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Jennings’ challenge to New Zealand

Published in Insights, The New Zealand Initiative’s newsletter, 15 July 2016

20160714_203501Distance makes the heart grow fonder, so they say. But sometimes distance can also make you see things more clearly – not just if you are farsighted.

Last night, the Initiative hosted Stephen Jennings for a dinner lecture. Jennings, the Taranaki-born economist and investor, has spent the past 24 years outside New Zealand. First he pioneered capital markets in post-communist Russia. Now he heads Africa’s largest urban development company.

Despite this high-flying international career, Jennings has not lost interest in his native New Zealand. However, his continental distance allows for a sober look at our domestic affairs.

Jennings reminded us of the much discussed paradox of New Zealand economics: “New Zealand has immense natural capital, excellent institutions and outstanding indicators for ease of doing business. We also have a fiscal position and government debt situation that should be the envy of the Western world. Nevertheless, we suffer from persistently low productivity growth.”

He then went on to explain some of the reasons behind this paradox. They are the issues that the Initiative has also been working on: New Zealand’s poor performance in capital connectivity; our deteriorating position in international education rankings; and our out-of-control housing market.

In the end, Jennings left us with proposals for six reforms New Zealand should undertake immediately. This is what he would do:

  • A total overhaul of our education system with a focus on performance management;
  • a comprehensive review of the tax treatment of housing and capital gains;
  • a comprehensive review of the ownership and governance arrangements for our primary industries;
  • the privatisation of all state-owned enterprises;
  • radical planning reform to allow New Zealand cities to grow and build the houses the country needs; and
  • regulatory reform to reinforce New Zealand’s strong anti-corruption credentials.

For a political class accomplished in mediocrity (with a few laudable exceptions), such ambitions might seem outlandish. But Jennings challenged his audience to think about New Zealand’s success measures differently.

He asked: “Do we think it would be acceptable for our international sports teams to aim to be 20th in the world or worse? Do we think our athletes should have coaches and training facilities that are worse than the average for their international competitors? Do we think our sports teams will be winners on the international stage if they have very limited international competition?”

To all these questions, the answer would be “Of course not, that would be absurd.”

So why should our economy and our businesses be any different?

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