No Minister

They’re catching up

Romania that is, to our economy.

But they’re not the only ones, as Michael Reddell demonstrates in his blog article, Productivity growth: failures and successes.

As regular readers know I have highlighted from time to time the eastern and central European OECD countries – all Communist-run until about 1989 – that were catching or moving past us. I first noticed this when I helped write the 2025 Taskforce’s report – remember, the idea that we might close the gaps to Australia by 2025, when in fact policy indifference has meant they’ve kept widening – in 2009, so that must have been data for 2007 or 2008.

Back then only Slovenia had matched us, and they were (a) small and (b) just over the border from Italy and Austria. The OECD and Conference Board numbers are slightly different, but by now probably four of the eight have matched or exceeded us (and all eight managed faster productivity growth than us over the last cycle). Turkey – also in the OECD – has also now passed us.

But in this post he decided to focus on an Eastern European nation that’s not in the OECD. Romania.

That trend looks relentless. Reddell also points out that Romania’s population has been shrinking as ours grew, courtesy of what he calls the “big New Zealand” approach. It should be noted that since GDP is calculated based on spending, largely consumer spending, which in turn means its pushed by population growth, the annual average GDP growth rate of 2.78% circa 2010-2017 was largely the product of a population growing at 1.52% per year in that period, which automatically gives you that much annual GDP growth. You’d have needed a Soviet style economy to not have at least 1.5% per annum growth.

If the last National government was bad, the Labour or Labour-led governments since 2017 have been worse. It is hard to think of a single thing they’ve done to improve the climate for market-driven business investment and productivity growth, and easy to identify a growing list of things that worsen the outlook – most individually probably quite small effects, but the cumulative direction is pretty clear.

One of the ways of seeing the utter failure – the indifference, the betrayal of New Zealanders – is to look at the growing list of countries that are either moving past us, or fast approaching us. Recall that for 50 years or more New Zealand was among the handful of very highest income countries on earth.

We still have advantages over such nations of course, largely thanks to our natural environment but also because we inherited an economy that counted as a developed one over a century ago; we had almost everything technological that nations like Britain and the USA had.

Most New Zealanders would rather live as we do than as Romanians do. They’re still recovering from decades of communist rule.

But that’s Riddell’s point: how much longer will that continue to be the case as these nations pass us in terms first of productivity and then economically, powered by that productivity advantage?

In the agricultural work I did this season almost every one of the drivers said they could earn more money doing the same work in Australia, Britain, Ireland and the USA, and many of them were heading to those places as soon as the season here was done and the Covid-border issues eased. In every case their flights and accomodation was being paid for. The foreign drivers mainly came for a working holiday, the locals were held back a little by family, but that was all.

The recent pay freeze on all government workers, which includes frontline staff like nurses and police, is not going to help, as this Kiwiblog commentator noted:

Yup, nurses are furious. They are already paid such a low salary that a nurse cannot dream of owning their own home without help from a male partner.

Two nurses on my partners ward have resigned already and shifting to Australia.

This one notes one method that will be applied:

But many are doing what my wife plans to do. Take unpaid leave while keeping her contract in NZ and go and work in Northern territories where she can earn 3 times her wage in NZ. Ok its hard work but she gets accommodation and food free plus her flights and a bonus. She will do one month every 6.

That is the future for New Zealand. It won’t be a collapse, but we will find it increasingly harder to compete with former “developing” nations for teachers, doctors, and nurses. Those well-trained doctors from Africa and the Indian continent that you so often see in NZ hospitals will not be replaced from the same sources as their nations catch up to us in wealth and can afford to pay as well, or perhaps better. Where we will get the replacements from if we’re increasingly doing little better or worse than the Developing World?

As far as Kiwis themselves are concerned, the older generations will stay here because we’ve done our stints overseas. However…

Before I had kids I used to idly talk about not encouraging any I had to stay in New Zealand, so relatively poor were the prospects becoming. It is harder to take that stance when it is real young people one enjoys being around, but… least from an economic perspective New Zealand looks like an ever-worse option, increasingly an inward-looking backwater.

My kids have not yet decided whether they’ll make the jump, but as they engage with the workforce they are under no illusions about the pay gaps with overseas nations as well as the housing costs (and other costs) here in our rather expensive little paradise.

Written by Tom Hunter

May 14, 2021 at 5:37 pm

3 Responses

Subscribe to comments with RSS.

  1. GDP alone is an insufficient measure.

    Like almost anything else in life, when coming from a low start, big increases are possible, but as the economy matures it is harder and harder to maintain.

    I think you’d prefer NZ’s inflation figures to Romania’s.

    Romania has another economic advantage the NZ cannot overcome – proximity to markets, sharing land borders with 6 other European nations. As an EU member state, Romania also has free access to all European markets, something NZ does not have.

    Finally, just as one swallow does not make a summer, one economic measure does not define an economy. For Median Wealth NZ ranks 7th at $US116,433.00, whilst Romania languishes at 50th with a mere $US19,582.00. The same applies to Mean Wealth, where NZ remains 7th whilst Romania sinks to 58th with US$304,24.00 and $US43,074.00 respectively.

    So, Tom, pacing your bags for Romania, or counting your blessings and dollars and staying home?

    Little Dorrit

    May 15, 2021 at 10:58 am

  2. Good analysis Loin, thank you.

    Also Romania’s population stayed constant as so many of them left the country for a better future. That of course has reversed with Covid.

    They have 20 million people to our 5 million. Our 5m scattered over a very topographically difficult terrain unlike most of Romania.

    Riddell does a lot of these comparisons, basically useless as they are a once over lightly. Gee look at Romania their productivity is so much better than ours.

    It would be better to compare their agricultural productivity against ours
    Their regulatory environment against ours
    Adjust for closeness to market
    Adjust for a 340m market on you door steep.
    Look at their Health and Safety laws.
    Look at their welfare benefits
    Bet they dont get 4 weeks annual leave, 5 days sick, 12 days public holidays.
    Look at local Govt drag
    Bet they dont have Foreign Affairs and Trade representatives wasting taxpayer money in 54 countries when 10 would cover it.

    I suspect Romania may have a Govt that is interested in increasing the size of the cake rather than buying off large sections of the unproductive public.

    I mean look at their racial mix, more than 90% white and Christian, equals hard working, serious people interested in catching up with the rest of Europe rather than holding their hand out to a miserable undereducated bunch of politicians that we have here.

    Riddell would be far better off doing this analysis rather than choosing another country to compare NZ to every year.


    May 15, 2021 at 1:42 pm

    • As Bob Dylan sang

      “But it ain’t me, babe
      No, no, no, it ain’t me, babe
      It ain’t me wrote that post, babe.”

      Sir Loin

      May 15, 2021 at 2:17 pm

Comments are closed.

%d bloggers like this: