Tourism as low skilled and comparative advantage

In an interesting piece on the Rates Blog there is a suggestion that the governments focus on tourism doesn’t make sense because it is a low productivity industry.  In the comments there is a lot of chatter about what industries we should invest in – blah blah blah.

The comments and suggestions all sound a bit like central planning to me though.  The individuals in the New Zealand economy focus on farming and tourism as we have a “comparative advantage” in those industries – note here that the NZ economy is a set of individuals, not some massive robot that spits out a type of export good.

It doesn’t matter if other countries are producing cars – since we have a comparative advantage in these industries thanks to the production of components like this Lucas Perkins injection pump we are best off if we just keep working on them, as they give us the greatest “income” with which to purchase the things produced overseas.

The idea that we can be better off by having government force us to produce “value added” goods is as wrong headed as the oft stated idea that only farming and manufacturing produce “real output”.

People from every side of the political spectrum say that we should “grow wages” or “increase productivity”.  However, outside of creating a healthy framework for individuals to make choices in the government has little role in making this happen.  In fact, focusing on such metrics can sometimes be wrong-headed – given that the actual goal of policy is to “maximise welfare in society”.

The government’s focus should remain on where it is willing to sacrifice efficiency to provide the level of equity society is asking for – not on chasing a pipedream of a “high wage – high productivity” fantasy land.  A government that talks about productivity constantly is obviously out of touch with reality – in this sense it doesn’t seem it took National long to become a normal government 😉

5 replies
  1. John
    John says:

    Robbin Clements praised the SI for reaching 1 million pointing out economies of scale and I wondered what occupations we would all be associated with, so I’m glad to see you bring up comparative advantage.

    Tourist town were once retirement towns for lower paid people who just wanted to finish their twilight years in peace (or knowing that those places are still there). This represents one externality of the development process.

    People who just want to get on with life enjoying the simple things are a misunderstood demographic. ?

  2. Matt Nolan
    Matt Nolan says:


    Hi John,

    Ultimately, society must believe that, given the current allocation of resources, prices represent the value associated with the different ways of life.

    Now, not every person is going to be happy with how society evolves – but if there is such pressure for it to move in such a way there must be many people who DO feel that way.

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