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Insights 06: 26 February 2016
Poorly Understood: The state of poverty in New Zealand
Three things you need to know about our latest report, Poorly Understood
The end of EU-rope? Initiative at Home with Dr Oliver Hartwich

Poorly Understood: The state of poverty in New Zealand
Jenesa Jeram | Policy Analyst |
Poverty may be one of the most reported about and argued about topics in New Zealand. It also might be one of the most poorly understood topics.

Hence the title of The New Zealand Initiative’s latest report: Poorly Understood: The state of poverty in New Zealand. Joining a range of other organisations, advocacy groups and academics, we hope our addition to the literature will strengthen public debate and understanding of the topic.

While numerous organisations have written on poverty, everyone views it through a slightly different lens. As our report argues, poverty is an emotive term and is necessarily subjective. We highlight the extent to such subjectivity, and the complexity in finding solutions.

After all, how does one define poverty in a developed country like New Zealand? Obesity, for example, is more likely to be associated with poverty than starvation. There are symptoms of poverty here that are not characterised elsewhere.

The measurement of poverty matters too. The fact New Zealand collects evidence on a range of measures is a real strength for those interested in evidence-based policy. But it can also over-simplify the issue, as people cherry-pick their most favoured measure or statistic.

There are relative income or wealth measures which indicate inequality, but are often used synonymously as poverty statistics. Then there are material hardship measures, which can better reflect the sacrifices a household must make because money was needed for other essentials. There are also before housing costs and after housing costs measures, which are all the more salient given the housing affordability problem in New Zealand.

While reporting on poverty is much easier when you can definitively say that a certain number of people are in poverty, and that poverty is getting better or worse over time, the evidence is more nuanced. Different measures reflect different personal or political priorities.

Our report also discusses factors contributing to poverty, acknowledging the difficulties in establishing causes. An example is the popular claim that poverty is caused by low income or benefit levels. But not having enough money is also a symptom of poverty. Low income cannot be the sole cause and definition of a problem.

Of course, this is just a small snapshot of a big issue. But we hope that this report will be a step towards better conversations on poverty, better understanding of the evidence, and more effective ways of helping society’s most vulnerable.

Poorly Understood: The state of poverty in New Zealand was co-authored by Dr Bryce Wilkinson and Jenesa Jeram. The report and two-page summary are available here.

A serious affliction
Khyaati Acharya | Research Assistant |
The old human sciences building on the grounds of the University of Auckland was affectionately known among my peers as The Dungeon. With its dingy basement corridors and eerie acoustics, it stood in stark contrast to the more recently-constructed business school, a colossal, contemporary glass structure.
The university’s modern lecture rooms are more hi-tech, the air-conditioning more pleasant and the seats more ergonomic. And yet, despite the improvements, it still takes 60 minutes to deliver a one-hour lecture today, as it did 132 years ago.
American economists William Bowen and William Baumol explained the phenomenon now known as Baumol’s Cost Disease. They observed that despite the rise in musicians’ salaries, orchestral performances rarely experience any increase in labour productivity. The same number of musicians is still needed to perform Beethoven’s Ninth Symphony today as was needed when the composition was first performed in Vienna in 1824. Except, symphonies need to compete with other more productive sectors for employees.
Like the performing arts, tertiary education is a labour-intensive industry, a characteristic that makes it particularly susceptible to this affliction.
Competition for workers means salaries generally rise faster than productivity rates in less productive sectors. But for the tertiary sector, most productivity gains come from increasing class sizes. To attract reputable academics from alternative occupations requires offering competitive wages. The end result is that universities require more money in real terms per year to do exactly the same thing they did the year before.
Exacerbating the effect of the cost-disease in New Zealand is the fact that universities are subject to centrally mandated tuition fee caps. The Annual Maximum Fee Movement, set to 3 percent for 2016, dictates by what rate annual fees may increase. Restrictions on the number of students allowed per year mean many of our tertiary institutions are squeezed at both ends. Constrained by tuition caps, student quotas, and rising fixed costs, universities must then look towards international student fees to make up any shortfall. And, as discussed earlier, this limits their ability to invest in services and improve quality differentiation.
Increased revenue enables tertiary institutions to attract and retain high-quality academic staff who drive teaching and research performance.
University costs will not come down until someone discovers new and more productive ways of teaching. In the 1999 film The Matrix, learning new skills was simple because brains came with handy upload ports. Alas, real productivity innovations in university teaching are more common in fiction than in practice.

Of gilded statues and economic impact analyses
Dr Eric Crampton | Head of Research |
You can sell just about anything with the right economic impact report. Just consider Sir Robert Jones’s presumably tongue-in-cheek proposal for a magnificent new statue on The Terrace.

In a letter to Mayor Celia Wade-Brown widely published this week, Sir Robert asked that Wellington City Council waive the height restrictions on his Solnet House property. Why? So he could demolish it and build a statue of Gareth Morgan, five kilometres tall. Cristo Redentor? You ain’t seen nothin’ yet.

Leaving aside the less than veiled poke at Morgan’s public persona, let’s consider the economic impact assessment.

Jones pointed to estimates of 20,000 more hotel rooms being needed to accommodate Morganite pilgrims. As usual in these assessments, he ignored the costs of building the hotel rooms in the first place.

He noted an expected tenfold increase in cruise ship visits necessitating massive new port facilities, ignoring the costs of building them and the pedestrian congestion burden imposed on Lambton Quay and The Terrace with the new arrivals. If you have been annoyed by slow-moving tourists while making your way around Wellington, just wait until you experience the sorts of cruise ship denizens who would make their way here to see a statue of an economist.

Finally, he expected an economic boom from having to build four new runways to cope with demand at Wellington Airport.

If anything, Jones’s economic impact assessment was more structurally sound than many I have seen. His projections are clearly based on new tourist inflows that would not have come to New Zealand anyway at some other time, so they are one-up on some analyses of major sporting events.

And he ignores one substantial benefit: it would be much easier to fly regulation-compliant recreational drones within city limits, so long as they stayed within 100m of the statue.

His major problem, that if he builds it the Morganites may not come, is not a flaw unique to his proposal.

Sadly, even with such a magnificent economic impact assessment, the project may be impossible. Brazil’s Cristo Redentor stands only 30 metres tall and weighs 635 tons. A five kilometre high statue would be more than proportionately heavier and, in case of earthquake, would impose considerable risk on, well, the entire downtown. I suspect it would be ruled out under earthquake-prone statue regulations.

Bit of a shame, really.

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