The author of the world's best selling textbook on economics, Greg Mankiw, is someone I admire for helping students, me included, understand the subject better. Many textbooks on the subject are confusing - his are not. Mankiw is calling for far greatly humility on behalf of those pretending to be economic experts due to the great limitations of our knowledge, particularly around what kind of government interventions work best. On that note, due to NZ's stagnation, the focus is back on our weak improvements in productivity & how to solve the problem. PM Luxon is saying five things are needed to set the economy up for future growth: world-class education, more tech research, better infrastructure, less regulation, and stronger international connections. Yet I remember vividly hearing former PM John Key being asked the same question when he was in power. The answer he gave was a one liner. Geography, he said. Due to NZ's small size, remoteness and distance to other countries, Kiwis had to accept there would never be a high degree of connectedness to the rest of the world. In a small country, economies of scale are harder to achieve. And when one business achieves them, the market is too small to sustain competitors, leading to monopoly powers.
Why did Sir John Key give that answer? Maybe he truly believed it. Alternatively, answering that way to the business folks at the meeting meant he was off the hook. He was saying to them, "Don't blame me mate - there's nothing I can do about it - we're not Ireland - we're not an island just off the UK and Europe - and part of the European Union". What's striking though is that a former National Party PM is contradicting the current National Party PM. Should Key be right, then Luxon's "five ways" to improve productivity won't work. NZ industry will stay concentrated. Even should education improve, those with high skills may still go abroad for exciting work opportunities and not use their talents domestically. Reserve Bank Chief economist, Paul Conway, has again been lecturing us how to improve productivity. He was Chief Economist at the failed Productivity Commission. This past week, MP's asked him whether his forecasts were too gloomy. He challenged them by saying “The best way to forecast the future is to create it.” However, if you believe former PM Key is on the right track and NZ's geography is holding us back, then Conway is missing the mark.
A related answer to Key's "geography" explanation for NZ's low productivity is the role of culture which is also hard to change. The focus in NZ is on quality of life - work / life balance - we're not so obsessed as many other cultures about striving at work to the extent it diminishes our family life, sports & other activities. People say Kiwis just want the three B's, "Boat, Bach and BMW". Once we have those things, we pull back. A symbol of that culture maybe the guy who is our PM, who said, “I’m wealthy & I’m sorted”. Since when did owning some rental properties, a Bach on Waiheke, Remuera house & a few years as Air NZ's boss make one wealthy & sorted? The founder of Apple, Steve Jobs, didn't become a billionaire from that company. He achieved such status by selling Pixar & is reported as having called his friends, Google Founder Larry Page, and Oracle Founder Larry Ellison, after the sale, telling them, "I made it". The bar was a little higher than Luxon's. My own position is that the truth probably lies between the two extremes in the NZ case - laws can be changed to improve our productivity - but in the name of humility, disagreement still exists about which ones - and our powers to change things may also be limited by our culture & isolation.