Innovation, Property Rights and the Political Economy

In recent months I have noticed an elevated volume of commentary relating to the overlap between economic development and the political expression of property ownership rights. Part of this debate has been driven by sea changes on the political landscape and new analysis of the role previous governments have played through intervening in markets. Last week’s OECD report card on New Zealand fanned the flames of this debate to a new level.

The report suggests that previous governments have consistently failed to address historically poor levels of productivity and innovation. In the face of a global economic emergency there is a strong call for urgent action to reconfigure policy on this front.

“New Zealand’s living standards remain well below the OECD average. This is entirely attributable to persistently low labour productivity, which in turn is related to economic geography as well as structural policy factors. The small size and remoteness of the economy diminish its access to world markets, the scale and efficiency of domestic businesses, the level of competition and proximity to the world’s technology frontier. This points to the need for a “New Zealand policy advantage”, that is, a set of structural policies attractive and welcoming enough to overcome the geographic handicap and attract the drivers of prosperity – investment, skills and ideas – to New Zealand.”

Innovation, property rights and the political economy are intertwined. For example without a robust framework for the protection of intellectual property there is little incentive to innovate and generate economic returns from new ideas. But implicit in the OECD calls for macroeconomic restructuring is the suggestion that Crown assets be sold to address fiscal debt. This remarkably unoriginal idea seems to mysteriously surface every time a National government is elected.

Some have argued that New Zealand’s historically interventionist approach has discouraged investment in innovation and critical infrastructure. However, hurried or ill considered sales of State assets (originally funded by taxpayers) in some respects seems contradictory to ongoing academic arguments that favour less intervention, more consistency and the protection of unalienable rights to property. How do we reconcile these positions? Should we be doing so? As was once proposed, would it not be better to leverage the capital invested in State owned enterprises to create new, high value spin-off ventures?

Of course the situation is complicated in New Zealand by the fact that Maori have strong views in terms of property rights, securing favourable State regulation and the connection this makes with their own economic development aspirations. But can we promote a free and unfettered market with strongly protected property rights on the one hand whilst at the same time contemplating separate justice and electoral systems and the wholesale transfers of property assets based on race? External investors no doubt also weigh these risks when considering New Zealand as a destination.

2 thoughts on “Innovation, Property Rights and the Political Economy

  1. There are some tricky questions posed there. If indeed the OECD is suggesting further state asset sales to shore up NZ’s fiscal position, I’d like to know which assets they’re thinking of: there ain’t much left to sell. Air NZ and the railways really can’t be credibly put back on the auction block.

    The challenge with spinoffs from state owned enterprises as might be the bureaucratic strings attached to any new ventures. My involvement with state agencies indicates there are some very talented people working there who are immensely constrained because they’re spending public money. Would SOE spinoff ventures be similarly limited?

    My naïvety and export tech-sector bias would suggest that the best three things the govt could do to encourage innovation and niche export growth would be:

    – accelerate the building of domestic ultrafast broadband and data pipes to the rest of the world. Capital-intensive, but a massive value-add.

    – get entrepreneurs early and often into offshore markets. Teach languages better. French commerce bachelor’s degrees include a compulsory year of study abroad – why not NZ too? How about export boot camps in Beijing, Rio and Frankfurt?

    – retain the R&D tax credit, one of the few wise policies Labour brought in. Virtually all hi-tech economies have similar regimes in place. Without it we start the race for investment a few steps behind everyone else.

  2. Richard – all good ideas.

    The particular target SOEs seem to be electricity generators and lines companies. The governance is such that each board reports to the SOE Minister, but they have a fair amount of independence in operational decisions (compared to government departments). There is no shortage of capital available to the energy industry and many interesting areas of related technology from which spin-off ventures might be sourced.

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