Posts Tagged ‘Philip McCann’
“How many years ago did you get on the plane?” David Letterman to John Key. (part 3)
Squeezing more out of the Economic geography, globalisation and New Zealand’s productivity paradox research paper by Philip McCann from Waikato University..
McCann says that New Zealand has a “rather unusual economy” for an advanced industrialised country. We have:
• A low population
• A low population density
• Extreme geographical isolation
• A high reliance on land-based exports
• Poor diversity of exports.
Along with our poor international investment record, he says there’s nothing here that will help us in the modern international economy. There’s also nothing to suggest that we should have high productivity.
While our isolation may hurt our productivity performance a lot (accounting for half of the gap between us the OECD average, according to the IMF), McCann says “geographical isolation may not be the whole story”.
For starters there’s economy of scale (or our lack of it). Being small and far from markets is the worst position to be in. As 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.
Until about the 1980s, McCann says our isolation and size didn’t matter too much.
Changes such as the creation of the EU, technology transfers, global capital market deregulation, the rise of Japan and Korea “set the stage for entirely new interrelationships between countries by the 1980s”.
There was also huge rise in trade blocs, investment and taxation treaties often among countries with shared borders. You need to also throw in to the world-changing mix computers, the internet, modern transport, communications technologies and off-shoring.
This describes globalisation, but McCann believes a better term is “global regionalism” where countries in regions become more closely integrated and (relatively) less so with the outside world.
Global regionalism, he says has favoured big urban centres.
In the case of the larger Australian cities, this has made them more attractive for both capital and labour than New Zealand. As a result many of the benefits of New Zealand’s educational investment end up with Australia.
Thanks to Auckland’s lack of size and connectivity with the outside world, its productivity is around 15 percent below that of major Australian cities, McCann says.
All of the world’s most productive cities are twice the size of Auckland.
He says lack of size and accessibility are also hurting our ability to commercialise our innovation.
Cities are becoming increasingly important. In 2008 we crossed the point where more than half the world’s population lived in cities; at the start of the last century it was 5%.
And this is affecting innovation.
Alex Steffen, editor of WorldChanging says: “I’m certainly not saying that all innovation is urban, or that the suburbs are brain dead or anything. I am saying that compact, wired and wealthy urban communities seem to me to be becoming the epicenters of innovation these days, and that is going to change what innovations emerges.”
Does “compact, wired and wealthy” sound like any New Zealand city?
“How many years ago did you get on the plane?” David Letterman to John Key. (part 2)
As mentioned in the previous post, geography has delivered us a bum hand.
Our small population and location at the bottom of the world (which is how most of the world sees us) is a major obstacle in our fight to keep up with the rest of the world in health care, education resources and wages.
The OECD calculates that distance alone lowers our ability to generate more wealth by around 10 percent.
But it’s not all bad. Our isolation and sparse population are both big pluses in our tourism and food and beverage industries for example. And while there’s a dose of marketing bull around our lonely existence producing can-do entrepreneurs and a unique type of innovation, there’s a grain of truth to it.
But mostly our isolation and small size are bad news, says Waikato University economist Philip McCann. His paper Economic geography, globalisation and New Zealand’s productivity paradox says more deregulation or intervention are not going to do much to fix this.
McCann, who is also doing work for the Ministry of Economic Development, says the answers lie out in the big wide world, not in what we do here in little ol’ New Zealand.
Taking a global view, our situation is what you’d expect and if we are going to do anything about it, we need a “fundamental rethinking of New Zealand’s role, position and potential in the 21st century global economy”.
Anyone seen this?
He says the more and less deregulation camps have got a completely wrong handle on the causes of our problem and hence have come up with wrong solutions.
Focusing on New Zealand’s poor productivity record (the guts of New Zealand’s poor economic performance) McCann suggests policies that target these institutional issues (eg. tax, bureaucracy, privatisation etc) may even make the situation worse. “Between 1990 and 1995, which is roughly the second wave of reforms, or over the longer period 1990-2001, there was … a very gradual decline in the relative productivity ranking of New Zealand…and the process has continued up to today.”
The second half of the 1980s we did even more poorly. The immediate legacy of Rogernomics was a significant fall in our rankings.
As a starting point, our productivity in 1984 was “little different” to Australia’s, Canada’s and Western Europe. Now we’re three or four decades away from catching these countries.
It also looks as though there is no relationship between our economic growth and economic reform.
The failure of our institutional reforms to deliver is sometimes blamed on the reforms being too fast, too slow or not enough, but McCann says the advocates of these reforms have the wrong end of the stick.
To understand this apparent contradiction in the orthodox economic approach, McCann says we need to look at our place in, and connections with, the world. Also we need to examine economies of scale, modern production methods and trade – an economic geography approach that New Zealand’s economic profession in general have “little expertise and interest in”.
He says our failure to catch up mostly has nothing to do with government policies and how we run institutions like the Reserve Bank.
Basically the world has changed and we’re stuck somewhere in the 1980s.
“…whereas history dealt New Zealand a very good hand for competing internationally in previous eras, history has dealt New Zealand a very poor hand for competing in the current global marketplace.”
This is why New Zealand is getting relatively poorer.
“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?’