Monday, 28 May 2018

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.


  1. This is a great read. The productivity problem in New Zealand is well known but hard to address. You're obviously onto something by casting an eye over business efficiency and investment (overseas and local). Is it possible to get some serious policy ideas from countries like Ireland - I'd love to see some serious research. I tried to wip around the net for some ideas. I notice they have a 33% capital gains tax (not on the family home). They do have restrictions on foreign (non Eu) sales of farmland. Their local costs on basics (mince, avocados etc :) are probably like NZs. I like to think that we could improve business investment by discouraging Mom and Pop investors from land banking and investing in rentals (maybe the government could put up subsidised apartments in Auckland like they do in Singapore). Ireland, though, has a fairly similar housing profile, with maybe better infrastructure than Auckland. I'm going to read Enterprise Irelands Guide, I think they have a 25% R&D tax credit!

  2. Hi - thanks for the comments!

    The one big thing I'd take away from Ireland is their strong focus on attracting foreign direct investment. They've been at it a long time, they've got very good at it, helped a bit of course by being a nice base within the EU to operate from but even so. And it had a bigger benefit than they may have first thought, in that it spawned a whole sector of local supply services to the foreign companies that set up. You also got spin-offs happening as people who had been working in the foreign firms set up on their own.

    Secondary elements in the story are infrastructure and education. When they were poorer the Irish made good use of EU money (and spent quite a bit of their own) on their infrastructure. The roads for example are hugely better than they were in my days there. And their secondary education system is more demanding, competitive, and academic than ours.

    Beyond that I'm not too sure there's a lot to learn from them (and especially not their profligate and unsustainable public spending in the Celtic Tiger days). A good place to start if you're interested in Ireland is their National Competitiveness Council

    which incidentally has just published the details of the latest IMD assessment of Ireland

    There's also a good blog on topical economic issues in Ireland here

  3. Supermarket (organic) mince in DE? €7.50 =$13/kg.....


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