NZ stuck in the days of Muldoon - MFAT adviser

David Skilling says the country's economic policy has not moved on from the approach of Muldoon. Photo / Brett Phibbs

New Zealand's fixation on domestic productivity is too "introspective" and has left the nation's policy debate stuck in the past of Robert Muldoon when the nation tried unsuccessfully to go it alone in an increasingly global economy.

Ministry of Foreign Affairs strategy adviser and former New Zealand Institute boss David
Skilling says the country's economic policy is largely focused domestically, viewing the rest of the world in simple terms of market access, and "has not moved on from the approach of Muldoon".

That domestic focus is "characteristic of much of the New Zealand debate" and not limited to the public sector.

"The latest economic policy thinking from Wellington seems to be based on a view that the priority is to improve domestic productivity, which will boost New Zealand's competitive position, which in turn will generate better outcomes," Skilling said.

"The focus on domestic productivity means that we are not having the conversations we need to have about our position in the global economy."

New Zealand's deteriorating productivity has been a touchstone issue for politicians of all hues as they seek to bridge the gap with Australia, the country's closest neighbour and biggest trading partner.

In 2010, the National-led government set up the Productivity Commission, and tasked it with providing specialist, non-partisan advice on policy issues affecting the country's poor national productivity record.

Skilling likens the domestic focus to that of former Prime Minister Muldoon, whose so-called 'Fortress New Zealand' was embodied by policies such as the 'Think Big' projects, aimed at reducing the nation's reliance on international oil, and state subsidies for the agricultural export sector.

"We have not figured out how to position a small remote economy to compete in a global economy with factor mobility, intense competition and where global politics and economics are intersecting to a much greater degree," Skilling said.

"After the reform process wound down in the mid-1990s, the policy machinery seems to have run out of steam in terms of new ideas and debate."

Skilling's serve comes as New Zealand's officials are engaged in a far-reaching regional trade agreement known as the Trans Pacific Partnership. The deal seeks to align regulatory settings as a means to reduce the cost of trade rather than merely dropping tariffs and quotas, and could deliver an annual boost of some $2.1 billion to New Zealand's economy by the mid-2020s, according to the East-West Research Center.

New Zealand needs to align all major policy areas as a "coherent response to globalisation," developing an economic strategy on how the country should compete internationally, how national risk exposures such as an ageing population and education and labour market policies are managed, and how the country positions itself in the world, Skilling said.

The country will "need to over-invest in order to overcome the disadvantages" of its distance from global markets and exposure to international forces.

Skilling identified New Zealand's "out-dated view of the global economy" in a March note published by his Singapore-based Landfall Strategy Group, and revisited it in a lecture in Wellington last week at the Treasury.