“How many years ago did you get on the plane?” David Letterman to John Key (part 1)

Waikato University economist Philip McCann has come up with a radical set of solutions fitting his view of New Zealand’s place in the world – ie. we’re a lonesome tiny speck of fluff wafting around the world’s butt. (A BigCake paraphrase.)

In his paper Economic geography, globalisation and New Zealand’s productivity paradox McCann says the answers to New Zealand’s growth problem lie out in the big wide world, not in what we do here in New Zealand.

Our isolation and lack of size are issues Governments can’t do much about.

McCann, who is working for the Ministry of Economic Development and has been doing the rounds of the government economic policy agencies, says changes in productivity (basically our ability to generate more wealth) are driven by global events so Government policies such as tax and labour laws have little impact.

Taking a global view, our situation is about what you’d expect.

And if we are going to change it, we need to do a “fundamental rethinking of New Zealand’s role, position and potential in the 21st century global economy”.

Once we get our heads around our true situation, then “we can focus on what governments can do and how Governments need to think in response to globalisation”.

McCann poses one of BigCake’s big questions:

• How come we top (or nearly top) the world for our open liberalised economy, strong property rights and investor protection, labour market flexibility, lack of corruption, small public sector and low trade barriers and yet most of the time continue to fall further behind the world in productivity and economic growth stakes ?

And the answer is because these issues are not the answer, or at least not the whole answer.

Australia, as our major trading partner, plays a key role in McCann’s solutions.

He says the only way New Zealand can catch Australia is by:
• Increasing our size and scale and
• Radically reducing transaction costs between the two countries.

Each needs radical policy changes which would be at odds with how we see ourselves and our ‘kiwi’ lifestyle. It goes without saying they’d be politically difficult.

McCann’s ideas include:
• Increasing the size of the Auckland-Hamilton-Tauranga triangle. The easiest way of doing this he says is to increase immigration to the region.
• Making education policies focus on encouraging specialisation and economies of scale across the whole of the tertiary education system and crown research sector. This “implies some level of rationalisation … regarding the variety of activities undertaken by these research institutes…”
• Finding ways to lift the value of our agricultural and tourism exports
• Breaking up Air New Zealand’s domestic monopoly to reduce airfares so regions such as Otago and Southland are not penalised by “artificially increasing travel costs between these regions and Auckland”. He says the regions play a critical role in New Zealand’s exports “so anything that limits the accessibility, and therefore the potential global engagement of these regions, damages the economy as a whole.
• A rapid upgrade of our broadband infrastructure.
• Encouraging outward global investment.

Half of the above are not what you’d call your usual policy prescriptions.

One of the things you have got to admire about the current Government is its willingness to look at radical or politically unpalatable solutions.

Of course, the question is ‘if the Government buys McCann’s prognosis, what’s it going to do about it?’