Immigration and all that

Vincent Heeringa, writing in Idealog, has an interesting look at why New Zealand does not have a strong anti-immigration strain to its politics. Tldr: immigration is very important economically and we don’t have significant refugee flows.


It is certainly true that immigration is economically important. Migration (flows out and in) has added 30 per cent to the population since 1991. That is a lot of new workers and consumers.

Here is the Treasury from the May Economic and Fiscal Update (page 4):

Screenshot 2016-07-12 10.37.53

Migration grows the economy (the real GDP bit). But it isn’t all sunshine and lollipops. The Treasury says migration is expanding activity in low productivity sectors (all those new people need housing and restaurants), which means we are not as well off as we could be if they all worked in high-tech or our construction sector was more productive.


I am less certain than Mr Heeringa that the economics of immigration drives the politics of it particularly. (People vote against their apparent economic interests all the time: see Brexit, and What’s the Matter with Kansas).

It might just be that New Zealanders are more positive about immigration.

This is a chart from a 2008 paper by Colleen Ward and Anne-Marie Masgoret, based on survey results in New Zealand and internationally. The proposition people were put was: “It is a good thing for a society to be made up of people from different races, religions and cultures”.

div positivity  copy

Here is some other data from that paper, reported in a 2011 Department of Labour paper by the same authors plus Melanie Vauclair. Some results from a survey in 2004/05 of attitudes towards immigrants and immigration:

Screenshot 2016-07-12 10.52.21

Neilsen, in its 2014 Quality of Life Survey, report results from six regional councils on perceptions of the impacts of greater cultural diversity. Fifty seven per cent of people asked said that greater cultural diversity makes their area a better or much better place to live. Fourteen percent thought greater cultural diversity made their area a worse or much worse place to live.

Screenshot 2016-07-12 11.08.39



On the numbers themselves, these are 12 month rolling totals of monthly net permanent and long-term migration to/from Australia since April 1978. You can see what looks like the start of the turn of the tide. Maybe folks in Australia are going to stop coming home in such large numbers, or a few more people from here are going to pick up sticks. The Treasury forecasts that net migration will return to its usual trend by 2018.

net plt tofrom australia

The data is here.


At the Moxie Sessions we have talked about immigration a couple of times. Once in Session 10 on the immigration system itself and whether have the settings right, and once more last year in Session 33 on immigration as a way to transform the economy (slowly). Heady stuff.

Also there is a recent book on the subject.

So internet, such beneficial

What’s the internet worth, economically speaking?

I recently finished a project on the economic benefits of Internet use for businesses in New Zealand, as part of a team with some other folks from Sapere.

It was funded by Google and Internet NZ under the Innovation Partnership. You can read the report here from the Innovation Partnership website. Or get a gander at the launch event slides.

There has also been some press, for example, in the Herald.

A cows plus strategy, and clustering

Some thoughts prompted by ‘The New Geography of Jobs‘, by Enrico Moretti

This book is a great description of the economic geography of the modern United States and an explanation of how it got that way. It is also a primer for policy-makers interested in how to ensure more good “innovation sector” jobs. Mr Moretti talks about how the “brain hubs”, like San Francisco, Seattle or Boston, came about, and what to do if you find yourself (like New Zealand and most United States cities), wanting to transform your local economy over time while avoiding the cul-de-sacs and mistakes that others have fallen into along the way.


Mr Moretti divides cities into places with good jobs, those without, and the places that could go either way. “Good” jobs are involved in the innovation sector, which is loosely defined as high-tech plus any other occupation that makes intensive use of human capital and ingenuity. Places without good jobs are mostly declining or declined manufacturing centres in the Rust Belt where the book starts.

Wider economic benefits from innovation sector jobs are very big. Mr Moretti reports that for every innovation sector job, e.g., a new software engineer at the Googleplex, there are an additional five jobs created, two professional jobs (e.g., doctors, lawyers, teachers, nurses) and three non-professional jobs (e.g., waiters, carpenters, taxi drivers, shop workers). Most sectors in the economy have these multiplier effects but those in the innovation sector are particularly big. So while employment in the innovation sector will never account for the majority of jobs (at the moment it accounts for around 10%), it has a disproportionate and positive impact on the economy overall. Although Boeing employs twice as many people in Seattle as Microsoft, it ultimately creates fewer local jobs.

There is not just a jobs effect but also a big income effect. Everybody earns more in a brain hub than s/he does doing the same job in a Rust Belt city. Your neighbour’s skill level affects how much you earn, regardless of your own skill level. This result is not necessarily intuitive, but Mr Moretti (on page 99) says there are three reasons for it. First, skilled and unskilled workers complement each other: an increase in the former raises the productivity of the latter. Second, a better educated labour force encourages the deployment of new and better technologies, raising productivity. And third, the economic magic of human capital externalities, i.e., when people interact they learn from each other, and those who interact with better educated peers ultimately become more productive and creative.

The result holds for employees of all skill levels. So a college graduate in Boston, where 47% of residents have a college degree earns $20k a year more on average than a college graduate in Yuma Arizona, where 11% of residents have a college degree. But the biggest impact is for the least skilled. A high-school graduate in Boston earns 34k more a year than a high-school graduate in Yuma. Part of this difference, says Mr Moretti, is compensating for the higher cost of living in Boston. But using a nifty longitudinal dataset that follows the same individuals over time, he finds that the same individual can make a very different salary depending on how many skilled workers s/he has around.

Learning from history

The early part of the book charts the decline of American manufacturing jobs and the rise of jobs in innovation economy. It explains the hollowing out of the American labour market, as new technologies favour high-skilled workers, reduce the need for many occupations that call for medium-level skills, and have little effect on occupations at the low end of the skill spectrum: jobs that involve non-routine tasks have not been particularly hurt by computers.

Since every city, of course, wants to be a brain hub, the book also explains how brain hubs developed, by way of sketches of the development of Seattle, Silicon Valley and Hollywood. This part is particularly interesting because it goes back far enough in time to show what Seattle was like in 1979 when Bill Gates and Paul Allen moved their then fledging business there. They did this not for professional reasons but for personal ones. Indeed Seattle seemed like a terrible place at the time: The Economist had recently labelled it the “city of despair”. And especially compared with Abuquerque, New Mexico where Microsoft was founded and which already had the beginnings of what might have become a tech hub. Nevertheless, they moved to Seattle and the rest, together with the decisions of many others to set up shop there over time, is history. Jeff Bezos started his new firm, Amazon, in Seattle in 1994 because by then Seattle had the engineers, programmers and venture capitalists that he needed to get started.

The new picture of economic geography

I saw this picture recently on Twitter (created by Reddit user atrubetskoy). The blue areas are responsible for 50% of US GDP. So are the orange areas. Twenty three successful cities.

Mr Moretti talks about why this clustering happens, and why is it that new software firms, which might be just two guys in their garage, decide to locate in San Francisco or Silicon Valley or Seattle despite the fact that these are amongst the most expensive places to live in the United States. The contrast with industrial economy firms is stark: they go where resources plus transport are cheapest, so paper mills are near forests, milk factories are near farms, and steel mills are near coal mines. The lobster industry is in Maine, because that is where the lobsters live, and the oil industry is in Texas, because that is where the oil is.

There are three factors that create clusters First, firms go where they think they will find good employees, which happens to be where all the other employers are. Second, they also want to find good suppliers, and customers for their products,hence the ecosystem. The venture capitalists of Silicon Valley are far more helpful to a growing firm looking for funding than the venture capitalists of other places with less developed ecosystems. And third, it turns out that innovation, collaboration and the creation of new ideas are highly influenced by proximity. Even small physical distances are enough to deter collaboration and information sharing. This is seen from networks of patent citations: inventors are significantly more likely to cite other inventors living nearby than inventors living far away. Similarly, I recall a study from Google some years back of information flows in the workplace that said that what you know is determined largely by where you sit (sorry I can’t find the reference just now). Mr Moretti says (p141), “being around smart people tends to make us smarter, more creative and ultimately more productive”. These cluster effects are intensifying because they are self-reinforcing, and because, once a cluster is established, the costs of moving it are overwhelming.

The policy of inevitability

The question for policy-makers, especially local economic development agencies, is therefore how to turn their city into a brain hub.

Mr Moretti explores a few options. Basically it is hard. The best bet is to have already got lucky and have had some innovation sector businesses set up shop. If that has not happened, then you could look at supply side ideas or at demand-side ideas to get things started (this is from the perspective of the labour market, so “supply side” means increases the number of workers, and “demand side” means increasing the supply of jobs).

On the supply side, the basic strategy is to attract highly skilled, young, creative types, and then expect that high-tech employers will follow, hoping to take advantage of the ready local labour supply. Mr Moretti is down on this approach, arguing that Berlin is the best example of this strategy but that Berlin continues to have amongst Germany’s worst unemployment problem and weak economic growth. That said, Berlin is widely considered to be one of the most interesting and vibrant places in Europe at present. Conclusion: there may still upsides for residents in adopting the supply side strategy, but it is far from a slam dunk case from an economic point of view.

In some industries, and Mr Moretti says biotechnology might be one, attracting stars is also important to encourage both other workers and to encourage employers. Qatar does this. So does Singapore. And probably other places with which I am even less familiar. New Zealand’s efforts to attract over-achievers from other countries to come and live here might also be an example, so when James Cameron or Julian Robertson come live here, they can help attract other people and establish an ecosystem. Mr Moretti talks about the cautionary tale of the University of Washington, whose efforts to build a classy economics department foundered when resources ran scarce before the star attraction programme was completed.

The demand side idea is basically about attracting high-tech employers to come set up shop. The main tool is subsidies or tax breaks as part of so-called “place-based policies”. Mr Moretti says around $60 billion a year is spent on them in the United States. The idea is to provide subsidies for the first firms to come along, and then stop the subsidies after enough firms have arrived that economic development is self-sustaining: the “big push” strategy aims to break the impasse that keeps high-tech firms from locating outside of existing high-tech areas.

Mr Moretti says the push needs to be really big, decisive and sustained, and it has to target the right people. And the big problem is this last point: local government needs to be in the business of picking some winners.

The track record of these types of policies is mixed, to put it nicely. Many hubs have nothing to do with government action: Silicon Valley, the biotech cluster in San Diego, and the movie cluster in Hollywood are examples. Even in smaller places, Portland Oregon being one that I am familiar with and that seems actively to encourage the inward migration of young, skilled people, the heart of the high-tech hub is a private employer: Intel’s semi-conductor facility in 1976 was the start of things there. More locally, it is not obvious that government had much to do with Weta, nor with Xero, both of which have substantial local ecosystems around them.

That said, internationally Israel and Ireland would be held out as examples of success, the former more so than the latter these days, and even there the intention of government spending was not to create a local tech sector but instead to develop innovative defense technologies. Taiwan is another relevant example, transforming from a rural economy to an advanced one courtesy of government-sponsored research in the 1960s and 70s. Policy-makers bet on several failed technologies, but also on semi-conductors, which turned out extremely well. The history of efforts by governments is not studded with success, however. Mr Moretti reviews the experience of Fremont California, where Solyndra, a major employer, maker of solar panels, and recipient of significant federal government support, went broke in 2011. It seems that the industry of making solar panels does not exhibit strong forces of agglomeration, although it is hard to find this sort of thing out without trying.

Smaller scale efforts to attract employers, e.g., Twitter’s recent move to central San Francisco, are very common and, in some cases, seem to pay off for the communities involved, i.e., the benefits from spillovers can be bigger than the cost in tax foregone. That does not make the residents happy necessarily, since they appear to be giving city tax breaks to enormous profitable companies.

A programme that successfully encourages development, that does not try to pick winners too directly, that targets incentives carefully, and that incentivises private investment is more likely to be a winner, says Mr Moretti.

So what to do

Sadly Mr Moretti does not offer too much encouragement. There are no straightforward answers it seems, and you will only know you have succeeded once you have succeeded. His policy agenda is fairly broad, mentioning vouchers to encourage people to move to areas where they are more likely to find a job, a boost to RnD, a major improvement in the quality and quantity of education especially in technical subjects, and a loosening of immigration policy, since immigrants seem to be a lot more inventive than locals in the United States.

What all this means for New Zealand, a place that is not a brain hub in many industries and is far from the world, is not especially clear. The picture is even less clear for regions within New Zealand, which are still further from brain hub status by comparison with the major centres of New Zealand.

But let’s say New Zealand wants to be a brain hub, i.e., we want to adopt some policies that will attract or create high-tech companies that will hire high-tech workers, and this will generate jobs and boost everyone’s income. Assuming we have not got lucky, i.e., we are not a brain hub already, and we have good education, immigration and RnD policies already, some possibilities include the following:

* Understand the situation, i.e., figure out what New Zealand is good at and not good at, what is useful and can be built upon and what is difficult and will need to be worked around. Thinking about how the whole hangs together (“the city of four million people” to quote Shaun Hendy) and how we can compete with much larger Australian cities that attract more people is useful.
* Back some local employers or employment initiatives with public money, and over time expand the ones that seem to be working (i.e., the example of Taiwan, but not of Solyndra). Bear in mind that tech venture capital firms expect only one of every ten investments to succeed, a few to muddle on, and the rest to sink without trace. Politically you are going to have to be resilient to failures with public money. Not easy.
* Connect with educated locals and encourage them not to leave. The experience of Otorohanga might be inspirational as well as educational at the level of the nation.
* Connect with your diaspora, and try to encourage them either to come back with their businesses and networks, or to take an active role in supporting local initiatives from wherever they are in the world.
* At a national level, I think it would really helpful if New Zealanders went to a more diverse set of places (and not just focusing on the UK and Australia). We are not sufficiently well connected to China and the coasts of the USA.
* Make some localised improvements to amenities. Perhaps just giving talented people a place to run into each other could be a useful step forward. ATEED is building an innovation hub to house high-tech firms: a cluster of them is clearly already developing on Viaduct Harbour Avenue, with Vodafone, HP, Microsoft and others already in residence, just to name the brands you can see on the door. Fonterra is moving in next door.

You could also get some useful ideas on talented people and how to attract, retain, develop and connect them from the ever-interesting McGuinness Institute, and their project TalentNZ.

Do not expect speedy miracles. Sustainable economic development takes a long time. You can see New Zealand’s exports and imports broken down by type below, courtesy of the MIT observatory of economic complexity. First is 1990. Second is 2010. See how many colours have changed?

NZ Exports 1990


NZ Exports 2010


Use technology better, New Zealand!

On Monday I had the joy of speaking at an academic Symposium organised by the Productivity Hub, a large group of Crown agencies looking at the challenge of how to boost New Zealand’s productivity.

My basic point was that I think that smart use of the internet by New Zealand businesses can help boost the productivity of our businesses and ultimately lift the prosperity of the nation.

We are big on connectivity and are major users of technology, but we do not use it in the most productive ways in our businesses.

You can read the slides, look at the paper, or even read about it in the newspaper.

Distant pangs

A few thoughts on Open Lands, by Mark Taplin

In 1992 the United States and Russia agreed to let their citizens travel without restrictions within each others’ countries, quite a development given that the Soviet Union only ceased to exist in December 1991 and there was still plenty of Cold War hangover on both sides.


Mr Taplin, a cultural attache at the US embassy in Moscow in the 1980s, took the opportunity to go to some places that were previously forbidden and to write about what he found. Part travelogue, part economic study of a country in crisis, and part ethnographic investigation of a diversity of ex-Soviet characters, this book is the result.

It is great on people. The impoverished vulcanologist of Kamchatka and his fish-soup making wife, the tin-pot secessionists of Kabardino-Balkaria, the over-organising tour guide in Tuva, all could be characters from the modern equivalent of a 19th century Russian novel. Perhaps an undiscovered Gogol, with that blend of stoicism and fatalism in the face of the plainly unacceptable or surreal that is both Russia’s iconic national personality trait and the demand that it makes of all visitors.

It is also a great blend of history and modernity. Mr Taplin takes the opportunity to review the history of places that he visits, and illustrate then with personal stories of the people across whom he comes. And he combines this with stories from his own road as he tries to make sense of what the history means for the present day.

Thinking big

It is also great on dreaming. To his credit, and perhaps demonstrating the book’s appeal to those who like to venture from the trail, Mr Taplin makes attempts to follow long forgotten paths in an effort to bring meaning to what could otherwise be seen as a depressing tour of some low priority provincial Russian regions.

Most entertainingly, but also ludicrously, he hatches in Moscow (seven time zones away) a plan to follow the trail blazed by George Kennan, the explorer not the diplomat, who visited Kamchatka in 1865 and (p 245):

ascended the Abacha River in a whaleboat; climbed over the mountain range behind the capital on horseback; rafted down the Kamchatka River to Klyuchi, a village at the foot of Kamchatka’s highest volcanoes; trudged over the high ridges of the Middle Range; struggled up the trackless west coast of the peninsula  and then wintered among the nomadic Koryaks, who carried Kennan and his companions across the frozen tundra in dogsleds, sheltering them in sooty teepees.

If this all seems a bit dramatic in the light of modern cruise shipping to Kamchatka, these sorts of impossible itineraries do rather seem to have been de rigueur for real explorers back in the day. I recently read Turkestan Solo, in which Ella Maillart, a Geneva-born hardcore explorer, describes amongst other things her crossing of the Kyzylkum Desert in western Uzbekistan by camel in winter on an expedition she put together on the hop and on a shoestring in the 1930s. They bred them tough back then, apparently.

The net result for Mr Taplin is less glamourous. He ends up on a horrifying truck ride with a coterie of serving military folks with a sideline in smuggling, some charmless days in the truly charmless Klyuchi including being, in a marvelous Sovietic twist, a near neighbour to Stalin’s granddaughter, and an effective exile back to Moscow courtesy of local officials for whom the end of the Cold War still seems to be news. For extra colour we have the mysterious figure of Leonid, whose overweening blandishments and toady assistance mark him out immediately to readers of spy novels as a sympathiser with the authorities and someone definitely not to be trusted.


There are many possible morals to the story. The boringness of the previously forbidden places particularly struck me, hardening my prejudices against the abuse that eventually emerges from powerful systems that are not transparent or open to external challenge. Why they would bother to make these places closed to foreigners, or for that matter to Russians, is a question best left to the historians. I recall a story of Eric Newby’s about being forbidden for security reasons to take photos of bridges on his Big Red Train
Ride, despite the fact that all details including photographs of the bridges were published in a book that was freely available in the West and that he even carried with him. I remember holding my camera with particular caution around unimportant railyards on the train, suggesting that this secretiveness was still part of the atmosphere in the early 2000s.

Even when Mr Taplin does go somewhere that seems intrinsically interesting, dreariness is his constant companion. The book has a set of reviewers with whom I make particularly poor company. No less an authority than the Economist describes the book as identifying in particular the “soul destroying ugliness” that communism foisted on its subdued populace. Every traveller to Russia will recall some incident like that that befell Mr Taplin in the cafes of Vladivostok, and all budding Kremlinologists will recognise the political machinations of that far-eastern town as typical of the madness that descends when “democracy” is grafted on to autocracy and has not yet had time to grow firm roots.

Despite the bleakness of the future in prospect for Russia’s farflung provinces, there is
something positive in this account also. Laughing and crying are never far apart in Russia, and it seems as if Mr Taplin is partly trying to find out why it is that he is sufficiently interested to even bother to visit these outposts of fading empire.

Perhaps he is captured by the same romantic travelling spirit that defines all problems as challenges, all grotty bedding-down places as experiences, all inedible chow as an opportunity to discover a new cuisine, and all uncomfortable journeys as chances to see the world a new way. It is the dream that some cleaner, more magical dream is just around the next bend, that a visitor can peel back the facade of crumbling infrastructure and ruined lives and reveal the delight and cleanliness of an upcoming civilisation rampant. It is probably also a reminder of how pampered one quickly becomes in the feedback-form-filling west.

Which is just as well. Because without this superimposed meaning, the unremitting poverty, decay and despair could make it rather hard to cope with a journey like this one: the underlying thought of all travellers being “at least I don’t have to stay”.

Last line

Overall Open Lands is an excellent addition to my library, such as it is, an interesting record of how it was in the mid 1990s as the support systems that sustained economic life in previously-important parts of Russia broke down, and excellent vanity travelling for places that I may not reach for some years. So thanks to the Wellington man who commented on a previous post pointing me in its direction.

In particular, I have always been interested in the border between Russia and Mongolia in Tuva, a line on the map where two forgotten places meet. It was reported as being impassable in the early 1990s when I was near there (although there was no risk that I would actually go in any case), but now I have heard that some folks on the Mongol Rally pass through, which is clearly the sign that mass tourism is just around the corner.

Somewhere to live

I own a house in Christchurch with two friends. It is a charming three-bedroom character home in Spreydon with wooden floors, a sunny open-plan kitchen and lounge area, a double garage, and a decent-sized backyard with a fairly extensive garden. Lovely if you are in to that sort of thing.

For my sins (and for the princely fee of two dollars a year), I am responsible for its management. And that meant that I had the task of re-renting on a recent weekend after our previous marvelous tenants bought a house.

Shaky ground

Rental demand is very high in Christchurch at present. I have no idea what is really going on, but it seems that not as many people moved away as might have been expected after the earthquakes, and many people are now arriving to help with the rebuild. Although plenty of houses have been lost, not many have been built yet and the net result of all of that is huge interest in anything habitable and increases in rents.

Looking at the data on rents in Christchurch over time compared with the New Zealand average courtesy of Massey University does not seem to reveal so much. Average rents in Christchurch in February 2011 were 310 a week – the same as the average for the country. Rents from August 2012 were 330 (up 6% in the 18 months) for Christchurch versus 320 overall (up 3%).

More revealing, perhaps, is a more anecdotal report.

We had more than 2,500 views on our online advertisement on trademe in the two weeks before the open home. I took twenty or so phone calls and a handful of texts, as well as fifteen email inquiries. On the weekend there were 25 visits and we had 20 applications, eight of which were acceptable in the sense that I would have been happy to have those people live in our house. And of course in the end just one was successful.

How to win

There were two basic approaches taken by potential tenants, the tragedy and the salesperson.

The tragedarians inspired my sympathy. It would take a harder heart than mine to not be sympathetic to those who were being kicked out of their current digs for earthquake repairs or because the landlord was moving in, those who were squatting in a caravan with relatives or perched in a hostel looking for a place to move into with the family when they arrived in a few weeks, or searching for a place closer to family in the area after medical treatment.

In the event, though, this turned out to be the wrong approach to actually secure the lease. Sifting through the tragic tales to somehow try to determine the situation most worthy of relief would have required both wisdom and emotional strengths greater than those I possess.

At best, the tragedarians were playing a kind of lottery, no different in practice from the guy who filled in the form but never spoke to me, presumably chancing that, if he filled in enough forms in enough places, for some place he would be the preferred candidate.

Sell job

So, hard-hearted though it is to say, the salespeople won out in the end. What I was looking for was a decent long-term tenant who would look after the place, pay the rent, not generate any dramas, and tell me when something was wrong. Bonus points if you were prepared to tend the garden. People who found that out what I wanted early and could demonstrate they fitted the bill had the right strategy.

Successful was the person about whom we knew the most, because he was one of only two applicants who had the smarts to write to me beforehand to ask what we were looking for, reasoning that there was no point in applying for places whose criteria they did not meet.

Horrible was the process of calling the 19 unsuccesful applicants, particularly since for many of them there was no compelling reason why they did not suit other than blind luck, and for the others, well, no one filling in a rental application form actually wants real feedback on how they rate in a prospective landlord’s eyes. And so basically I feared not having anything coherent and not insulting to say if they asked me “why not”. And I did not like at all the power and status that I had by virtue of just having bought a house in Christchurch six years ago.

In the event, as often with fears, I need not have worried. The thing that made the calling most horrible was not that the unsuccessful applicants were upset, but that they were all so kind and understanding. It was as if they were sorry to have put me to the trouble of calling them all rather than confused and angry that I had not recognised their evident virtues. Not one of them asked me for any reasons, which made me meditate more than usual upon the apparent goodness of humanity, and made me suspect that this decision was far bigger for me than it was for them.

Strange what you can learn on the weekend.