I don’t like politics, and I get a peverse pleasure from attacking things that political parties say – what can I say, I’m human.
However, I can’t say I agree with the attacks on Bill English’s comment that NZ has a comparative advantage over Australia because labour is cheaper.
He was talking about this in the context of “attracting capital”. He was saying that the labour quality was similar, the regulatory environment was similar, but because of a lack of investment wages were 30% lower.
How does this work? Well, capital increases the “marginal product” of workers, the higher the marginal product of workers the higher their wages will/can be. We know that Bill English believes that NZ hasn’t been investing enough – a point I find interesting, even if I don’t completely agree.
However, this is consistent with what he believes – he thinks investment in NZ has been too low, and that is why wages are too low. As a result, by saying “hey our workers are cheaper” he is in one sense telling people overseas that the return on capital in NZ is higher – and that they should invest here. If they invest, they will in turn push up wages helping NZ to “catch Australia” as he loves to say.
Now I don’t believe this – I think there are likely to be fundamental reasons we can’t “catch Australia“. However, if Bill English believes that low investment has lead to lower wages, going out and telling investors about this IS consistent with their goal of catching Australia. [It is consistent with the long running productivity discussion in recent years (see here and here) – a discussion that has “morphed” into a focus on savings more recently]
I’m sure it doesn’t seem like a good statement to make in a “marketing/political” sense – but at least its honest and consistent. Surprising for a politician …
Update: It appears that John Key made some comments as well – it looks like he had the same idea about it being a push to increase the flow of capital to drive higher wages in the future.
Update 2: Whole situation is discussed here. Just as a note, I have no problem with foreign investment – yes foreign investors want a rate of return, but by definition they can only get that return if they are creating value …