“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?