Dr Paul Dalziel: High economic growth is not the same thing as a strong economy

Dr Paul Dalziel, Research Economist, WEAll Aotearoa. 

At the beginning of the year, Prime Minister Christopher Luxon refreshed his team in Cabinet to focus on improving the country’s economic performance, saying “2025 is all about going for growth”. 

To underline this commitment, the Minister of Economic Development was renamed the Minister of Economic Growth, and the role was reassigned to Minister of Finance Nicola Willis. This refresh is important, since it hardly needs saying that a strong economy is essential for New Zealanders’ wellbeing, now and into the future. 

Large numbers of unemployed people, too many young people not developing skills for high productivity work, too many adults in poor quality jobs paying less than a living wage, some industries focused on producing low value commodities – these are symptoms of a dangerously weak economy in need of coordinated policy direction.

Nevertheless, high economic growth is not the same thing as a strong economy. There are lots of ways a country can increase short-term economic growth by weakening long-term prospects. It can push costs onto future generations, for example, or it can undermine its current investment in long-term opportunities for citizens. 

Low wage jobs serving low value tourism that increases the human pressure on our natural environment would be a clear example. Another example would be failing to address New Zealand’s appalling measures of child poverty.

It is like a business in financial difficulties. The business might hold wages below inflation, might lower standards of its service, might reduce investment in new technology, and might cut corners on product quality. These actions might increase short-term profits, but the business would soon lose customers and skilled workers to better managed competitors.

The alternative pathway in the business world is for an enterprise to reinvent its purpose. Who are its customers? What are the customers’ expectations for quality and cost? What new technologies can be harnessed to create additional value for customers? How can this value be communicated to customers?

New Zealand is not in financial difficulties, of course, but it is at a moment of immense economic uncertainty. Serious challenges include the climate crisis, other environmental risks, geopolitical conflicts, artificial intelligence, global concentrations of wealth and whole populations in parts of the world trapped in poverty and mortal danger.

There is no magic button to solve these grand challenges and a single-minded focus on economic growth certainly won’t cut it. These challenges require an extended portfolio of co-ordinated public and private sector actions within New Zealand, as well as international collaborations by the whole global community.

This requires what is called mission-led government. The most famous advocate is Professor Mariana Mazzucato who wrote Mission Economy: A moonshot guide to changing capitalism. A key insight is that we need to reinvent our economic purpose in the face of today’s grand challenges and then we need to harness all the country’s human resources for achieving our purpose.

By economic purpose, Professor Mazzucato does not mean generic high-level concepts such as prosperity, jobs, opportunities, wealth or growth. Our economic purpose sets out specific ambitions we might hold as a country for the economy we design. 

An example of economic purpose might be a commitment to develop successful enterprises that: produce high-value goods and services with low environmental footprints; are resilient to geopolitical and other global trading risks; reward their workers with quality jobs and high incomes; are connected to their local communities; and express with authenticity New Zealand’s diverse cultural heritages.

Success in such a mission cannot be measured by growth in gross domestic product. In fact, despite decades of economic growth, too many New Zealanders remain caught in cycles of poverty and despair, unable to find warm and safe housing or to buy sufficient food for the whole family. 

Economic growth accompanied by worsening social and environmental outcomes (including high child poverty and increasing extreme weather events) is hardly progress. This is not the legacy we want to leave future generations.

Our mahi at WEAll Aotearoa therefore promotes a vision for Aotearoa that prioritises the wellbeing of all people and the planet. In this vision, prosperity is measured not by GDP but by the health of our communities, by the health of our natural environment, and by the inclusiveness of our societies. 

To achieve this vision, we must move beyond treating economic growth as a silver bullet. We have tried that path before. Genuine transformational change requires a new form of economic leadership that focuses on how our economy achieves its public purpose.

Dr Paul Dalziel is WEAll Aotearoa’s Research Economist and is a former Professor of Economics at Lincoln University.