Economist Ganesh Nana: Beyond the free-market experiment

The economist who’ll lead the charge to boost New Zealand’s lagging productivity wants to take a fresh look at what being productive really means.

In fact, Dr Ganesh Nana, who has been appointed by the Government to chair the Productivity Commission from next month, wants to go further and broaden the way we look at the whole economy.

“When we – as economists or business – talk about productivity I worry that in most people’s ears they hear the word ‘profitability’,” Nana says.

“Productivity is not talking about business profitability. We’re talking about business, corporates, we’re talking about organisations delivering better services, delivering better products.

“Delivering better lives to people. It’s the words we use, the jargon we use. We’ve got to live that word: inclusion.

“If we don’t include people we’ve left out in the past, we will perpetuate those harms and probably increase those harms … that we’ll ultimately have to pay for.”

That will sound like a radical stance to some people in the business community who remain focused on more traditional measures of output, but it shouldn’t be a surprise to hear it from Nana.

As chief economist and research director at economic think tank Berl (Business and Economic Research Ltd), he has been an outspoken critic of free-market economics for more than 20 years.

He has challenged both National- and Labour-led governments to do more to address poverty and social inequality.

That has earned him a reputation as a left-wing economist and certainly makes his appointment as Productivity Commission chair controversial.

In some respects it represents one of the bolder political statements that the current Government has made about its broader ideological thinking.

But Nana rejects the political labelling and points out that he has never had any party political affiliation.

“Some people might call me left-wing,” he says.”I prefer progressive.”

His definition of ‘progressive’ is “people that understand that the market economy functions for some people. And it functions very well for quite a lot of markets, but in some very important markets it doesn’t.”

Progressive thinking does require a government to have “a proactive, and in some cases quite a strong, role in the economy to make it function for all,” he says.

If that is progressive or left-wing, or anything else, that is up to others to argue based on their own perceptions, he says.

Finance Minister Grant Robertson was clear in comments about Nana’s appointment that he was looking for a broader approach to measuring productivity and economic growth.

“I want to ensure that the commission, like the Government, looks beyond GDP to find its measures of success, and has the wellbeing of current and future generations of New Zealanders front of mind as it generates new knowledge and advice,” he said.

“I also want them to engage with a wide range of New Zealanders as they undertake their work.”

Nana, who takes over the position from a former deputy Reserve Bank governor, Murray Sherwin, is ready and willing to meet that brief.

Whether you look at it from the left or the right, there is little disagreement about one key fact: New Zealand suffers from relatively poor productivity.

We lag other comparable nations in terms of economic output per hours worked, despite a number of natural and social advantages.

In other words, we’re a less efficient economy than we should be.

The Productivity Commission was set up in 2010 with a view to addressing that problem and advising the government of the day on policy.

In the past decade it has done great work in identifying areas of weakness. But progress on improving things has been very slow.

The commission’s report from 2019 highlights the fact that New Zealand’s GDP per capita is 30 per cent below the average for the top half of the OECD.

Aside from a small improvement following the 2008 global financial crisis, it has remained around this level since 1996, it found.

For the past 25 years or more, New Zealand’s income per person has stayed at about 70 per cent of what it is in countries in the top half of the OECD.

In short, says the commission, New Zealand works harder rather than smarter.

The reasons are complex and hotly debated. But broadly, there’s a view that New Zealand businesses are undercapitalised.

We rely more on labour, and hours worked, to get the job done rather than investing heavily in high-tech factories and equipment.

From an investment point of view, capital tends to flow to the property sector which doesn’t add new value to the economy.

There are also issues with skills shortages and the training of workers.

Nana acknowledges those issues but believes addressing them needs to be part of a shift in the way we view the economy.

“I think now the world has changed we really do have to look at broadening our perspective and indeed our definition of productivity,” he says.

“Because it hasn’t delivered the wellbeing, or whatever you want to call it, to many groups.”

A first-generation New Zealander, Nana credits a passion for cricket – the statistical side at least – as being the starting point of a passion for numbers and ultimately economics.

“Cricket is a gateway,” he says.

“I love numbers. I was brought up the stereotypical son ofstereotypical Indian immigrants with thecorner dairy. So I was busy in the shop, probably as soon as I could count. And if you loved numbers, you love cricket. It’s just so much fun.”

He went to university with plans to be an accountant “because that was what my mother wanted”.

He never really loved accounting, but stumbled into economics as part of the Commerce degree.

Nana studied at Victoria University under influential post-war economist Bryan Philpott and credits him with inspiring him on to a doctorate and career in economics.

Philpott, one of the founders of Berl in the 1950s, was very much in the Keynesian mould, which went dramatically out of fashion in the 1980s.

“There was that concept of the government having a role in the planning of an economy,” Nana says.

“And okay, we may have gone overboard in the 1970s … but there was that training about the need for government and business to work together. That training has very much stayed with me.”

Since the 1980s, Nana has stood outside the monetarist consensus that New Zealand is an inflation-constrained economy.

“Dare I say it? You could call it a Keynesian view that it’s the real production that constrains our economy and that is defined by how much we can export,” he says.

“So I believe we’re a foreign exchange-constrained economy and that’s not helped by the fact that we borrow abroad so that the foreign exchange we do bring in has to be repaid out back to cover what we borrowed 30 years ago.”

He was sceptical of the free-market experiment back in the 1980s and he remains so today.

“I’ll be open,” he says. “It’s worked in some cases, but to be honest after 40 years, I think we were sold a bit of a lemon.”

“We were over-promised and under-delivered. So I think we do have to be a bit humble and say let’s drag government back in to the core.”

He entered the workforce 40-odd years ago into what was supposed to be “a new great dawn, a new era of the market economy”.

It was the age of Margaret Thatcher and Ronald Reagan and, in New Zealand, Roger Douglas.

“If only the government would get out of the way and let the market function then it would deliver for all of us,” was the argument, he says.

“Well, 40 years later there would be very few of us who would say that has actually succeeded.

“It succeeded for some and in some areas, yes. But for others it hasn’t and that’s left a lot of scars. And indeed it has hurt our economy in various ways.”

One example is what he describes as the “race to the bottom” that markets encourage when they are left unchecked.

“Rightly or wrongly, the market economy does encourage short term behavior,” he says.

“When you are in a race to the bottom, you want to pitch your offering at the lowest price. And one of the easiest ways of doing that is to go for low cost labour, low skilled labour.

“That has set up a situation where we have got a growing divide in the wellbeing of the wider populace.

“We can’t ignore that.”

So New Zealand needs to do some thinking about the sort of productivity we really want, Nana says.

That means addressing issues like whether it is sustainable for the environment, or whether it’s good for all workers.

It also means including those who are not engaged in the market economy but who are engaged in community work or unpaid work in the home, he says.

Until a few years ago, views like those were treated as a kind of economic heresy by mainstream politicians.

But there has been a cyclical shift in economic thinking that has been building since the global financial crisis.

At both ends of the political spectrum, there has been growing push back against globalism.

High profile economists like Thomas Piketty have challenged the hallowed status of economic measures like gross domestic product.

Now the Covid pandemic has cemented the return of government economic intervention, with near-universal support for large scale fiscal stimulus.

“Government does have to have a big role to play in a small economy like New Zealand that is open to external shocks that we have no control over -whether that be exchange rates, or whether it be pandemics or climate change,” Nana says.

“Every time the market has failed, it is the government that is expected to come in and save us. We have to be real about that.”

But he remains wary of the old-fashioned left-wing, right-wing political divides.

“The economy is not as simple as the capitalists vs the workers. It is not as simple as business vs government.

“It’s a very complex animal and at the root of it all are people.”

Inclusion of all people in the economy really is the elephant in the room, he argues.

“If we don’t include people we’ve left out in the past, we will perpetuate those harms and probably increase those harms – harms that we’ll ultimately have to pay for.

“The world has changed, I can’t get that through to people too much,” he says.

“We could stay in our comfort zone of the 1990s and 2000s and perpetuate those same policies. It is not going to solve the issues of the 2020s and that’s even before we’ve had a pandemic slammed on top of us.

“It’s a totally different world.”

Nana says he looks forward to working with business groups, but also with community groups and other organisations.

“We’ve actually got to broaden our understanding of the economy,” he says.

“Economics isn’t about just business. We still have a perception in the wider public that the economy is all about spending.

“Even in terms of the recovery [from Covid] everyone is talking about retail spending and sales and how that’s meant to be a reflection of the recovery. Well, my economics training says spending doesn’t actually give you a recovery.”

In the end it has to be about actually producing goods and services, he says.

“It’s not rocket science. It’s all about investment.”

“But we have to be prepared to lift our horizons and get out of the short term race to the bottom”.

We need start investing for the long term, says Nana.

“When I say long term, I mean way more than three years and I probably mean way more than 10 years.”

Nana says his work at Berl with Māori organisations in recent years has shifted his mindset and lifted his horizons in terms of how he looks at the economy.

“When they talk strategic plans, they are 100-year plans not five-year plans,” he says.

“When they talk about sustainability, it is embedded in their kaupapa. It’s embedded in their business plans. It’s not just a nice to have.”

Businesses need to shift that thinking to the centre of the table, he says, not just see it as a something to do after they’ve made a profit.

“I like to think of the objective of productivity gains in terms of the phrase in Māori: We are kaitiaki of our taonga.

“We are very much guardians of the treasures that have been passed on to us.”

One other resource that we have in New Zealand, he says, is a strong sense of social capital and cohesion. We actually all get on pretty well compared to many other parts of the world and that is something to cherish and foster.

“The social capital that we have in Aotearoa really got us through Covid. That sense of belonging, that community. I think as economists we really underestimate that,” he says.

“If we can enhance and invest in that social capital – and that’s where the inclusion comes in – if we can include those who we’ve previously excluded, that would help us lift not just the profitability of the ones at the top but the productivity of all of us.

“You can see in other parts of the world just how much you lose if you lose that sense of community, that social capital. Or the trust institutions, which is the other definition of social capital.”

In New Zealand it is something we take for granted, he says.

“I think we’ve got a lot of investment to do in that area to lift our social capital to bring others in.

“Maybe that is the missing piece of the puzzle, I don’t know, but it’s worth a go.”

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