Matthew Hooton: The method in Labour's migration makeover

OPINION

From the same people who brought you KiwiBuild and eliminating child poverty comes a new promise - this time of hundreds of new angel investors flying in from abroad to help you to grow your small business into a bigger one.

Economic Development Minister Stuart Nash and Immigration Minister Michael Wood say this week's changes to investor-visa rules will attract experienced, high-value investors to bring growth opportunities to a town near you.

No longer will it be enough for new migrants to purchase permanent residency by spending $10 million on a house in Parnell, a few Meridian shares and some government bonds.

Instead, Nash and Wood have halved the investment threshold to $5m, but only for those migrants who speak passable English, are willing to be here for at least a month each year and want to invest directly and be actively involved in Kiwi start-ups or SMEs.

Passive investments in property, bonds or shares won't count.

In a move the Beehive says signals that it sees immigration as more about economic development than border security, decisions about what businesses qualify will be made by NZ Trade and Enterprise, which reports to Nash and Trade Minister Damien O'Connor, rather than by immigration officials.

For its part, NZTE says it already employs dozens of investment managers who are meant to help foreign investors identify high-value investment opportunities here, and connect Kiwi businesses with their capital, knowledge and networks.

Businesses already on NZTE's books will be pre-approved for migrant investors, with others able to sign up.

For migrants averse to taking risks as angel investors or venture capitalists, Nash and Wood have raised the threshold to $15m, but with a twist.

Such migrants will be able to meet the new $15m rule by buying $7.5m of Meridian shares and flicking $7.5m to Auckland Art Gallery, with Nash following John Key in wanting to kickstart a North American philanthropic culture in New Zealand, hopefully with more success.

The changes have been near universally condemned.

Stuart Nash believes new rules will attract the sort of migrants who bring growth opportunities. Photo / Mark Mitchell

On the right, the message is that excluding homes, shares and bonds from the $5m rule will deter high-value migrants from New Zealand, costing billions of dollars of foreign direct investment.

National's rising star Erica Stanford cites work by the Productivity Commission and Labour's favourite economic consultancy Berl, which she believes suggests migrants who initially make passive investments to get residency then put two to three times as much into active investments.

Stanford accuses the Government of ignoring the Berl work, despite it being commissioned by no less than Immigration New Zealand. Labour denies this.

Meanwhile, Act's James McDowall wants all occupations on Labour's "Green List" to have a fast track to residency. In practice, all properly qualified doctors, nurses, plumbers, electricians and farm managers would join the more limited range of professionals eligible to be fast-tracked to live here permanently.

On the left, the Greens' Ricardo Menéndez March accuses Labour of allowing the rich to continue buying their way into residency while leaving low-wage foreign workers on precarious and temporary visas.

He recommends investors be given a three-year provisional visa, with residency confirmed at the end of that period only if a government audit confirms their money has gone into projects meeting viability, sustainability, desirability and human-rights tests.

Te Pāti Māori's overarching position is that there has been quite enough immigration since whalers, sealers and missionaries started arriving in the late 1700s.

From where those parties stand, this all makes sense.

But the new rules are also consistent with Labour's strategy of reducing demand for existing New Zealand assets, most especially residential property, and pressuring businesses to invest in technology and training by squeezing the supply of cheap labour.

As Bill English, Steven Joyce, Nicola Willis or David Seymour won't tire of telling you, orthodox economists argue productivity gains drive and should precede wage rises.

They say improved productivity generates surpluses that workers, management and shareholders can divide among themselves through negotiation.

Increasing wages ahead of productivity just raises unemployment and lowers output.

In contrast, Nash, Wood and Finance Minister Grant Robertson argue a heterodox view that it's the other way round.

If the minimum wage is increased, cheap foreign labour restricted and unions empowered to negotiate higher pay, they say businesses will have no choice but to invest in, invent and adopt new technology to lower average costs and increase output, making each worker and the economy more productive.

They accept that this means some businesses will fail, untrained and untrainable workers will lose their jobs and short-term unemployment may rise. But they deny those effects will be as great as the orthodoxy claims, even in the short run, and argue the costs will be massively outweighed by the medium and longer-term benefits.

The Beehive claims centralising polytechnic management will ensure there are re-training opportunities available locally to everyone priced out of work.

Forcing this transition when the labour market is already squeezed, and while tightening immigration rules, makes it much harder for business in the short run. But, like Labour brutally forcing farmers to live without subsidies in the mid-1980s, much better to get it done quickly.

It's also safer politically for a Labour Government to try to force the transition when unemployment is so low.

The Government also bets that forcing migrants to invest in projects that grow capacity, as opposed to just increasing demand for existing assets, will help the economy through the current monetary tightening phase faster.

With a bit of luck, by this time next year, it hopes prices will have stabilised, wages will be growing, interest rates will be falling and unemployment will remain well below historic averages.

That would set Labour up perfectly for a third election win.

Conversely, if orthodox economics is right and the heterodox view wildly optimistic, then minimum-wage rises and Nash and Wood's new immigration rules will prolong the recession and Labour will be toast.

Here's the good news: on this one question at least, our two main parties are offering policy based on competing economic models rather than converging wherever the focus groups drive them.

Whatever happens, we should know by election day the answer to this old, important but hitherto unresolved argument between labour-market economists.

The answer will determine whether Labour leads us into a lovely new world where artificially raising wages delivers higher productivity — or whether we have to do it the old-fashioned way under National, by working smarter and producing more from less, in order for wage earners to enjoy the higher sustainable incomes both parties promise.

Place your bets.

- Matthew Hooton is an Auckland-based public relations consultant.