Why isn’t New Zealand richer and more productive?

It's refreshing to click on a headline in the form of a question and have the article explain why it's the right question to be asking, and not just following Betteridge's Law. I lived in New Zealand for about 5 or 6 years, and I saw huge numbers of people just living on welfare because they could - that's probably got a lot to do with low GDP. Normally, I would see that as a bad thing, but I think New Zealand's relative lack of corruption and the friendly disposition of almost everyone illustrates there is more to life than productivity, and the results of the atmosphere and culture speak for themselves. As fiscally conservative as I may be, I had to admire that. Additionally, I hate frivolous lawsuits, and having the government compensate you so readily for injuries really seemed to reduce the way people would resort to "just sue them". Perhaps there's moral hazard and I'm not smart enough to know how one would quantify that, but again - I had to admire that.

Early-rising New Zealander here (it's 5am folks!).

Bullet points for starters:

1. We are genuinely relaxed people, life is good, weather not too hot or too cold, food easy to get or grow, housing not horribly expensive, healthcare obtainable for all, education as close to free as we can make it and an overall low crime and corruption rate. So the majority of us go to sleep at night, overall, not worried about losing our livelihood one day to the next or not having enough to eat. Similar in this respect to the Northern Europeans.

2. Tall poppy syndrome. We don't like people standing out from the crowd in terms of personality, flamboyance, income - to fit in, you maintain a level of 'bloke/girl next door'. Even if you have tons of money or you are flamboyantly dressy. If not, cue media outcry and attacks, so you move overseas where you can disappear among the masses.

3. Geography! You have no idea how expensive it can be to live here. We work hard to export all our fine goods to you and work harder to import the things we love.

4. The knowledge economy We are messing up here. Internet is too expensive, kids are not getting properly schooled in computing skills and we don't place a high enough value on STEM. If the government really really focused on STEM the next 10 years our next gen kids could have incredible lives, where distance is no barrier thanks to internet access and quality of life is incredible (those mountains, sheep and rivers/lakes are totally as amazing as you see in the photos).

Given its comparative geographical isolation, it makes sense for NZ to invest in it's digital economy.

NZ has its own competitive advantages:

(1) An educated population; (2) An English-speaking population (yes, this is an advantage. Regardless of the rise of the East, English is still the international language of business.)

But, clearly, it has certain disadvantages. Geographical isolation is one of those. It is difficult to close your trade deficit efficiently if your manufacturers are pummelled by shipping costs (and expensive labour costs). It's products are almost always going to be more expensive than it's competitors.

So, what should NZ do?

An obvious solution would be to invest in intangible exports (that's the technical terms for non-physical exports); exports that will bring money and jobs into NZ without having to saddle the costs of shipping.

This is what has happened in most of the west. But in most of Europe, we have invested in financial intangibles rather than digital intangibles. That's gone okay (hmm, okay might be a stretch). But it is unlikely to be the right move for NZ because it hasn't got an established financial center nor access to the Euro markets. (Actually with the rise of the China, which is geographically close to NZ, it might have a go at snapping up some of the renmimbi trade).

What does a country do with a highly educated workforce that needs to export intangibles? Software is the obvious solution.

Invest in Computer Science education at school, write an attractive set of tax laws for digital start-ups, and invest in high-tech infrastructure (i.e, be the first country to roll-out 5G).

In fact, the more I think about the it, the more this makes sense. As NZ is a comparatively small country with few concentrated geographical centres, it could roll-out super-fast broadband, 5G, etc, on the cheap.

Anyways, just a few thoughts.

Having lived in NZ for a couple of years working at Victoria University of Wellington, the other piece of the puzzle is NZ suffers from crippling brain drain: their best and brightest students immediately head over to Australia where they can make more money and use the exchange rate to pay off their student loan quicker.

My read is that kiwis tend to come back when they're ready to start a family, but during those vital 18-25 years when the entrepreneurial spirit is strongest, they're simply not in the country. They're elsewhere.

The kiwis I talk to that are in that demographic here at Google all seem to be want to go back to NZ, but only if the prospects are there, such as Google opening a real-deal engineering office. But it's hard to convince companies that that is a worthwhile venture when Australia and NZ have freedom of worker movement.

Without the population to lead NZ forward, and with no companies willing to invest to drag it forward, I don't think we'll ever see NZ be richer and more productive. But as other commenters have noticed, I think NZ is perfectly happy with that, because they're happy with their lot, which is something to be envied.

Living in NZ is, by and large, a lifestyle choice for smart, capable New Zealanders. It's trivial to work in Australia [1], reasonably easy [2] to work in the UK, and NZers have a good enough reputation to go to any other majority English-speaking country with little trouble.

Because the country is so small - and generally without a class system - it's possible, on a relatively small income, to have everything you might want. This has sometimes been reported as the "three Bs" - a boat, a BMW and a beach house [3]. To have those three things in the UK without being born into them, you might have to have a business that employs 100; a decent tradesman working alone in NZ can get those by their early 30s.

I think a short answer is "because it doesn't want to be."

[1] When traveling from Canada to Australia for work on my NZ passport, I was held up for some time explaining why I was traveling, who I worked for in Canada, who I was going to see, etc. If I had instead said "Hello, I want to live in your country forever, and claim benefits", they would have rubber-stamped my passport and allowed me on my merry way.

[2] Changing, even over the last few years, with the whim of the UK government

[3] http://techcrunch.com/2012/12/16/punching-above-their-weight...

The original PDF is here: http://www.productivity.govt.nz/sites/default/files/internat...

Figure 3 in Section 1 was really interesting, but maybe I haven't had enough coffee this morning:

http://imgur.com/gvRugtl

New Zealand is in the lower-right quadrant, which I'm interpreting to mean that it is predicted to be 20+% above the OECD average, but it is observed to be at 20% below, i.e. -40% below expectations

So the top-left quadrant would be the best performers, right? Those that were expected to be below the OECD average but are observed to be higher, e.g. Norway with a +25% above expectations?

(Now that I wrote this out, it makes more sense to me...I was having trouble divining where exactly the USA stood by being in the top far right, but it's more about the distance from the line)

Because, as the article says, it's isolated and has a small population.

Tasmania, in Australia, is not as wealthy as the mainland -- it's small and isolated. There are dozens of similar examples.

Meanwhile, Singapore is small, but sits athwart what has been, for hundreds of years, one of the busiest trading lanes on the planet.

Adam Smith noted cities were founded on "navigable rivers", because that's how trade works. Still true today for cargo ships. But today the internet is a river everywhere, for information goods.

New Zealand is the most beautiful place in the world, in my travels (circumvented the globe, but not been everywhere). Though I'm biased towards mountains.

So, theoretically, beauty+internet makes it a great place for software developers (and other information goods and services producers).

OTOH, NZ has prevented software patents (one of the few countries in the world to do so). Although many software developers love this, consider the question: will it increase investment in patentable inventions, or decrease it?

But in a way it's irrelevant: NZ itself is a tiny market. What counts is patents in other markets, US, Europe, Asia.

Kiwi here - spent the first 25 years of my life in NZ (Taranaki and Wellington) but relocated to the USA (a year in the Bay Area, then just outside Seattle since 2007).

A few observations of factors that may be considered:

- Distance from markets impacts competitiveness of exports

- Distance from world / experience / culture / opportunities leads to exodus of young travelers (see "the Big OE", http://en.wikipedia.org/wiki/Overseas_experience) and braindrain

- "Tall-poppy syndrome" (http://en.wikipedia.org/wiki/Tall_poppy_syndrome) reduces visibility of or desire for success

- "She'll be right" culture (http://en.wikipedia.org/wiki/She'll_be_right); apathetic, relaxed, or optimistic?

NZ has a very strong entrepreneurial culture but perhaps the challenges above or wrong choice of markets to target make that less effective econony-wise than it could be? There's an interesting read on that at http://pando.com/2013/05/14/number-8-wire-entrepreneurialism....

When your country is as beautiful as NZ you don't have to worry about things like the GDP.

Although I'm an Australian, I was born in South Africa, and so was rather surprised to find that there is a standing joke in Oz:

How does a Kiwi get a small business?, you give them a large business.

That's just a cruel joke and yet another data point in why Kiwis (rightly) think Aussies are pricks to them.

From my personal anecdotal experience of NZ:

* they have a much more laid back attitude

* many of the hard workers f-off to Australia to do it

* the government takes big stands on things, which is admirable but not indicative of a focus on business.

- i.e. No American nuclear ships allowed to dock there.

It's not just the local prostitute trade that benefits by having a US naval base in town.

None of this is NZ hate, far from it... they do their own thing and they are fine with it.

Economist John Quiggin claims that low NZ performance relative to Australia is because of its central bank being fighting inflation to the point of causing unnecessary recessions.

Source: 4th paragraph here: http://johnquiggin.com/2011/05/19/9813/

Edit: Please note that the gravity model of trade is an approximate empirical observation of trade, not economic growth. Australia is just as isolated as is NZ and yet fares better.

Compared to Australia, New Zealand has a significant Maori / Polynesian population. If you combine a part of Australia with a part of Fiji, you would get similar mix of people and also a similar economic output to New Zealand. While this obviously doesn't explain all of it, it is important to consider the historical and demographics reasons as well.

If I were in charge of NZ, I'd probably try to bring in something like pacific fibre, even if it required government subsidy. After that, a focus on making the legal system and business environment very attractive to certain kinds of tech businesses -- maybe that is privacy and security, maybe a very permissive IP regime, maybe something else.

Because you still need a critical mass of people and interactions to generate enough economic serendipity.

Zuckerberg won't just bump into Sean Parker unless they are in a melting pot.

Comparing the GNP per capita of New Zealand to Australia gives some interesting results: https://www.wolframalpha.com/input/?i=%28gross+national+prod...

The variance of the past few years (between 1:1 to 1:2) is quite high. I guess theoretically the biggest difference between the two countries is the mineral wealth of Australia?

I was raised in New Zealand, and spent the first half of my life (so far) there. I'm now happily raising a family in Melbourne, Australia. Some observations:

- many of the people I knew in IT in New Zealand have left, especially for Australia; when I was there, this was known as the 'brain drain'

- growing up in New Zealand, there was a strong anti-intellectual current to the culture, especially amongst Maori students (I came top in my year for Maori language despite there being fluent speakers in my school, because I did assignments and they didn't)

- successful people in New Zealand are often criticised because of their success; this is known as 'tall poppy syndrome'

- New Zealand is, politically speaking, entirely socialist; even their 'right wing' party is in favour of a welfare state, taxpayer-funded education and healthcare, and a wide range of 'sin taxes' and legislation designed to protect people from themselves (a.k.a. the 'Nanny State' to its critics)

- Universities there simply aren't as demanding as overseas; my wife cross-credited a psych. degree from Australia, and she was more than half way through a NZ undergrad degree after one year of a degree in Australia

Note that I haven't listed NZ's many positive characteristics. Just saying that all of the above contribute to an environment that in my experience is less productive and less entrepreneurial than Australia.

In New Zealand's technology sector, you're pretty much groomed to expect to have to move overseas to achieve anything worth something. All through university it was reiterated to me that I should move overseas to get the job I want and the money I want.

The problem is, this behavior is down to the fact that it's true, you do have to leave NZ to get anywhere in life (for the most part, unless you're happy only hitting it small). The most desirable companies to work for in the technology sector of NZ are essentially Xero and Vend right now, with your other choices being large corporates (Fujitsu, Datacom) or very small early stage startups with small amounts capital.

Startups don't thrive particularly well in New Zealand either, because there's nobody with enough capital to invest in them, so they often don't survive long enough or seek capital from overseas (like Xero/Vend, again, the exception to the rule).

The only natural thing to do is to move to a country with (a) more money, (b) more incentives, (c) more interesting work/problems to solve. The government of New Zealand does little to improve the situation and does not care about the technology sector much, doesn't work hard on getting better internet (we only have one cable to the outside world, and it's expensive to get bandwidth on it!) and doesn't encourage new, young companies to found here.

We just don't have much going for us here, in general, in the technology sector, but it's starting to change with initiatives like this from local government at least: http://hightechcapital.co.nz

It's sad. I wish the government would focus directly on optimizing NZ for technology companies, improve the internet, foster and encourage them (maybe even invest in them), help them get started in the world and meet investors. Some initiatives exist, like the Kiwi Landing Pad, but it's just not good enough yet.

I grew up in Christchurch, NZ.

90% of my friends immediately left the country after university. This is mostly due to low income employment and lack of potential career development.

Like most kiwis I moved to Australia (two and a half years ago now), my income increased by 50% just by making the move. People in Australia (Melbourne) also seem a lot happier and successful (by their own measures, whatever they might be).

For my friends and I, other than the beautiful landscape there wasn't much holding us to New Zealand and quality of life is better in Australia.

> Most of the rest of New Zealand’s productivity gap…appears to come from an underinvestment in knowledge-based capital.

I'm from the 'West Island' (Australia) but the culture is very similar. Money is made from physical things, technology is a semi necessary, semi dubious expense that should only exist as part of 'doing real things'. This is one reason a lot of Australians and Kiwis who have an interest in technology leave.

It might be because when you live in paradise money does not have the same value and productivity does not limited to renumerated work.

There's not much R&D because people who do that leave to go overseas ;)

Because kiwis are too cool to worry too much about money and productivity.

Because of Kim Dot Com.

Singapore is also a tiny island with a limited population that has to import most everything. Over 40 years they've somehow created a culture of hard-working over-achievers and have one of the highest GDPs per capita in the world (they're currently #3). Being dependent on imported goods doesn't seem to be much of a problem here, so perhaps the secret lies in their carefully planned cultural shift. (But if it were me, I'd much rather be a Kiwi with a lower income and laid back lifestyle than a Singaporean with high expectations and a life of hard work).