A ‘New Economy’ Or Mutton Dressed As Lamb?
WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia
8 September 2000
This release provides excerpts from the feature article published in the WestpacTrust Quarterly Economic Overview.
A ‘NEW ECONOMY’ OR MUTTON DRESSED AS LAMB?
Over recent decades New Zealand has grown richer. However, our per capita income has fallen from 120% of the OECD average in the 1960s, to below 90% currently. Although the relative decline has been arrested over the 1990s, it is clear that we are far from restoring past relative glories.
“Relative growth has been struggling in comparison with the US and the OECD average since the 1960s – although it has improved marginally throughout the 1990s. Meanwhile, most of the recent attention has been placed on ensuring macroeconomic stability – that is, low inflation and broad government fiscal balance”, said Adrian Orr, Chief Economist at WestpacTrust. “While this is a necessary ingredient to generate sustainable growth it is not sufficient. Productivity is the only thing that can generate sustainable economic growth. This is about people doing the same thing better and doing better things – the new economy.”
By international standards, New Zealand’s labour force is average in education levels, as are our natural resources (rain and pastoral growth). Meanwhile, NZ has a geographical disadvantage. These factors imply we need exceptional economic policies, not average ones, if we are to remain in the ‘first world’ and keep the population base, said Mr Orr.
WestpacTrust argues that clear microeconomic policies are needed for generating sustained productivity growth. Openness to trade, ideas, labour, and capital is crucial to economic growth. Domestically, it is individual investment behaviour that will ultimately determine the level of skills available to employers, and returns to investment. “Individuals must be motivated to invest in both local income-generating assets and their own education before growth will prove sustainable”, said Mr Orr.
“In recent decades policy has been mixed in providing individual incentives. For example, do we or don’t we save now to invest in our own health, education, and retirement income? Or is the government promising to provide these for us? The signals remain mixed, and until the we have clarity on these important issues, New Zealand’s long-term growth will suffer,” Mr Orr said.
For further information please contact:
Adrian Orr Donna Purdue
WestpacTrust Chief Economist WestpacTrust Economics
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