How're we doing?

"NZ slumps to worst ever competitiveness ranking", the NBR reported on Thursday about the latest results from the annual competitiveness analysis run by IMD, a business school in Switzerland. As indeed we have: here is the top half of the league table (you can find the full thing here). We've dropped from 16th to 23rd (we got leapfrogged by Qatar, China, the UK, Australia, Israel, Malaysia and Austria).

That said, the exact placing doesn't always mean a great deal when the absolute numbers are all close together and a small change in your score can easily send you up or down half a dozen places.

There are various exercises like this around - The World Economic Forum does one very like the IMD's though with a lot more countries (137, we came 13th last time) - and I like them (I covered aspects of previous WEF ones here and here). You can quibble about some of the details and indeed some of the causation logic: are we low productivity because we're uncompetitive or uncompetitive because we're low productivity? But I suspect that if you put the data through some more formal kind of econometric sausage machine - principal components, say - you'd probably get the same clusters of themes emerging.

In any event the overall picture that emerges from the IMD analysis certainly lines up with common sense. Bottom of this year's heap, for example, was Venezuela, and the bottom dozen included a fair range of the usual suspects. The head table included a bunch of the high income economies, with the Nordic countries in particular well represented.

While the rankings make interesting reading, their most important use is as a decent diagnostic tool. Nobody has ever come up with a knock-out diagnosis of our 'productivity paradox' - great institutions, well-meaning people, low productivity - and maybe they never will. But things like this IMD tool give suggestive pointers. Here for example is how we score on the various sub-components of competitiveness, showing our relative position out of the 63 countries surveyed (there's a link to the New Zealand case study in the NBR article).

We tend, in New Zealand, to do a lot of finger-pointing at the government. On this analysis, though, we'd do better to look in two other directions. One is private sector business performance, and helpfully the IMD exercise unpacks that very poor 'productivity and efficiency' business score (49th out of 63) to show us exactly where we struggle most. Oligoplistic industry structures and overpriced support services top the list.

The other priority area would look to be the state of our international linkages - how well we are (or in our case mostly aren't) plugged into the wider world economy. TPP apart, we usually make a bit of a song and dance about how committed we are to free trade - all good in itself, and we're heading further down that track with the European Union - but we don't actually make a great fist of the opportunities it offers. As I mentioned the other day, for example, the Budget forecasts for our export performance over the next couple of years don't even match the likely growth in world trade over the period, so our share of what's available will dwindle a bit more again.

We're also not very good at other aspects of international linkage. We're at best ambivalent about foreign investment: without looking too hard for examples, off the top of my head in recent years we've blocked foreign investment in Auckland Airport and foreign ownership of houses, restricted access to agricultural land, and had the ludicrous spectacle of Fletcher Building (nominally 'foreign') having to get Overseas Investment Office approval to redevelop a golf course for housing. We haven't made any serious effort to attract foreign investment since Jim Anderton was a Minister. 

In the meantime a country like Ireland (12th to our 23rd) has made attracting foreign investment one of the core policy plans of its modernisation. And don't give me the "they're in the middle of a high income trading bloc and we're on the edge of the world" response. We haven't even made the effort to attract whatever investment might nonetheless find a good home here.

But let's finish on something a bit more positive. Most of the IMD analysis is based on hard data, but there's also a qualitative element based in a poll of business executives. Here are the things they identified as the key attractive factors of our economy. The 'productivity paradox' comes through again - good institutions, give-it-a-go people, but globally competitive businesses? Not so much. Virtually nobody thinks we've got a cost competitive base to work from, and having just spent $5 on an avocado and $10 on 500g of supermarket mince, I think they're absolutely right.