as well as The Herald’s Brian Fallow points out.
It can’t be as simple as laying blame for the “the growing divide” solely at the feet of the economic rationalists. Slay the economic rationalists and inequality and poverty will disappear.
I’m not so sure because it overlooks root causes – why did most of the Western World slip from scenario 1 to scenarios 2 and 3 in the 1980s?
Disturbingly the scenarios above were parts of real life psych tests done with children (remember kids are more selfish than adults). The tests indicate that even if we acknowledge that 2 and 3 are unfair, and lead to inequality, it won’t be enough to kick start sharing.
We need a game changer. We need new circumstances.
Jonathan Haidt, the psychology professor who’s my source of the three scenarios, says his parents were from a generation that went through the Great Depression. He was a teen during World War II and then lived under the shadow of the Cold War.
Government control, he said was seen as necessary for the common good in these testing times. Social norms controlled exorbitant pay and insisted on a solid safety net for the less fortunate.
This social compact to collaborate started to bunny hop when we all began to feel the old way was failing, which in some ways it was.
Commenting on scenarios 2 and 3 (and I guess what can be done to end their dominance) Haidt says: “…the ‘share-the-spoils’ button is not pressed by the mere existence of inequality.”
The kids missing out on the marbles mostly didn’t complain and of course, the winners were just fine.
The ‘share-the-spoils’ button, he believes developed around 500,000 years ago as humans started to forage and hunt co-operatively. These “teams” achieved more than individuals.
So, if we are to get rid of inequality we need to fundamentally change the conditions that allow scenarios 2 and 3 to thrive.
This happened in the 1930s after the upheaval of the Depression.
To slot back into scenario 1 we need to find that sense of combined purpose that’ll tap into half a million years of thinking.
Hopefully nothing a big as last century’s shocks.
Our local college is a decile 5 school – a five because it’s a catchment of extremes, neighbourhoods that are either wealthy or poor with not much in-between.
It’s not a bad college, and is on the rise, but mostly the kids from the feeder upper decile primary schools skip it. Around these parts you don’t “school local”.
The kids are bused and ‘trained’ north, south and east to what are obviously judged to be better schools.
You can’t criticise this choice because these parents know what’s best for their children. And the choice can be seen as the safe one, like buying a product with a trusted brand.
But their decisions, however unintentional, are bad for the school, bad for the neighbourhood and bad for NZ society.
It’s probably not going to be bad for the kids – most will be successes in life, though as we shall see, that depends on your definition of success.
Maybe “school local” remains a better choice for everyone concerned: the school, the neighbourhood, society and ultimately the kids.
That’s because the wealthy, by turning their backs on local schools, are widening a social divide that’s in a way much uglier than the wealth divide which seems to get all the attention.
Perhaps it’s because the social gap is seen as a consequence of the wealth gap. Reduce income disparity and all will be okay. I’m not so sure.
This social divide is, I figure, feeding inequality because there’s no empathy or understanding of how the other half lives.
I’m pointing at the occupants of the smarter city suburbs here. The divide belongs to them (umm us, though I don’t live in this type of suburb). We created it and only we have to power to fix it.
We are the ones with the choices – we have the money and the power.
From cradle to the grave, the more privileged among us often unconsciously (but sometimes not) widen this social divide. We trip through pre-school care, primary, college, parties, sport, university, our offices and friendships barely casting a shadow on the other side.
NZ schools were once mixing pots. So was rugby. Now we have flight to “better” schools and football.
An example of where this leads is US Republican millionaire presidential candidate Mitt Romney’s ‘what planet’ statement that he was “not concerned about the very poor. We have a safety net there”.
I can’t find any public statement by a Kiwi with a similar sentiment, but (my white middleclass readers) you wouldn’t have to look very far among your colleagues and friends.
But maybe it’s just ignorance. When the TV3 documentary on poverty screened before the last election, the reaction seemed to be outraged surprise that this was happening in God’s Zone.
These people need to get out more. This response was the social divide revealed.
There’s a hell of a lot of mythology around NZ’s egalitarianism, but there was a time when the myth was more honoured in the observance than in the breach.
Now it’s more honoured in the breach.
We all need to be big and brave about the choices we make.
Unbelievably it seems the costumes of Wellington rugby sevens’ fans manage to be more creative and innovative than the previous year.
Personal favourites for 2012:
- The Lego men
- The jami army
- The Monopoly set (post GFC).
So what is it that drives this year-on-year leap in standards of creativity and innovation among fans? Off the top of my head:
- Competition – wanting to stand out in the crowd when everyone else is trying to do the same thing. This is huge.
- Brand – Wellington sevens now have an incredibly strong brand which organisers have nurtured. The punters buy into it.
- Learning – the power of observation. What worked last year (well, what’s remembered); what am I up against this year?
- Time – where do people get the time to do this stuff?
- Fun – big time.
And most of this happens while the fans are sober.
Finally I don’t think it’s about money. The above are more important.
Organisations should look at the Wellington sevens when they consider ways to increase their innovation and creativity.
I’m a fan of the ideas of Sir Paul Callaghan. He’s one of the best – and clearest – thinkers about the future shape of the NZ economy.
One of his ideas is to make NZ a place “where talent wants to live”. James Cameron’s decision to move to the South Wairarapa I guess is a big endorsement of the idea.
Callaghan is deeply sceptical that our economic salvation will come from squeezing more out of current big ticket foreign exchange earners such as commodity agricultural products, natural resources and tourism.
Our wellbeing, he says rides on how well we can create a knowledge economy, one based on high earnings per worker. Callaghan’s well-worn example is that a McDonald’s worker produces US$9389 of value to the company; an Apple employee creates US$1.3 million.
So we need to create more jobs in ventures that generate high levels of wealth off relatively low levels of investment in raw materials, bricks and mortar and other increasingly scarce resources.
In the long run he’s right. But what happens in the meantime?
The trouble with knowledge-based businesses (in NZ at least) is that they take forever to reach a size that’ll register on the overall level of national wealth.
Fisher and Paykel Healthcare, which has been around since the old parent company entered the respiratory care market in 1971, is only just approaching $500m in revenue
Forty years to hit half a billion by one of the brightest stars on NZ’s business stage.
We haven’t got this much time to sit around and wait for the knowledge-based economy get some traction.
By the time it does, at our present rate of falling behind in wealth, we won’t be a place, where “talent wants to live”.
Talent will largely shun us for the same reason it shuns other Pacific paradises – the infrastructure is way too bad, the schools poor and healthcare good only if you can afford it.
To avoid this we need businesses that can generate more wealth if not now, in the next few years.
And that I’m afraid is more cows, mining, oil exploration, tourists…
How we do this is important because I think Callaghan’s idea of creating a country where “talent wants to live”, though very likely elitist, is a good way of figuring out ways through the maze of our economic choices.
Just ask: is it good for talent?
The assumption of many would be that mining ain’t. For sure our clean and green environment is a big talent drawcard, but we need more wealth to maintain that environment.
It’s the poorest countries that have the worst environmental records.
And supporting talent costs money, lots of money. It requires capital, R&D infrastructure, quality education facilities, real broadband…
Finally living in a “poor” country is a turn off.
This isn’t an argument to do nothing. Our natural resources are finite, and some shouldn’t be touched. But some could be if the benefits to NZ outweigh the costs.
We do need to be laying the groundwork for creating a knowledge economy by being clever about how we encourage talent to stay, and new talent to call NZ home.
Sione’s 2 is according to one of its kinder reviews an underwhelming piece of silliness, but just to highlight the gap between expert knowledge and real life, the Kiwi film is currently number 1 at box office.
Critical failure/commercial success.
How about the other way around: critical success/commercial failure? Try the NZ economy.
We’ve got another accolade from the experts – NZ has been declared the 6th most creative country on the planet. This award can now go on to the mantelpiece alongside top placings for ease of doing business, lack of corruption and protection for investors.
The creativity gong is just another jarring economic honour at odds with our real world wealth ranking of 32nd, like below the Bahamas, Slovenia and Cyprus, but ahead of Greece (just).
This is not to rubbish the idea that creativity,and all the other things we are good at, are not important when it comes to generating wealth, but as mentioned in my last post, something’s obviously missing.
The Global Creativity Index (GCI) is the work of the Martin Prosperity Institute, a think tank that looks at the role of non-economic factors in economic prosperity. The index measures:
- Technology savvyness
- Talent and
- Tolerance – openness to new ideas.
The numbers behind NZ’s 6th placing were: 19th in technology, and 5th and 4th respectively for talent and tolerance.
The Institute says its creativity study found “found great correlations between creativity and economic progress, human development and happiness…”
Our wealth, the Institute comments is “slightly lower than [our] GCI scores would seem to warrant”.
The GCI top 10 were:
Sweden
US
Finland
Denmark
Australia
NZ
Canada
Norway
Singapore
Netherlands
The Institute says the economic crisis has “brought us face-to-face with the fact that unbridled economic growth does not necessarily equal sustainable prosperity. Economists have been seeking fuller frameworks and better metrics with which to evaluate the underpinnings, as well as the path, to longer-run, more sustainable prosperity”.
It believes the GCI will help “shift the dialogue from a narrow focus on competitiveness and growth to a broader focus on creativity, prosperity and well-being”.
Check out my 18 December, 2011 post on the merger of the NZ Institute and the Business Roundtable on why the choice of lens (narrow or broad) is important in NZ.
In some circles (umm okay government) equilibrium in NZ migration is seen as neutral or perhaps mildly positive thing for the economy – the skills we lose through the departure gates we make up for in the skills and international connections of new arrivals.
Not so fast says Tony Smale of Forté Management in a MBA paper identifying the gap between our high inventiveness, but low conversion rate into profits and prosperity.
As opposed to the usual look at failures of government, laws and organisations (yawn) as culprits, Smale blames shortcomings in our national culture. Essentially our thinking and behaviour gets in the way of making the most of our many good business ideas. [See BigCake’s “About”]
Smale says the challenge of fixing this issue is exacerbated by migration.
Basically people leaving NZ have aspirational wealth objectives that NZ can’t fulfil; many of those coming the other way are more interested in lifestyle than wealth creation.
So (generalisation supported by anecdotal evidence) we’re shedding people we can’t afford to lose and replacing them people we’ve already got enough of.
Our wealth creation ability is being gradually watered down.
Anyway, back to Smale’s main point about national culture and its failings. It’s an impressive/depressing list:
- Self reliance and individualism
- Suspicion of specialists
- NZ-centric thinking
- The need for control
- Short termism
- Undervaluing relationships
- The tall poppy syndrome
- She’ll be right
- Making lifestyle the primary driver of being in business.
“In summary, our unique culture means that we Kiwis are very good at DIY “make and use” but not so good at “make and sell”.
Check out the culture tag for more on the above.
Much of this stuff is embedded in our national self image, so is not easy to change.
Self awareness and self improvement are perhaps the solutions. Acknowledge what we are not good at and then work on it.
Stop bullshitting ourselves.
HT – Tony Alexander for pointer to Smale’s paper.
Two holiday learnings gelling here – 1) there’s a lot of obese people in this country, once you get away from the Wellington beltway and 2) the power of good social marketing (based on reading Tina Rosenberg’s book “Join the Club”).
Re 1) there are many seriously overweight people. The Health Waikato report Obesity, diabetes and fast food – the impact of marketing to children says about a quarter of our population.
Re 2) it’s no use, in an attempt to get these people to lose weight, telling them that they are killing themselves or making themselves ill – they know this already. There is no inverse relationship between weight and intelligence.
There are parallels here with smoking and also examples from battles with big tobacco on how to reduce our junk food intake.
The obese mostly don’t eat too much or exercise too little because of an information gap, though a lot of anti-obesity campaigning seems unaware of this. You don’t need a red traffic light to know a cake is not as good a choice as a stick of celery.
Three things determine your weight: human biology, what you eat and how much you exercise.
The current obesity epidemic is down to too much eating and too little exercise.
To be fair to health campaigners, they’re on to the second part of this equation – encouraging more exercise.
But the first part looks intractable. Put your money on McDonalds and Coca-Cola to win.
Rosenberg, in “Join the Club”, writes that the battle to cut teen smoking in the US had reached a similar juncture in 2000. “Teen smoking was rising and rising, impervious to governments’ best efforts to block it.”
Scaring teen smokers didn’t work.
But some states (notably California and Florida) managed to find ways to defeat the tobacco companies. They did this not by telling teens they were killing themselves (they knew this, but figured it would happen in some unreal distant future).
Instead the two states made the tobacco companies a target.
Rosenberg writes that Paul Keye, the advertising guru who designed a California anti-smoking campaign, believed the smoking epidemic happened because tobacco companies poured millions of dollar a day into encouraging people to smoke.
And tobacco companies were very clever in how they spent their advertising dollars and marketed their products.
The Health Waikato report makes the same argument about fast food and other junk foods. It says that in 2007, fast food companies spent $12.94 per person on advertising in New Zealand.
Keye “retriangulated” the argument. Instead of smoking being parents v children, teachers v pupils, healthy v risky argument, he made it tobacco companies v the rest. They made tobacco industrial complex a character – a deeply ugly, avaricious, unappealing one. By smoking, you were being their dupes.
Some of the ads resulting from this insight are brilliant.
One had a tobacco industry “spokesperson”, in a smoke-laden boardroom, saying we’ve got a multi-billion dollar problem. “We need more smokers.” They are dying out faster than we can replace them.
The campaign worked well on its target market, adults. Adult smoking plummeted; teens (usually are the ones that start smoking), not so much.
But better was to come.
Florida picked up on California’s lead, building on the idea of creating a conversation with teenagers.
It staged a Teen Tobacco Summit attended by teenagers. They were unimpressed with traditional anti-smoking ads, but outraged by corporate documents showing how tobacco companies targeted teenagers as “tomorrow’s cigarette business”.
The resulting ad campaign was dubbed “truth”.
So the kids (who were in charge of the creative side) again went after the tobacco companies with ads saying we’re smarter,faster and younger than you and we don’t like being manipulated and lied to.
They riffed Michael Moore. In one TV ad, teenagers went to Philip Morris’s HQ and asked to speak to the Marlboro Man. The security guard told them he was dead. He’d just died of lung cancer.
In another, a Lucky Strikes advertising account person was asked what was the lucky part of Lucky Strikes? The advertising person says “I really have no idea” to which the teen says (to laughter in the background) “Is it because I might live?”
These ads never said “Don’t smoke”.
In the decade to 2007, Florida’s high school smoking rate was halved, even though the teen-led campaign’s budget had been slashed in later years by Governor Jeb Bush.
You don’t need too much of an imagination to see parallels between the behaviour of the tobacco and junk and fast food industries. Profitability, or the case of tobacco business survival, drives them to find new and increasingly clever ways of selling more of their products to the detriment of the health of consumers.
Not saying tobacco and fast and junk foods are equally evil. Smoking should be consigned to being the habit of a loopy fringe; fast food just needs a more balanced place in our diets.
McDonalds and the rest are powerfully motivated, and armed, to prevent this from happening.
So to counter this, how about a campaign aimed at children to make eating fast food “dumb”.
Supersize that? “Are you referring to me or the food?”
Here’s more evidence that our poor productivity is hitting us in the pockets and, to a degree, the miserableness of the non-pay elements of NZ worker compensation.
The wages of New Zealand’s manufacturing workers have been ranked 18th highest of 34 countries surveyed in 2010 by the US Department of Labor’s Bureau of Labor Statistics.
In terms of total compensation, we come in 20th with Spain and Greece jumping ahead of us because of more generous overall compensation (pay plus things like health benefits and leave).
In dollar terms, the Kiwi manufacturing worker earned an average US$17.29 an hour, rising to $20.57 when all forms of compensation are included.
Best off were workers in Norway whose total hourly compensation was more than double their NZ counterparts – $57.33. Norway was followed by the suspects: Switzerland, Belgium, Denmark, Sweden, Germany, Finland…
Australia came in 10th.
Richard Florida says a simple statistical analysis of the stats shows manufacturing compensation “is closely related to productivity, global economic competitiveness and overall human development along with my own Global Creativity Index.
“And manufacturing compensation and wages are higher in nations with higher levels of education and where greater shares of the workforce are employed in knowledge, professional and creative jobs. In other words, manufacturing compensation and wages rise as nations become more post-industrial. Higher manufacturing compensation is also related to lower levels of inequality and higher levels of happiness.
“Manufacturing workers are paid the best in the most advanced nations, places that boast advanced safety nets, generous benefit systems and high productivity. Post-industrial economies might not have the most manufacturing jobs, but their workers are the best paid. Instead of adopting a low-road strategy of trying to reduce manufacturing costs and wages in order to compete with China or other emerging economies, the U.S. [ummm NZ] would be better off.”
So no surprises with the problem and the solution.
What looks surprising is how poorly Kiwi manufacturing workers fare in terms of total compensation – regular pay plus directly-paid benefits such as paid leave, bonuses, and pay in kind.
NZ manufacturing workers fare very poorly in the latter.
The Department of Labor comments the percentage of compensation that is directly-paid benefits tends to be higher in many European countries (due in large part to leave pay) and in Japan (where seasonal bonuses are a large portion of costs).
“Directly-paid benefits are a relatively smaller portion of costs in countries such as the United States, Australia, and Canada.
“The total benefits portion of compensation costs can be seen by combining social insurance with directly-paid benefits. Total benefits surpass 40 percent in 15 countries.”
In NZ it’s under 20%.
Doubtless some of this gap is due to the state taking on social insurance role employers assume in other countries, but it’s still a big gap.
[See www.theatlanticcities.com for Richard Florida's story]
As a former business journalist I’m used to the word ‘merger’ being used to cloud on-the-ground realities for the new organisation.
The ‘merger’ is a public show of a marriage of equals, but usually it’s no such thing.
So who’s going to boss the Business Roundtable-New Zealand Institute think tank merger announced last week?
The answer matters a lot, as much for what it will signify as anything else.
Both organisations are run, and largely funded, by large businesses and business leaders.
But they have almost polar opposite views on what ails the NZ economy and how those ailments should be remedied.
I really don’t have any idea on who will win this battle of ideas, but which camp emerges victorious is important because when the two think tanks join forces in April next year, that’ll be it for NZ business think tanks. Just the one yet-to-be named organisation.
No competition of ideas here.
The media release announcing the merger tries to paper over the wide cracks in world views of the two organisations – “…[they] shared common missions…”, but the reality is they have very different ideas about how to fulfil that mission.
For BigCake, the Institute’s world view somehow clicked. The BRT? Not so much.
While the former has been willing to reach out as it sought to identify the country’s economic ailments and identify remedies, the BRT has too often been stuck in a sterile late 20th century rut. The Institute has been more alive to the realities and possibilities of the early 21st century.
Not that the BRT is dead wrong, but its instinct is to treat a patient only for a cold when the patient has in fact more serious, complicated and harder to treat illnesses.
To give you an idea of the differences, here’s a selection of key words from each organisation’s “About us” pieces.
BRT:
- “Its major concern is with the quality of New Zealand’s public institutions and policies…” (They talk in the third person).
- “It supports the concepts of individual responsibility and choice, competition, entrepreneurship and risk-taking as vital to achieving economic and social progress.”
NZI:
- “…[is] committed to generating ideas, debate and solutions that will improve economic prosperity, social well-being, environmental quality and environmental productivity.”
“[NZ’s] challenges won’t be met by recycling the same old solutions. We need new solutions and new ideas. We need a new generation of thinking.”
Hence the BRT’s current projects include: education reform (notably school choice), welfare reform, support for privatisation and regulatory reform.
The NZI’s include: improving social outcomes, global engagement, the weightless economy, innovation and climate change.
Chalk and cheese.
It could be argued the new organisation could carry doing all these pieces of work, but they flow from fundamentally different views of the world so it’s hard to see how it would work.
Who’s going to boss the kiss?