Interesting points John
This reinforces the need to rebalance our economy away from unproductive investment in land and property and towards investment in high wage goods and services sectors, preferably exporters.
The vision of a low wage economy simply servicing the baby boomers is a bleak one

cheers
Bernard

Oh dear...where to start.
How about here...
"The first development is that as New Zealand gets richer there will be a natural tendency to move away from goods production toward the provision of services"
How do you suppose New Zealand gets richer if all we do is take debt, buy houses and then service those debts? Don't we have to get an income from somewhere 1st?

John Carran says "The government can assist goods exporters to make the most of the environment they face by continuing to work bilaterally and multilaterally to reduce trade barriers" - actually it doesn't help exporters of high value goods much at all.Trade barriers are all about compliance issues in the elaborately transformed manufacturing space. Governments like NZ can't do much in here. If you think I'm wrong ask John Walley at NZMEA how things are going with the China FTA.

He also says that due to NZ's aging population "There won't be the supply of labour to sustain large scale production of goods in New Zealand to the extent necessary to boost goods exports as a share of the economy" Missing the point again. ETM requires less labour per dollar of goods made than other economic activity AND there isn't a need for large scale production activity in NZ anyway. That's not where we need to be. We need to be in niche activity. In this area we are very competitive so his assertion that over time there is a "shift of manufacturing production offshore to take advantage of cheaper cost structures" is only correct for long run product lines that isn't where we need to be anyway.

It all sounds like text book economics stemming from looking in the rear vision mirror of the industrialised nations history and expecting the new world order to be just a repeat of the old journey they went on. It already isn't like that except in places like China and India where they are following the old model because they have massive populations that are unskilled, underfed and look exactly like the status of the old industrialised nations. Perhaps they can repeat the journey. We need different thinking and it won't come from old text books.

Designers don't design your great future products by looking at what went before, nor do they do it by following the market researchers' reports about what the customers want. They do it by thinking up ideas the people can't ask for because they don't know they exist yet. If economists want to help they would be better thinking about what we can do that is different from what we have been doing and what the other failed states continue to do to see if they can design a way out of the current mess. Very hard to do with all the competing complex things in an economy but it has to be done non the less and economists that are more than accountants types or statistics gatherers should be the best equiped to tackle it. There are some great thinkers out there like John Kay and Eric D. Beinhocker but somehow they don't seem to get much traction in commentators thoughts in this country

Great post Brian W. You are absolutely right. Its all about niches for most NZ companies and as you say working on needs not wants. The text book economists just need to look at the IT industry for examples ( I'm not part of it ). But Nokia and co did not go out and do alot of market research and focus groups etc to develop texting ( for example ) because the consumer would not have had any idea of what could do or how it could develop -- there are scores of such examples.

PeterR - I read through your comments with my 'tin-hat' on expecting comments like, what a bag o' shite, absolute b*ll*cks, complete w*ankers, does GM really employ these tw*ts, where is he - on a Kawka somewhere, who's side are they on?, any PI guys?; but I have to say you impressed me with your restraint. You are probably the kind of gentleman I cannot be, good on you, for your restraint. Hey, have you seen this:

http://www.interest.co.nz/ratesblog/index.php/2009/10/13/economic-weathe...

Where is Gareth?

Excellent thoughts PeterR.

"The first development is that as New Zealand gets richer " - a very strange statement. As long as we have so many reliant on taxpayer handouts and the continual wasteful government expenditure there is no way for us to get richer. Perhaps the writer believes that increasing our wealth through inflation makes us richer.

Good to read some critical comments, I would be rather more cutting however thanks to the good thread to date, no need.

In an economy where you make huge capital gains on land and buildings it is known to be unsustainable. This has been very clear in Agriculture over the years, with many farms making a return of 2.5% or less (probably kept up with inflation), however they did very well on the whole as land values soared (esp dairy, due to large bank lending).

The problem with this? Farm production was seen as a byproduct to finance capital land value increases (where the real money was made). Instead of farmers increasing the production of their existing farms through development work etc, they instead brought more farms with bank loans. The result? a lot of poor performing farms that are now overburdened with debt and pretty much owned by the banks!

How this effects the low wage economy? puts tight margins on these farms and they tend to minimise labour cost. Farm workers are probably amongst the lowest paid in the country for the long hours that they put into their work..........

Farms are meant to be returning a profit.......but most of that is being spent on interest payments! Things are way out of balance between land values and what the land can actually return in annual profit/ha, even when the payout has been good. That is why people who lease farms never do as good as the land owner..... but I believe this is going to change big time in the next few years when farm values will go down and the incentive to spend money on increasing production will go up.

I ask this question.....why are so many farmers only regrassing 5% of their farm per year as long as history dates back, when it has been clearly shown that there is a profit gain to be made through production. see pasturerenwal website, NZ stands to make millions more through farmers increasing pasture renewal to 15% per year. Answer: because they have been spending this money on buying the neighbours farm........or are not interested because they compare it to the capital gain they are making and see it as 'nothing' or simply are not interested in spending money on their farms.

"Yes NZ should become the 7th state of Australia"

We would end up being the 'poor state' like or worse than Tazzy, because we dont have the big resource reserves of most of the Aussie States.