The first of a two part series on what
officials are advising the government to do to promote growth.

Boosting New Zealand's prosperity and our living standards are
all about improving productivity, officials have told ministers in the new
government.

The current economic situation - international and domestic -
complicates matters, but the advice the government is getting is essentially
what we have all heard before. Productivity is a problem, but there are things
that can be done, and things that can be done better.

The various briefing papers to Ministers don't reveal a single coherent
plan, programme, or strategy to promote productivity and economic growth, or
even a process to develop these. Rather officials are proposing piecemeal
initiatives and semi-connected activities, and there's a good deal of
bureaucratic rhetoric on multi-agency co-operation and some examples of self congratulation.

Treasury's briefing document is largely focused on productivity, but
it's more a mantra than a step by step guide to making New Zealand more prosperous.

It recommends the familiar mixture of a stable economic environment,
greater connectedness to the world, increasing skills, better management of natural
resources and a better performing public sector.

Shifting taxes over time from labour and capital to land and consumption
would be "less damaging to productivity growth".

It discusses a number of possible improvements, all of which have been
raised before.

"The economy is relatively open, but there is still room for improvement...New Zealand is only moderated well connected to the
rest of the world."

New Zealand has a high dependency on income tax to
fund government services, a low level of capital intensity and widely varying
rates of tax on investment returns.

And Treasury warns, "debt or taxes will need to rise unless projected
growth rates of (government) spending slow."

The government's other major economic advisor, the Ministry of Economic Development
says the major settings in macro-economic and micro-economic policy are "sound"
(although improvements are possible.)

But even if we get the macro-economic and micro-economic policies right,
the Ministry says "all available evidence show that (these) alone are unlikely
to make the step change we need to close the income gap with Australia."

It notes that
"all OECD countries pursue policies aimed at enabling and enhancing the ability
of market forces to improve (entrepreneurship and innovation)".

It praises
itself..."We use our strong links to
business to bring a firm-focused perspective to our work," and then offers to
help Ministers "establish a high quality advisory group on how to
close the income gap with Australia by 2025."

It makes a
similar offer about establishing a New Zealand Productivity Commission, perhaps
modeled on the Australian version.

What's missing from the briefing papers is the mid level strategy and
programme that would turn the Treasury's and MED's big picture ambitions into a
series of bite sized activities. What's missing is a strategy (or a process) that
would take the activities of the New Zealand Trade and Enterprise, the Department
of Labour, the Ministry of Education, the Careers Service, (and others) and fit
them into a coherent but multifaceted programme which directly drives productivity
growth.

In short: the linkages between and among
the various programmes are missing, or at least not very explicit. There
is no evident list of priorities; what comes first and what is more important
than something else.

All the relevant agencies are concerned about productivity. They all say
they are focused on it. But no one seems to be driving a productivity strategy
and certainly no one is in charge of vision and a programme.

Governments around the world are hellbent on spending money they don't
have. Politicians of all political colours fear the consequences - economic and
political - of not doing everything possible to stave off the collapse of their
countries' businesses, jobs and investment. Growth is not on the agenda;
survival comes before revival.

The briefing papers were largely written before the election and before
the world economic crisis got really serious. But what's offered is a set of conventional
growth strategies sprinkled with some pickings from National's election
manifesto.

Published in the NBR of 23 January 2009