Don't waste this crisis: Nine ideas to lift our poor economic performance and wages

With potential migrants banging on the door to get in, New Zealand can pick the cream of the crop. Photo / Getty Images

Bank of New Zealand economist Paul Conway left a top job at the Productivity Commission frustrated and tired of the same conversations about this country's poor economic performance "going round and round, year after year".

And despite New Zealand now having the perfect opportunity to reform economic policies so performance and wages are lifted, he fears nothing much will change.

A crisis, says Conway, is always a good opportunity for reform so he is offering nine policy change suggestions.

They include reforming immigration policy to capture the highly skilled people banging on our door right now to escape Covid-19, muscling up returns from our science and innovation systems, reforming tax to encourage productive investment, and lifting competition in the service sector and productivity in the public service.

"We are in triage at the moment and all hands are [busy] getting the bug back in the box. But the time should come, and reasonably soon, when we start to have national conversations around a reform agenda to transform our economy from one working harder to one working smarter."

Conway says New Zealand has a "tricky little economy" which is not well understood because not enough economic research is done - by both the public and private sectors.

And when research does offer insights, there's a translation problem working those insights into the policy setting process, he says.

"Economic researchers and policy people speak a different language and not many span both worlds.

"I have really admired the work of the public sector in response to Covid. It's been decisive and [shown] great leadership and I think we have to take that approach and apply it to lifting New Zealand's economic performance.

"My fear is we just go back to normal - and normal didn't deliver."

Conway says the fundamental reason for the weak economic performance is that "we are a small developed economy a long way from large global markets".

"The impacts of that percolate through our economy in ways unique to New Zealand, and are not particularly well understood."

He believes greater use of digital tools and technology will help New Zealand push back against the forces that have kept productivity and wages low.

"It expands markets and makes it easier for small firms to connect internationally. We are already down this path - we have fast broadband and we did a crash course in using digital tools in lockdowns.

"It's about embedding and growing the use of digital technology into the economy. That's the overarching aspect to my policy prescription," says Conway, who was director of research and analysis at the Productivity Commission for nine years before joining BNZ.

BNZ economist Paul Conway. Photo / Supplied

"I did reach a certain level of frustration coming out of the commission and the public sector. I was tired of the same conversations going round and round, year after year."

Conway says New Zealand needs to start talking about what are the future growth areas in the economy.

"What will set us up a thriving, productive, high wage economy? Is it digital services, is it agritech? There are plenty of options. It's not about picking winners. It's about focusing on where we have demonstrable strengths, comparative advantages and strong visibility internationally."

Conway's prescription for better economic health:

Immigration

"This should not be a volume-driven business. Our local integrity is sky-high and we should leverage off that to attract extremely high skills. This whole space needs to be reviewed. We could attract the cream of the crop right now."

Improve the matching of skills to jobs

"Our education and skills system needs to get more effective at giving New Zealanders more relevant skills. There needs to be more flexibility and better responsiveness. If we are not equipped with the right skills for the digital transformation, instead of being a huge opportunity, it will lead to more inequality."

Strengthen the economic return from science and innovation

"What is the overarching purpose of our science system? How does it contribute to our economic development? You'd be hard pressed to find anybody who could answer those questions. We need a better focus on thematic research platforms. Our innovation spend is notoriously weak.

"This is another area where the public sectors are weak. Policy monitoring and evaluation is not strong in the innovation space. We could improve collaboration between the research institutes and business to convert knowledge.

"Who is scanning international developments in industries relevant to New Zealand?"

Improve tax system to encourage productive investment

"This whole area could benefit from some applied economic research instead of just 'what do you reckon?'. The tax system could be doing more to improve our economic performance."

Fix the housing market

"Our housing market has been a source of increased inequality and reduced wellbeing for many years. Lifting productivity in the construction sector would also help. Not just for the public sector but in the industry itself - improved governance and management practices within companies."

Improve the provision and functioning of infrastructure

"We need a well-understood pipeline, a clear framework for using third party capital. We need to have a good think about pricing and funding models that actually reflect the cost and use of infrastructure and the impact it's having."

Lift competition

"Especially in the services sector, which is a huge and growing part of our economy - 70 80 per cent of employment is in services. The sector has some high performance parts but distribution and networks and the person-centred service industries tend to have lower productivity. Improve information disclosure."

Improve collaboration

"Given the small size of most firms it has an important role in solving common problems and issues."

Lift public sector productivity

"There's heaps of room for improving this. Government activities are a huge share of our economy but lifting productivity has never been a priority for officials ... many organisations are effectively immortal and not typically subject to market disciplines so pressure to improve performance can be lacking."