Craig Renney is an Economist and Policy Director at the New Zealand Council of Trade Unions – Te Kauae Kaimahi.
OPINION: Our economy has been through a few tumultuous years. Covid-19 lockdowns, closed borders, supply chain constraints and global political instability have all placed significant pressure on our ability to trade.
The record unemployment rate and the current strong growth are to some extent the result of the unique context in which we find ourselves. The main challenge will be to maintain this growth and employment in the future. So how do we do this?
To answer this question, I often wonder where the next engine of growth will come from.
New Zealand has long generated growth largely based on two factors. The first was our ability to sell products such as dairy products. It is not for nothing that the Financial Times has called New Zealand the “Saudi Arabia of milk”.
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A 2021 report indicated that New Zealand was the world’s largest log exporter, supplying 20% of the global market. New Zealand exported more beef in 2020 than the whole of the European Union combined. We have done well in making products the world wants despite our distance from most major markets.
But this model of economic growth is increasingly reaching its ecological limits.
Canterbury’s dairy industry has recently been branded ‘unsustainable’, with the level of nitrogen in the rivers potentially rendering the water undrinkable.
In March this year, ministers noted that expanding forestry with “permanent exotic forests such as radiata pine poses potential environmental and ecological risks”.
Climate change requires urgent action, but MPI notes that “nearly half of New Zealand’s reported annual emissions come from animal production, and these have caused more warming to date than emissions from fossil fuels”.
The second factor behind our economic growth has been the growing number of people here. In 2019, 3.9 million people came to New Zealand for a visit.
In 1999, it was less than half that number. The number of people coming to New Zealand on student visas has steadily increased through 2020, reaching a population roughly twice the size of Queenstown. It took 30 years to grow from 3 million New Zealand residents to 4 million in 2003. It only took 17 years to reach 5 million in 2020.
When your customer base is growing rapidly, it’s easier to find new customers.
But a welcome new report from the Productivity Commission has also shown that this growth model creates its own challenges.
Our economic growth “has been driven by more people in the labor market and workers (local and migrant) working longer hours than other OECD countries”.
What we have not done is deliver productivity growth, and the commission notes that “it is productivity growth that matters most for improving living standards and well-being “.
The Productivity Commission also points out that for many years governments failed to invest enough to meet the needs alongside a growing population.
According to the Treasury, there is an infrastructure deficit – the value of what New Zealand should have built but failed to do – of $104 billion. It’s everything from homes to hospitals to highways that we don’t have.
The government also has a “future infrastructure deficit” of $106 billion over the next 30 years, which is the difference between what the government currently plans to spend and what it should spend to meet the request. Migrants are in no way responsible for this gap.
We have simply chosen to draw economic growth from population growth without making the necessary investments to make it sustainable.
So where is New Zealand’s new engine of economic growth? We have developed our agriculture to the point that significant additional growth could irreparably damage our country and the planet.
We have grown the economy as we have grown the population, but as the Productivity Commission has shown, we have not managed that growth well. Other sectors of the economy, such as manufacturing, have been in decline for a long time.
Fifty years ago, the manufacturing sector represented more than a quarter of our economy. Today it is around 10%.
Rather than asking ourselves how we will grow our economy, should we ask ourselves how we will grow our well-being and our standard of living? Should we stop simply targeting economic growth as an end in itself?
The government’s economic strategy calls for building a more productive, sustainable and inclusive economy. I believe this is the key to how we should think about our economic future. The sooner we get out of the model that simply equates a bigger economy with a better economy, the better.
So, instead of thinking about how we will grow our economy, we should be thinking about what we expect from our economy.
How to approach a housing market that generates good results for fewer and fewer people? How can we create decent work and good jobs in the future, and tackle gender and ethnic pay gaps along the way? How do we ensure that we play our full role in protecting the environment and that we do not leave a toxic legacy for our children?
Our initial response to Covid-19 has shown us that when we come together to tackle the big challenges, Kiwis lead the world. It also showed us that we do better when we think about our problems as a community rather than as individuals. If we can do this now for our economy, we can deliver the more productive, sustainable and inclusive economy we all need in the future.