Editor's Insight: OECD's recipe for growth hits rocks of political reality

An OECD report on policies that boost long-term growth, improve competitiveness and productivity, and create jobs says New Zealand cannot remain complacent.

The report, Going for Growth, offers a comprehensive assessment of policy reforms that can be packaged together and ensure a more inclusive economy.

Many of the recommendations are not new and some will be resisted by the most reformist of governments.

It points out New Zealand’s GDP per capita is 27% below the average of the most advanced OECD, reflecting poor labour productivity. This income gap has declined over the past 25 years but productivity has worsened.

Furthermore, it says income inequality has edged up since the global economic crisis, in contrast to the OECD average, which has remained unchanged.

The poorest 20% of society’s share of disposable income has remained static at a slightly lower level than the OECD average.

Five priorities
The OECD sets out five priorities where more action is needed:

1. Barriers to foreign investment and trade facilitation
2. Land use restrictions that constrain house building
3. Poor educational outcomes for Maori and Pasifika
4. Inefficient public health sector
5. Ineffective government support for research and development (R&D)

The government says it is working on all these. Indeed, the report lists the actions and then comments on them.

Take foreign investment, trade and competition. It says while there have been improvements in aspects of trade facilitation, these are below best practice.

For example, the screening process needs to be less restrictive and that the criteria for the national benefit test be clarified. The OECD also wants to remove ministerial discretion in deciding on applications.

Most of these criticisms arise from the Crafar farms decision where the government muddied the foreign investment regime to deflect political opposition to most forms of foreign investment regardless of its contribution to the economy.

More competition
The OECD goes further and says more competition is needed in key sectors of the economy where New Zealand has comparatively high barriers compared with the OECD average in telecommunications, primary industries, financial services and manufacturing.

It recommends the remaining government shareholdings should be sold in the electricity generation companies and in Air New Zealand.

Of course, these are off the political agenda and, as a result, the economy will continue to underperform.

One area where action could be taken is to remove the exemption from competition policy of international freight transport.

Housing issues
The OECD points to solutions raised in various studies by the Productivity Commission.

These recommendations include: adopting different regulatory approaches for the natural and built environments; making clearer government priotiyies concerning land use and infrastructure provision; and making the planning system more responsive in providing key infrastructure.

Other suggestions are to apply more rigorous analysis to policy options and planning proposals; pricing to reduce urban road congestion; and diversifying the funding sources for these projects.

These have mainly been adopted by the government, including road congestion pricing, but the detail has yet to emerge – maybe in Budget.

Education and health
The OECD says the public health system is relatively inefficient by the best world standards and that it doesn’t deliver equal healthcare outcomes.

It says these are being tackled by the government’s 10-year strategy but that district health boards need to have more incentives to do a better job.

In education, it is much the same, with the OECD noting how the government is aware of the inadequate results from schools in poor areas and the need to improve the quality of schools and teaching.

But New Zealand is behind other countries in dealing with those groups that do not have early childhood education. Another failing is to have better accountability on standards.

Efforts to change these are, of course, strongly opposed by the teacher unions, who do their most to undermine any of the reforms the government is working on.

International context
Elsewhere in the world, Going for Growth reveals an uptick in policymaker attention to reforms to lift employment, particularly measures aimed at helping women, young people and low-skilled workers enter and thrive in the labour market. 

However, a worrisome slowdown in reforms that influence labour productivity – such as those in education and innovation policy – is of particular concern in light of the persistent and widespread decline in productivity growth, which is the key to boost wages and living standards.

“Reversing the prolonged period of stagnating living standards that is affecting a large share of people worldwide will require coherent structural reform strategies and the political will to deploy them,” OECD secretary-general Angel Gurría says.

“The vast array of growth and inclusiveness challenges facing advanced and emerging economies call out for a quicker pace and more comprehensive set of reforms. While efforts to promote employment and bring down inequalities are beginning to pay off, governments cannot afford to let up.”