Tuesday, September 22, 2009

Where is New Zealand?

New Zealand is a developed[1] country. Real underlying wealth is only increasing through the productivity increases from technology. New Zealand doesn’t have significant natural resources in the world context. New Zealand has moderate economic growth year on year, which seems to be driven primarily through the extra consumption of population growth and seems to be financed substantially by debt. On a per capita basis New Zealand is getting steadily poorer in relative world terms.
New Zealand’s growth is sustained by immigration, which is offsetting high emigration. New Zealand compares well to the rest of the world in educational quality and achievement, but this still doesn’t seem to translate into any concentration of entrepreneurial or technological excellence (in fact New Zealand seems to be below average in this regard). In the interests of brevity I haven’t included any data on this feature of our economy but reference to Chapter 1 of “From Wool to Weta” by Paul Callaghan[2] will demonstrate some of these problems.
New Zealand doesn’t have a strong financial position and actually has a very poor balance of payments, which seems to be driven by debt and the export of dividends to foreign nationals. New Zealand’s balance of imports and exports (goods and services) is not particularly bad and would be quite favourable if consumption were reduced, which would also reduce debt.
Prima facie New Zealand seems to be starting to face the problems that might be expected with a growing population and no real growth in underlying wealth. It seems clear that New Zealand is getting poorer in real terms. We work very hard to achieve relatively little. Even middle class families are under financial burden and our rich seem only moderately rich on the world scene.
More objectively we are struggling to afford even average levels of infrastructure investment for a developed economy.
[1] By developed I mean that the application of labour will not yield any significant extra economic development of resources. On occasion in recent years New Zealand has seemed to be labour constrained but this appears to have been in the context of debt fuelled growth through population and consumption growth.
[2] And/or refer to his Treasury guest lecture at http://www.treasury.govt.nz/publications/media-speeches/guestlectures/callaghan-oct06