The Maori economy: a good story

Stop thinking about Maori in the economy, which can be depressing. Start thinking about the Maori economy, which has been doing well and has lots of potential.

That is the essential message in a report by the Institute of Economic Research (NZIER) released today, [Tuesday 4 February] which radically rethinks the stereotypes.

The report — for Te Puni Kokiri (the Ministry of Maori Development) — uses much the same tools to analyse the “Maori economy” as for a national economy.

This turns on its head the usual approach of “asking how Maori can achieve an equal status within the New Zealand economy”, says NZIER director Alex Sundakov, and instead asks “of the Maori economy the same question we would ask of other economies: what can and should be done to accelerate its economic development compared with its past performance?”

“This allows us to refocus from the relative economic position of Maori individuals to the performance of the Maori economy and its ability to achieve Maori aspirations for culturally specific, self-determined development.”

Taking this approach has led to some startling conclusions though also some that will come as no surprise. Among them:

* The Maori economy is more profitable than the general economy, has a higher savings rate and is a net lender to the general economy.

* Maori households contribute more in tax than they receive in benefits and other fiscal transfers.

* The Maori economy has grown faster since 1997 than the general economy and is “poised for continued expansion”. The 1990s were “spectacular”.

* The Maori economy is more exposed to international trade than the general economy and this offers “important opportunities and challenges”.

* The apparent trade-off between Maoriness and economic success is actually mostly a failure of the existing institutions to reconcile the two better.

* There are difficulties getting finance but Maori institutions themselves, which have high retained profits, could fill the gap.

* The return on equity and assets is lower in than the general economy, which reflects a need for big governance changes. “Many Maori organisations must pursue multiple objectives” and “cultural values can become an all-purpose excuse for mismanagement and low-quality governance”.

The NZIER defines the Maori economy as “all those businesses and transactions where ‘Maoriness’ matters” and “includes the activities based on collectively-owned Maori assets, the businesses of the self-employed who identify as Maori, commercial transactions involving Maori culture, services oriented to specific Maori needs (notably, on behalf of the government in social services) as well as housing owned by Maori”. That excludes Maori labour in the general economy, except as it feeds back to the Maori economy.

Data on many of these activities are hard to come by so the NZIER has in effect guesstimated their contribution to the Maori economy, in most cases “applying a proportion to the national activity” for an industry.

This will provide fertile ground for dispute. But it also helps make the report’s case for much more statistical work to be done. The report wants Maori development in government thinking to escape from an “entrenched view of Maori issues being a form of social and Treaty risk management”.

The NZIER estimates the Maori economy at 1.4 per cent of the whole New Zealand economy, a fraction of Maoris’ percentage of the population and also of Maoris’ 10% of total consumption.

Thus Maori “export” labour and capital to the general economy. Only about $300 million of $4.3 billion earned by Maori is earned in the Maori economy. The rest is earned in the general economy and is akin to the “remittances from abroad” which emigrants from developing nations working in rich countries send back to relatives.

The report finds the Maori economy is concentrated in agriculture (7.4 per cent of the country’s total output) and fishing (37 per cent of quota). Maori account for 7 per cent of home ownership. These three account for three-quarters of the Maori economy.

But Maori “also have important production interests in commercial and residential property investing, television, motion picture and radio services, education and health” and some tourism, in which Maori have the advantage of “a global demand for authentic cultural experiences”. These activities are partly an outgrowth of the cultural revival in recent decades.

Thus, compared with the general economy, the Maori economy is “weighted disproportionately to primary and service sectors, with little manufacturing”.

And this, the NZIER says, is no bad thing. The Maori economy is more profitable than the general economy (2 per cent of the country’s operating surplus earned from only 1.4 per cent of the value-added), though some of that difference arises because the Maori economy does not have a government sector as the general economy does.

From this higher profitability — due also to a low debt-equity ratio and high labour productivity — the Maori economy generates a higher savings rate — which makes Maori “net lenders to the rest of New Zealand”. That net lending is “greater than the net fiscal inflows”, a finding few would expect.

Even more unexpected is the finding that Maori households are not a drag on the national budget: “While Maori households receive $2.3 billion in fiscal transfers, this is offset by a tax contribution of $2.4 billion,” the report says.

The peculiar makeup of the Maori economy makes it more exposed to international forces than the economy generally (2.5 per cent of exports, well above the 1.4 per cent the total Maori economy represents of the total general economy). “No longer are Maori a subset of the New Zealand economy. They are a subset of the international economy,” the NZIER says.

As a result, since 1997, when exports generally have done well, the Maori economy has done better than New Zealand as a whole.

But the Maori economy is also, as a result of its exposure, more volatile. So its openness “presents important opportunities and challenges for the future,” on which the NZIER takes an optimistic view: “While still small, the emerging Maori economy is robust [and] poised for continued expansion.”

That is a far cry from the 1980s, when, the NZIER says, Maori were “trapped in the domestic market”. The opening of the economy in the late 1980s resulted in a “disaster” for Maori.

By contrast, “the 1990s were little short of spectacular for the Maori economy”.

“For once,” the report says, “the historical pattern of asset ownership appears to put the Maori economy on the right side of that luck” which partly determines how well an economy will do.

But luck is not enough. Maori are under-represented in the high-value-added knowledge industries, with only 6 per cent of all employment, the report says.

And the “luck” has its perverse side. In a comment which will take some of the lustre from the rosy view some have of the general economy, the NZIER says part of the reason the Maori economy has done well recently is that “the current pattern of New Zealand’s comparative advantage provides a strong base of demand for people with relatively low qualifications”.

So the Maori economy has a long way to go.

Much of that journey is dependent on “aspirations”, which the NZIER says are partly tied to the Maori worldview: “The Maori economic ideal is achievement of wealth for the good of the community through cooperative enterprise”. The challenge is to “translate behaviour consistent with the uniquely Maori worldview into actions which also product successful outcomes in the modern economy”.

Meeting this challenge is not helped by fears among Maori that success using non-Maori (pakeha) mechanisms will cost them their Maoriness.

That attitude is wrong, says the report: “In most instances an apparent tradeoff between Maoriness and economic success is in reality a failure of the existing institutions to reconcile the two better”. Economic development “exerts a powerful influence over other goals”.

Tradition, the report says, is the enemy of innovation, on which development depends: “Attitudes which are fatalistic or based on a belief that all good ideas come from the past or from elsewhere do not sit easily with an innovative drive.”

And in any case, as the report recapitulates, Maori have been innovative and adaptive in the past, first in navigation techniques and adapting their tropical horticulture to a temperate climate and then in their positive response to the initial brush with nineteenth-century capitalism.

To re-stimulate technological innovation, the report wants Crown research institutes (CRIs) to focus on integrating Maori commercial opportunities with appropriate research by using Maori insights and development within the institutes. Another possibility is a separate Maori CRI.

The NZIER also insists on big changes of governance by Maori institutions in charge of assets. Maori institutions must “translate behaviour consistent with the uniquely Maori worldview into actions which also produce successful outcomes in the modern economy”. So “it is important that the quality of the institutions is examined before the underlying values are blamed”.

Most Maori institutions were designed for purposes other than commercial management and have multiple objectives which complicate governance and lower return on assets.

Common ownership of land which cannot be traded requires special structures, the review of some legislative and regulatory constraints, especially to encourage self-governing institutions, and more clarity of goals.

The report points to examples of Maori commercial success and innovative institutions, notably those which separate day-to-day commercial management from broader issues. It advocates a new form of company, ohanga, which may require amendments to the Companies Act.

But there are too few successful institutions now and they use their capital inefficiently. And governance inadequacies, coupled with the inalienability of land assets, hamper access to mainstream finance because banks require collateral and good governance.

The report says fixing this is not a matter for the government. It is best addressed by large Maori institutions using their own capital — most have low debt-equity ratios — to set up financial institutions which can lend to and invest in Maori enterprises and are likely to be better able than non-Maori institutions to assess risk and ensure performance.

The state’s role, the report says, is to provide an environment conducive to the formation of self-governing organisations — and that requires “a willingness to take risks on outcomes” with a sceptical electorate.

This theme of self-determination runs through the whole report. It is a deep change from the litany of dependency recited in most reports on Maori economic performance.

“The supply of skilled Maori individuals to the New Zealand economy will be enhanced by the growth of the Maori economy, because culturally self-determined development has the potential to widen the horizons and lift the aspirations of many Maori who are currently marginalisd and unmotivated,” the NZIER says.

“Equally, investment in Maori human capital in the general labour market will feed back into faster Maori economic development, as skills are transferred from the general economy to the Maori economy.”