• Ian Fletcher

Productivity and the Role of the State

VIEWS FROM OUTSIDE THE APIARY

Apiculture industry consultant and former top bureaucrat Ian Fletcher gives his monthly “Views from Outside the Apiary” as a non-beekeeper but deep thinker on the plight of New Zealanders.

Ian Fletcher: "New Zealand's poor productivity is a growing tax on our future".

When Christopher Luxon made ‘productivity’ a theme of his early days leading the National Party last month, I was both surprised and pleased. Pleased, because (as I’ve written previously), New Zealand’s poor productivity is a growing tax on our future, just as we face problems like our aging population, climate-driven economic transition, housing, poor and outdated infrastructure, and many others.

We’re not the only country in this predicament, but our record over my lifetime has moved us from the very top, to well below half way in the OECD group of developed countries. The Productivity Commission website is good on this. Have a look. It’s sobering stuff.

I was surprised because politicians don’t like talking about productivity. It means facing up to our shared shortcomings. It means dealing with complex and seemingly intractable problems. It means calling for expensive and time-consuming solutions. No snappy sound bites here.

Luxon went on to focus on education. That’s certainly an issue in New Zealand, where our educational record is very mixed: young people from relatively affluent communities go to good schools and do well. Others, from less affluent communities, struggle to even engage. One former Secretary of Education explained to me that New Zealand schools had an unusually wide gap between the top and the bottom. So, simple quick-fix solutions were especially unhelpful. Yet that seems to be what Luxon has called for – he talked of a shift from child-led to teacher-structured teaching. Quite simply, good for some, but not others.

Chris Luxon’s efforts to address productivity early in his tenure as National Party leader have both “surprised and pleased” former top bureaucrat Ian Fletcher.

What else could we do to improve productivity?

Whatever we do needs to reflect climate-related goals, as well as the basic facts of our geography: New Zealand is long and narrow, with lots of mountains and quite a low population in many places. We’ve done better than many on broadband roll-out, but we need now to think about physical infrastructure. A big move to electric vehicles will still leave growing urban congestion and also put an extra load on the electricity system. Properly priced (or taxed) internal air travel ought to be more expensive. The rail system offers solutions for congestion, climate-compliant travel and getting a lot of freight off the roads. Coastal shipping seems to have been neglected too.

Here our ideology trips us up though.

Dealing with all this means accepting that we will need some subsidisation, and some coordinated planning. Nothing wrong with either. Only the state is big enough to tackle these big whole-of-geography questions. Only the state has deep enough pockets to tackle associated project risks. After all, out current road, electricity and rail networks are all still essentially those built by the state (and the preceding provincial governments) between 1860 and the 1984-88 Roger Douglas period of privatisation and fragmentation. We need to get over that and get back to seeing a proactive role for the state.

Minimum wages get a lot of airtime in productivity debates too. We know they don’t raise unemployment (good), and there seems to be a link between higher wages and the adoption of new technology (also good). New Zealand has tended in recent decades to solve skill and wage pressures through immigration, which lifts economic activity (there are more people) but not productivity. Less migration and higher wages would perhaps be a good idea. Otherwise, minimum wages shift the allocation of today’s company revenue between owners/managers and workers. Given the pernicious effects of inequality in our society, that’s a good thing. It just doesn’t really affect longer term productivity.

Regular readers will know that I generally advocate a bigger role for the state, and higher taxes. Why? There are two main reasons – one general, and one peculiar to New Zealand. Neither is ideological. The general one is that western sociates have tended to demonise the role of the state and idolise the private sector. It’s just wrong, as people like renowned economist Dr Mariana Mazzucato have shown.

The state has deep pockets and a risk appetite unmatched by the private sector, which tends to appropriate public value for its own ends. In Europe this view is not that controversial; in Anglophone countries we tend to still believe the Thatcher-Reagan world view, that small government and limited government does least harm. I think that’s just wrong.

In New Zealand’s case, the need for the state to play an active, creative role in the economy is even greater. No private company is big enough to do anything meaningful at a national scale. All our companies are small or – at best – medium sized. Air New Zealand and Fonterra both don’t count: they are emanations of the state, each with special, closely defined role. They can’t go broke.

There are two other consequences of all this: firstly, there should be significantly more funding for research in New Zealand, and secondly, we need to reform our supine and fearful public service. story for another day…

Ian Fletcher is a former chief executive of the UK Patents Office, free trade negotiator with the European Commission, biosecurity expert for the Queensland government and head of New Zealand’s security agency. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.


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