Archive for the ‘Wealth’ Category
The NZ Herald has been running a series of articles under the banner “Where are the jobs?”
The answers – based on the articles in the series – are interesting, but not really on the money.
Featured articles on job generation include:
- the national cycleway
- video games
- technology.
Great work if you can get it. However the future employment landscape is much more boring and less well paid.
Last year I posted on how most new jobs are likely to be low paid, with relatively high paying manufacturing jobs being lost and replaced by “low quality” ones.
The US Bureau of Labor Statistics calculates that the 10 jobs expected to provide most new employment in the US in the next decade will be:
• Registered nurses
• Home health aiders
• Customer service reps
• Food prep and serving staff
• Personal and home care aides
• Retail sales
• Office clerks
• Accountants
• Nursing aides, orderlies
• Post secondary teachers
New Zealand won’t be a hell of a lot different.
The worrying part of this list (no, not more accountants) is that six of the 10 are low paying. Three of the six are in health.
Unless there is change, this where the jobs are.
Sir Paul Callaghan speaking at Telecommunications Day 2011 last week indulged in some well directed myth busting – saying “some harsh things about the country I love”.
#1. We are an egalitarian society – in income disparity we actually rate very poorly.
#2. We are clean and green – too often we are not.
Sir Paul said something “we do incredibly well in New Zealand is egregious hypocrisy”.
We have protests about palm kernels used for dairy farming but “we kinda forget what we did as a country to our environment. We turned two thirds of our native forests into greenhouse gas…
“Were we wrong to do that? Well we would have had very little prosperity if we had not done so.
“We have to say that is a reasonable use of our resource.
“But I don’t think we have any moral high ground from which to tell other countries – particularly countries poorer than us – what right they have to use their resources.
“We didn’t plant palm oil trees, we planted grass and put a whole lot of animals on it and pumped out more greenhouse gas.”
Yesterday I was half listening, while trying to get the kids organised for the morning’s rugby, to Kim Hill’s interview of Richard Denniss, Australian economist and executive director of The Australia Institute.
This question from Dr Denniss caught my ear (parahrasing here): Are we concerned about living within our means or are we worried about the financial health of the retail sector?
Logically we can’t be fix both.
We could carry on taking on more debt to ensure the good times continue for retailers.
But consumers on both sides of the Tasman have finally come to their senses and opted to live within their means, and to go one step further to reduce their debt.
A consumer-led recovery it aint.
This is obviously bad for retailers still geared up for the good times. It’s also been bad for the economy because the export-led recovery has been slow to fill the gap because farmers are also reducing debt. [What I should have written is that it is bad for economic growth numbers but ultimately good for the real economy]
From what I hear, the retail business will get even tougher before it gets better.
And when the lift does come, there will be a new normal out in the malls and high streets. Shops will be fewer and smaller.
It will look like last century.
Today’s exactly one year since my first BigCake post.
One of my favourite themes has been Kiwi culture and how, if we want to become a wealthier nation, we need to acknowledge and deal to some of our cultural shortcomings.
Rod Oram was in this space way before me and in last Sunday’s Sunday Star Times (sorry I belatedly got around to reading it) he produced a column that’s a must read for anyone interested in NZ’s future prosperity.
Rod has obviously been maddened by our cultural attitudes that are in large chunks antithetical to business, growth and I guess our collective wellbeing.
He asks:“Will we get real?”
Ummm ‘No”. He says: “We are locked in a low growth trajectory thanks to misdiagnosing our challenges, misjudging our opportunities and poor execution of our few good ideas.
“These though are failures of character, not economics. We need a cultural revolution to help us build a business one.”
Read his five cures here.
I was pretty mad for a while too, but a year of BigCake has relaxed me a bit. In parts I think Rod is too pessimistic.
For example, I’m increasingly dubious about the merits of beating ourselves up because we can’t keep pace with Australia – in fact we’re probably not going backwards which is a bit of an achievement in today’s world.
And contrary to Rod’s viewpoint there’s a lot of slack in the primary sector available for growth.
Anyway, regular readers thanks for following BigCake for the past year. Keep the words of encouragement and comments coming.
There’s a dishearteningly large number (from my perspective) of very good blogs out there, so I’m flattered by your interest.
As someone famous said first, blogging is a humbling experience.
Yeah, but fun too.
Check out my first post – The rise of the Kiwi growth sceptic.
A question: Can we catch Australia if their population is growing a hell of a lot faster than ours?
Brian Gaynor touches on this issue in his latest column, saying that in 1970 Australia had 4.3 times more inhabitants than us; now it’s 5.5 times greater and by 2050 it’s forecast to jump to 6.8 times.
Many Kiwis would be happy with our relatively low population growth, but as Gaynor says “at the same time we want all the trappings of the modern world, including the latest electronic gadgets, late-model automobiles, generous retirement schemes and a world-class health scheme.
“We cannot expect to have these unless we generate sufficient domestic economic growth and exports to pay for our imports. We also need a higher tax base to pay for a world-class state pension scheme and health system.”
Philip McCann from Waikato University has also pointed a finger at our tiny population. He says being small and far from markets is the worst position to be in. In Australia’s case, size can help overcome the limitations of isolation. And small European countries have large markets nearby to help develop economies of scale.
The role of population growth in economic growth is highlighted in a pwc report “The world in 2050”.
The report notes:
• A rapid convergence between the E7 emerging economies (Brazil, Russia, India, China, Indonesia, Mexico, Turkey) and the G7 (US, Japan, Germany, UK, France, Italy and Canada). In 2007, total G7 GDP at purchasing power parity (PPP) was still around 60% larger than total E7 GDP. By 2010, pwc estimates the gap had shrunk to only around 35%.
The E7 (Russia excepted) has fast growing populations; the G7 (the US excepted) has slow, static or negative population growth.
• pwc says the catch-up process is set to continue over the next decade - by 2020 total E7 GDP at PPPs could already be higher than total G7 GDP, although any difference would still be within the margin of error of such projections.
• In the following decade from 2020 to 2030, however, the process of overtaking is likely to be reinforced, with total E7 GDP projected to be around 44% higher by 2030 than total G7 GDP in PPP terms. The gap would widen further beyond that, with the E7 almost twice as large as the G7 by 2050 in PPP terms.
Population growth is identified – along with labour force quality and size, and technology– as a key driver of this economic power switcheroo.
pwc says the emerging economies have stronger potential growth than established OECD economies on most of these measures, assuming they “continue to follow broadly growth-friendly policies”.
On this basis India is expected to overtake China’s trend growth at some point during the coming decade due to India’s significantly younger and faster growing working age population. (Or put another way, India eventually overtakes China in the growth stakes because of China’s ageing population, accentuated by its one child policy).
There’s also the fact India is starting from a lower level of economic development than China and so has more catch-up potential.
pwc says most of the variation in growth rates reflects differences in population growth.
Australia, Canada and the US, which are picked to have relatively strong population increases, are projected to continue to grow at around 2.2-2.4% a year up to 2050, while countries with shrinking populations such as Germany, Italy and Japan will see total GDP growth of only around 1.0-1.9% in domestic currency or PPP terms.
Meanwhile the younger and faster growing Indian and Brazilian populations race along till around 2030, then their ageing populations start to apply the brakes.
NZ is not well placed in this regard. According Statistics NZ projections, by 2051 half of all New Zealanders will be over 45 (in 2001 the median age was 35). The number of New Zealanders aged 65 years is expected to reach 1,220,000 by 2051.
pwc admits such long-term projections are subject to great uncertainties but believes the trend is clear.
[NZ is not mentioned in the report]
2010’s not been a great year for creating a bigger cake.
2011’s shaping up better, but not because of fundamental rewrite of our economic recipe book, but because of one-off boosts from rebuilding Christchurch and the Rugby World Cup.
All the same BigCake is entering the new year more optimistic and less angry than when this blog got underway 10 months back. Mainly that’s because the world’s now shifting towards us (for example, Asia’s growth, the sustainability imperative, the trend towards more balanced views of growth) rather than being a long way away (the decline of commodity world trade, European Common Market etc).
But two years is stuff all in the economic scheme of things – here’s a reminder of what mankind has achieved in the last two hundred years.
Wishing you all a prosperous 2011.
[Posts may be rare for next month].
“I am a wealthy baby boomer and … generation X and Y have every right to demand a huge chunk of my wealth when I die (yes death duty) to [help repay] the national debt that my generation created.” – Selwyn Pellett, Productive Economy Council
See “Baby boomers eating the future”.
HT – NZ Herald/Fran O’Sullivan (Yesterday’s quote actually)
Yes, there are two paths you can go by, but in the long run
There’s still time to change the road you’re on. [Stairway to Heaven – Led Zeppelin/Robert Plant]
The path to greater income equality is not necessarily built on the back of the welfare state.
As the book, The Spirit Level points out there are “many ways of reaching the same destination”.
I think the authors only come up with two:
1) Redistributive taxes and benefits and a larger welfare state, for example Denmark and Norway and I guess to a lesser extent NZ
2) A smaller gap between the earnings of the rich and poor to start with, for example Japan.
“Countries like Japan manage to achieve low levels of inequality before taxes and benefits,” the Spirit Level says.
“Japanese differences in gross earnings (before taxes and benefits) are smaller, so there is less need for large scale redistribution.”
As a result Japan has a more equal society than the US, even though its social security system is smaller. (Mind both have very small welfare systems by high-income country standards).
In Japan, as with some Scandinavian countries the richest 20% are less then 4 times as rich as the poorest 20%. In the US it’s more than 8 times. (NZ is a bit over 6 times).
So what’s going on in Japan? The Economist says it’s a country “that very nearly defines itself by its egalitarianism”.
You can’t help thinking it comes down to culture and history. Japan’s current low levels of inequality only really began after World War II.
One academic paper I found attributed this to “the relative abundant human capital and extreme shortage of physical capital”.
As well as valuing equality (though not so much for women), the Japanese are self deprecating, modest, have strong social bonds,
This sounds a lot like Kiwis, except for the women bit.
But the path we have gone by towards egalitarianism is the (now much reduced) welfare state one rather than the flattening out of incomes.
Must say the Japanese path appeals more, but a practicable path?
Probably not.
You’d think money was a pretty straight forward – you get more, you feel better off; get less, you feel not so good.
But for further evidence that money – and wealth in particular – don’t lend themselves to these absolutes, there’s Horizon Poll’s survey of Kiwi attitudes to the Government’s tax cut/GST increase tradeoff.
More than half of respondents said they were worse off when asked: “Overall, do you feel better or worse off as a result of the GST rise, benefit increases and tax cuts?”
The key word of course is “feel”. If the pollers had simply asked “are you better or worse off in terms of actual dollars and cents”, then there’d probably have been quite different answers
At one level the results to the “feel” question showed what you’d expect – the poor were less enamoured with the trade off than the rich.
But dig a bit deeper and things look a bit screwy.
Somehow nearly half of household respondents earning between $150,000 and $200,000 a year considered themselves to be worse off. According the IRD’s 2010 Budget Calculator, a household earning $150k a year gets a tax cut of $118 a week while paying an extra $44 in GST, coming out $74 a week in the red.
More than a quarter of household respondents earning $200k plus year (away laughing with $108 extra a week) felt worse off.
What the hell is going on here. A number of explanations spring to mind:
1. Respondents have gone beyond the narrow remit of the question (to consider only the Budget’s tax cut/GST trade off) and gone with the overall “feel” of their wallets which will probably are suffering from no pay rises and rising food and fuel prices of the last couple of years. Why should they do this? Dunno. Perhaps they’re being bloodyminded.
2. Outgoings always expand to meet the limits of incomings, so you don’t end up with any spare cash. Respondents would have only had little more than a month to see this effect take place.
3. The way some households manage their money could be a factor. In the BigCake household we handle most of our expenses through the bank account (eftpos, direct debits etc) which makes it hard to keep track of whether you have any ‘cash’ left over at the end of any particular week.
But a biggy in terms of explanations is the old “what you see depends on where you sit” phenomenon.
If you are a Labour voter you are more likely to feel worse off than if you are a National supporter. Sixty three percent of Labour voters felt worse off, or much worse off, compared with just 37% of National voters. There maybe an income bias here (ie Nats are richer), but it’s not that big.
But when you think of the economic effect of people feeling worse off (as opposed to actually being worse off), it doesn’t matter too much – they just do and that’s not good.
Is it significant that three of the top four nations in the UN’s Human Development Index – Australia, NZ and the US - are immigrant nations?
If it wasn’t for Norway’s luck in having a belly full of oil, then it’d be the top three.
Is this outperformance by the “New World” just some sort of geographical/historical accident?
BigCake figures, that as in life, what countries do with their luck is what matters.
Anyway Karl Smith, Assistant Professor of Public Economics and Government at the School of Government at the University of North Carolina at Chapel Hill, reckons massive immigration is one of three reasons why the US is so rich.
You’re inclined to forget it at the moment, but the US depending on what measure you use always ranks in the top 10 wealthiest nations in the world. (US gross domestic product at purchasing power parity par capita US$46,000; NZ $26,600).
Smith, in a blog, puts the US’s wealth performance down to a combination of three big factors:
• The Common Law
• The Great Scientific Exodus during WWII and
• Massive immigration.
Actually 2 and 3 look to be much the same thing. And the US was rich before WWII.
However, commenting on the blog The Economist says Smith is on to something important in discussing immigration and talent.
“The economic geography of the world is lumpy, and talent likes to clump together into centres of innovation.
“Through fortune and foresight, America managed to develop world-leading centres of talent in places like Silicon Valley, Boston, and New York. Relatively open immigration rules and the promise of a safe harbour for war refugees, including persecuted Jews, helped build these knowledge centres.
“When one combines that innovative capacity with a system that makes it relatively easy to develop ideas and relatively lucrative to exploit them economically, the potential is there for rapid and sustained growth.”
But this doesn’t fully describe the economic performance of the twins from downunder.
I reckon it’s something to do with the energy and dreams of the new immigrants. They want a better life for themselves and their children and in the process drag the wealth of their new home country up with them.
But then consider what happened to Argentina, another immigrant country blessed with an abundance of natural resources. It went down the tubes. So the type of immigrant is important too.
Argentina may never have had the immigrant energy of the US, Australia and NZ thanks to its stultified social structure, but this energy can weaken (or is it inevitably?).
The common law factor is I think pretty dodgy. (Common law being the law of precedent inherited by former British colonies, including the US).
Smith says “you’ll notice that four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil. Without the petro-kronors they probably wouldn’t be so hot.”
Depends how you want to spin this – 5 of the top 10 countries in the index don’t have common law.
And dismissing Norway because of its oil wealth is also dodgy. Nigeria also has large reserves of oil but it hasn’t done that country much good.
Yeah, so it’s complicated when you try to isolate various factors in economic growth.