Population growth has some effect on economic growth, but it is complicated especially where infrastructure is involved. We need to think more about it.

In an opinion piece in the New Zealand Herald, John Gascoigne claimed that New Zealand was a ‘tragic tale of economic decline’. He gave no evidence for the claim – which is understandable because it is hard to make rigorously.

Essentially what has happened is that in most of the postwar years, the New Zealand economy has grown at roughly the same per capita GDP rate as the rest of the OECD. There was a thirty-year period after 1966 when it grew more slowly.

There were two phases. The first was following the 1966 fall in the wool price, when New Zealand’s single most important export industry, earning over half our foreign exchange, collapsed. Economics 101 will tell you that when that happens, an economy will struggle; it did for a decade but recovered and then began growing at the same rate as the OECD again. However, it had taken a knock; the new growth path was about 14 percent below the level it would have been if the track before the wool-price crash had been maintained. That is how important wool was then to the economy.

The new growth path did not last long. In 1985 the economy went into a decade of stagnation, presumably as a result of the neoliberal economic management of the times. There was a recovery from the mid-1990s back to growing at the OECD rate, but this time the growth path was 17 percent below the previous one and almost 30 percent below the pre-1966. But other than those two periods, New Zealand has grown at much the same rate as the rest of the OECD.

We are hesitant to acknowledge the neoliberal stagnation. The huge tax cuts for those at the top meant that the well-off were hardly affected. Ther high-income tax cuts were paid for by the rest, who experienced lower real incomes from higher taxes, lower benefits and reduced government services. Moreover, even today many of those who benefited from neoliberalism are still in positions of importance or carry the ideological baggage from that time and prefer to ignore the economic record.

But if you do, you end up with stupid analyses like Gascoigne’s. Does he really think he can explain the sharp relative fall in the period from 1966 to 1996 by exceptional population growth? That is certainly not what the demographic data says.

It is true that rapid population growth can dampen per capital economic growth but the magnitude of the effect is quite small. I explored it in my 1996 book, In Stormy Seas. (There are some who will snort that it is not unusual for New Zealand Herald opinion pieces to be a quarter of a century behind the research frontier.)

If the population growth is from higher fertility, then a larger proportion of the population is young and caring for the young, which means there are fewer paid workers in the total population which reduces per capita GDP. If the growth is from increased longevity among the elderly who don’t work, then a similar reduction occurs.

What about if the population growth is from external migration into the labour force? The traditional view was that the migrants – especially skilled migrants – would enhance per capita GDP and hence economic growth, at least by boosting the proportion of the population in the labour force. That seems to have been a foundational assumption of the Key-English growth strategy.

I am not sure that is quite right. The traditional analysis may have underplayed the infrastructure problems or we may be in a new phase of development where infrastructure is more problematic. The issue has yet to be fully elaborated, so I can only sketch it here.

Auckland has been seen as a key element in New Zealand’s growth strategy but what about its infrastructural needs? It is said that the country’s largest car park is the jamming on the central city motorway. We – I mean the whole country – are spending a fortune un-jamming it: widening the M1,while the Western Ring Route and Waterview Tunnel are relief roads and there are plans for a second (expensive) harbour crossing. The City Rail Link and the proposed light rail from the CBD to the airport have similar purposes.

On the whole, the extensions seem to be containing the Auckland jam rather than resolving it because traffic demand is rising. One source of the rising demand is the newly arrived migrants. We do not know how much of the infrastructural spend is for their needs but I have seen rough calculations which suggest there has been little improvement in New Zealand’s roading structure per person.

The problem arises in part because of the confined Auckland isthmus which is not like the models of disc-like urban centres we were taught (if we were taught any urban economics at all). Christchurch, for instance, is probably not as expensive a problem but its population is not growing as fast.

There are other parts of the infrastructure which are becoming increasingly expensive to extend – for instance cheap hydroelectricity power sites are exhausted – all suggesting that when we think about population policy we need to think more about such issues.

It is far from clear that we have a coherent population policy – although the Productivity Commission is due to report on immigration soon. So there is some acknowledgement that we need to think more coherently. It may well be that we find the issue is more about wellbeing than economic growth – that the infrastructural extensions may have some impact on the latter, but we need to focus more on the former. The people-flow consequences of the Covid pandemic have highlighted some of the related issues such as the skill balance. But there are also distributional ones. Do the higher incomes all accrue to the migrants or are there some benefits to those already here?

I would regret if we were to ignore those issues and return to the unthinking Key-English approach. But I would also regret our abandoning immigration altogether. Every one of us is descended from immigrants; I should hate to see us follow the many narrow-minded ‘nativist’ Americans who forget their origins and are violently (yes, I mean that word) opposed to more immigration. But we can only head the development off by a more thoughtful coherent alternative.

Envoy: As I was writing this I learned of the death of Ian Pool at the age of 86. He is described as the ‘father of New Zealand demography’ (although of course he had ancestors). I was very aware of his immense contribution when I wrote Not in Narrow Seas. It is a better book for his and his ‘children’s’ research. Thankyou Ian.