“The “paradox” concept seems to come from an OECD model which shows NZ should have an income level 20% above the OECD average, based on our policy settings”

Yeah I know, I just didn’t find the terminology, or the model, particularly enlightening – don’t tell anyone 😉

“When you look at the success stories of Korea, Ireland and Finland, a common factor is that in all three cases it was an investment story.”

This is where I get a bit more, uncertain. Outside of Ireland GDP per capita is pretty comparable between NZ and the other two countries, and Ireland’s has more of an issue of production being used to fund overseas dividend payments than the rest of us (Note: NZ has a bit of this, but in the figures on GNDI the transfer and TOT effects seem to “cancel out”). In this context, we don’t really look too bad to be honest.

The competition point, the idea of spillovers, and the idea of scale are indeed all key – very key. Trying to break down what is occurring on the basis of these factors will help us figure out what policy is appropriate – as they require “different” policy responses, as they imply different things about the trade-offs and association with well-being.

That is why I was keen to term this an “asking why” more than anything else. Will be interesting to look at the papers that come out in the future 🙂

I am not sure the focus on MFP is really helpful. It’s hard to measure, we don’t know what it is and we don’t know what causes it. (I think a historical-descriptive approach would be more insightful.)

When you look at the success stories of Korea, Ireland and Finland, a common factor is that in all three cases it was an investment story. If they hadn’t built all those steelyards and assembly plants, there wouldn’t have been the context for the “learning by doing” to take place. A second common factor was that it was an export story, meaning the key firms were exposed to intense competition. A third common factor is the role of large firms. Large firms have a special role in their ability to execute efficient scale investments, and to link branding and pricing power with insights from product development. These three factors go a long way to explaining the incredibly high productivity in Australian mining. Much of the rest of the Australian economy is oligopolistic and expensive for the consumer, but the regulators seem to be good at creating “just enough” competition between the major firms to keep driving productivity forward.

I think we can go a little far – there has been broad based increases in incomes, and arguably wellbeing, in New Zealand. Furthermore, when we include the increase in the TOT, and account for differences in measuring economic activity between countries, New Zealand’s relative position improves somewhat.

We shouldn’t confuse trying to make things better with bemoaning how things are – things are actually pretty good!