Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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14/12/12

Scale - New Zealand's Problem?


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Recent reports have shown that New Zealand’s population is aging and natural growth is slowing…In addition more people are leaving New Zealand for what they perceive as “greener pastures”, such as Australia. Overall population and labour force balance are vital components of a healthy economy. The data outlined below is taken from a recent BNZ report.

People leave one country for another for the same reason – better something - prospects, freedom, pay and safety….

New Zealand has lower average wage rates and living standards than comparable countries (ranked 22nd in OECD for GDP per capita) Australia is doing better (ranked 8th), a clear reason why Kiwis are making the move. This effect hollows out 20 and 30 something cohorts, changing the demographic balance between young and old or critically those in work and those not working. That said, we still have a relatively high unemployment rate, a problem in itself and yet another factor in the outward flow of people.

Some losses and gains are inevitable but overall we need to attract and keep people in New Zealand. Up first on this is a more positive economic outlook, we need to do better with growth expectations into the future.

It is an obvious point that when people leave New Zealand they take their economic activity with them, their contributions to the community and the investment New Zealand has made in the development of their skills and capabilities; all up it is a huge loss. At another level the loss is perhaps even more debilitating; our “get up and go” people doing exactly that, leaving the rest of us bereft of their drive. The loss of drive in the population is probably the most critical element of the loss.

Of course we see people wanting to come to New Zealand and they bring with them some things we lose from those who depart, but overall what effect does this have on our skill and education levels? Going back to the reasons for migration, those coming to New Zealand are generally looking for a step up from something perceived as inferior in some dimension to New Zealand, so chances are New Zealand will tend to, overall, miss out on the transaction in terms of the investment in human capital. The influx of relevant skills is very likely to be, in aggregate, less than the outflow. The education level could be lower or simply not suited to our needs without additional training or acclimatization to cultural norms.

New Zealand’s “100% pure” and “green” image might be attractive as a tourist destination and to some migrants; but it may be a deterrent to some who might focus on new business investment and innovation.

The above graph was sourced from The Economist. This is showing how the relative number of recent immigrants that are university graduates is below the OECD average, and well below Australia. Interestingly, New Zealand is the only country on the list to have experienced decreases in native-born that are university graduates; this could be explained by the large number of graduates leaving for higher pay opportunities abroad – a serious problem in the making? Other countries have been more proactive in trying to keep their most talented and driven people – for example, Australia has created post study work rights to retain its human capital by allowing longer working visas for those who have completed studies in Australia.

New Zealand’s population growth has decelerated to a rate of 0.62% per year. To put this in perspective, the population growth rate had been as high as 1.99% in 2003. The population is also ageing, with the median age rising a little, while the number of residents of retirement age has increased.

What effects will this have on the economy?

Firstly, this will slow the growth of our labour force, meaning firms will find it harder to find suitable staff to sustain and grow their businesses. The increase in the number of retirees will put a strain on government spending, as pension and age related health costs increase. One solution to ease this cost is to increase the retirement age.

A recent report by NZIER entitled “lifting export performance” outlined their views on New Zealand’s current export situation, and possible solutions. One of their conclusions as to what is holding New Zealand back is that we are small and isolated; a fairly obvious point. Their solution is to gain scale; through population growth or attracting immigration. They propose we can grow at an annual rate of 2.5%, reaching 15 million in the next 50 years. But as we can see from the BNZ report, and from StatsNZ data, the current trends are not close to this estimate.

So looking at the data, can population growth really be an answer to our current economic woes, as some may suggest?

The numbers show population growth will not fix what ails the export sector. With clear trends of population growth slowing, we cannot just stick to our “the market will sort itself out” philosophy and expect change. Active steps need to be implemented to correct the economic imbalances. Innovation, efficiency, training and investment incentives need to be created to make the most of the population we have, and can reasonably be expected in the short term.

The thing which will employ and entice more people to stay here is innovation. Innovation depends on investment decisions and investment decisions will only be made given they provide an anticipated return. Market scale cannot be grown locally with any speed, but it can be achieved quickly through exports. Policy settings must support more investment in innovation.

The manufacturing sector needs to be encouraged to invest in order to help create highly paid, innovative jobs to keep some of those who might otherwise leave here in New Zealand, allowing them to have a positive effect on our future growth and continued advancement. Innovation at once requires and creates high quality human capital that our economy needs to function and grow.

Improved wage rates and growth the flow from investment in manufacturing sector innovation will follow policies aligned to those outcomes. More high revenue, low capital and high wage businesses are needed, but our current settings do not acknowledge this.
 



tags: population, immigration, growth, investment

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