Why NZ’s growth model is hitting its limits

Rod Oram surveys whether New Zealand is on the right track or the wrong track and finds New Zealand's growth model is hitting its environment limits

We’re a content country. New Zealand “is heading in the right direction,” a good majority of us have told UMR’s pollsters for the past 17 years.

The only brief, sharp mood reversal came in early 2008, as the Global Financial Crisis deepened and we headed for a change of government.

We’ve a lot to be content about. We rank 7th in the OECD’s Better Life index, an instructive resource available here. Norway is number one, with Sweden just ahead of us and Finland just behind us.

The future, though, is never a continuation of the past. Particularly these days, the world is experiencing bewildering, accelerating change in economies, technologies, politics, societies and the environment.

We Kiwis are not immune. Nor would we want to be. As challenging as these great shifts are, they will make for a better world if nations handle them well. Here are three key examples:

Little or no wage growth is afflicting every developed economy, disrupting society and politics. The causes are multiple and intensely inter-dependent, such as ever-faster changing technology and skills.

There is no simple solution such as more growth or less immigration. Only ambitious, innovative and deeply integrated strategies from business and supporting policies from government will work.

Inequality in wealth and housing is rising fast in many countries. Again, the causes are many and inter-related. Again, a simple tax tweak or a raft of “affordable homes” won’t deal to these injustices weakening society.

The only solution is transformation of economies so more people can earn a good living; and of cities so more people can live well, thanks to innovative design and construction, infrastructure and transport.

Ecosystem degradation is accelerating, with climate change, diminished farming productivity and loss of species as three of the main markers. A bit of mitigation or adaptation won’t save us. We have to fundamentally change everything we do so we work with the ecosystem not against it.

Farming 2.0 is a stunning example of how to do that. This is about producing food without using animals and/or land. Instead we’re learning to grow food in labs and climate-controlled facilities with zero environmental impacts.

Like all new technologies, the capability is soaring and the cost curve is collapsing at exponential rates. Within five or 10 years some areas of conventional farming will be uncompetitive – economically, environmentally and socially.

So, how is New Zealand tracking on those three issues?

Economic growth has seemed quite robust in the years of recovery from the Global Financial Crisis.

But that has been driven largely by the volume of commodity exports, and at times, their higher prices; by population growth, particularly from net migration, which is once again running stronger than the growth of the resident population; and by the rebuild of Christchurch, and other infrastructure and housing investment.

Thus, a more accurate measure of growth is real GDP per capita, which strips out the effects of inflation and population growth. That’s averaged less than 1% a year since 2008, close to the rate of other developed countries.

Likewise, wages have shown minimal growth in real terms. In contrast, our growth in hours worked per person was the third fastest in the OECD 2009-14. On the OECD’s Better Life index we rank 30th out of 38 countries on work-life balance.

Likewise, productivity. We are employing many more people than before the GFC. But that has driven growth in volume not value of economic activity. Consequently, our labour productivity growth 2009-14 was among the lowest in the OECD along with Mexico, Israel and Norway.

The Productivity Commission laid out all these issues in its report last year Achieving New Zealand’s productivity potential. Combining our use of capital and labour, our multi-factor productivity growth languishes low in the OECD. Yet, without strong productivity growth, we have no hope of higher wages and better jobs.

These are economy-wide challenges, even in high tech sectors.

“New Zealand’s leading frontier firms have mostly had a weaker productivity performance than global frontier firms in the same industry, indicating poor technology diffusion into the economy,” the commission said.

There is plenty to celebrate about some New Zealand companies winning internationally. But they are the exceptions, not the rule. At best they are glimpses of a better future – but a future we can only achieve through significant changes to company strategies and government policies.

Urban New Zealand: Housing is our biggest failure.

In Auckland, new builds are still running behind population growth. Even if planning and infrastructure became easier and more efficient, there is no sign that the construction sector is building its capability to deliver more, better and cheaper homes. The housing backlog will keep growing, with no reduction in unaffordability.

While Auckland is the extreme example of this, we’re failing to build better and more efficiently across the country.

According to the 2013 census 41,705 Kiwis were "severely housing deprived.” More people have joined them since, local evidence suggests. These are people who are living on the streets, in shelters, in temporary accommodation or in seriously sub-standard accommodation.

Together, they account for about 1 percent of our population. This puts us number one for homelessness (using the broad definition above) among the 41 developed countries, the OECD says.

Life is a lot harder for people with inadequate wages and housing. The stresses show up in the likes of family violence and youth suicide. UNICEF says our youth suicide rate is the highest among developed countries. The rate of 15.6 suicides per 100,000 people is twice as high as the US rate and almost five-times the UK’s.

Yet again, the solutions lie not in tweaking policies and practices that are deep damaging people and society. Instead, we need to learn how to build better cities and communities.

Our environmental record

Of all developed countries, we are the most dependent on our natural environment for earning our living. This means much more than just the output of the primary sector. It includes, for example, our ability to attract tourists, filmmakers, students, tech innovators and immigrants. Quite simply, our environment is our stock-in-trade.

Yet, we only got our first comprehensive analysis of the state of our environment two years ago. We were the last developed country to initiate this basic discipline.

The Environment Aotearoa 2015 report makes for sober reading. Almost all of the key health measures of our land, water, atmosphere, species and ecosystems are in decline.

These are absolutely urban issues as well as rural. For example, Auckland’s aims to reduce its greenhouse gas emissions from 7 tonnes per person per year to 3 tonnes by 2040.

In contrast today, Vancouver is already down to 4.5 tonnes, Stockholm 3.8 tonnes and Copenhagen 2 tonnes – with all those cities enjoying the quality of life and efficiency that brings. Incidentally, Copenhagen plans to be carbon neutral in 2025, less than seven and a half years from now.

Earlier this year, the OECD delivered its once-a-decade report on our environmental performance.

Its verdict? “New Zealand’s growth model…has started to show its environmental limits, with increased greenhouse gas emissions, freshwater contamination and threats to biodiversity.”

Thankfully, it offered a remedy too: “Developing a long-term vision for a transition towards a low-carbon, greener economy would help New Zealand defend the ‘green’ reputation it has acquired at international level.”

More are asking if we're on the right track

Public concern, even anger, about these core economic, urban and environmental issues is rising, judging by opinion polls and conversations many people are having. Frustration with the status quo and eagerness for change are spreading.

Over the past year, the proportion of people who feel “New Zealand is heading in the right direction” has weakened in UMR’s polling. More people are asking how can we do things differently?

There’s nothing better than an imminent election for laying out the options.

So, in some but not all columns from now to September 23, I’ll take stock of what’s on offer from parties on these utterly vital economic, urban and environmental issues.

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