Marsden Project Pvt 301: New Zealand in a Globalising World (march 2005 Report)

The Royal Society of New Zealand which made a grant to pursue this work, requires an annual report of work in progress. It was submitted in March 2005. This is an edited version.

Keywords: Globalisation & Trade;


The Marsden Fund of the Royal Society of New Zealand made a grant to fund three years research (at 60 percent of the time) to research and write a book on the topic of globalisation as it affects New Zealand. The grant began in November 2003. This report is written towards the end of March 2005.

In the end research has to be evaluated by its outputs. The Appendix to this report lists a large number of publications in various forms, and some presentations to various audiences. However the key output is the promised book.

In the period since the grant was made the researcher has read widely, including mastering the underlying theory, collected a considerable amount of material from reading and visiting nine states of the United States of America (under a Fulbright New Zealand Grant) and Samoa, written and presented a number of papers on globalisation, and structured and begun writing the book.

The details are set down below.

Shaping the Book

Much of the early part of the reported period was concerned with shaping the book. Six crucial decisions were made.

First, while the book will be informed by current developments in economic theory, particularly by that which underpins The Spatial Economy: Cities, Regions and International Trade by Mashia Fujita, Paul Krugman and Anthony J. Venables.(MIT Press 1999), it would be written for a wider audience than the specialists. The target audience ranges from the general economists to the public who, it seems to me, are very badly served by the popular writing on globalisation which is often poorly underpinned by rigorous analysis, and frequently dominated by moral indignation or complacency. The intention is the Marsden book will better inform readers who can then apply they political preferences for their policy judgements.

The theory is quite difficult. Much of the mathematics seems intractable (that is, there is no analytic solution), so results often rely on simulations, which may not give general conclusions. The underlying mathematics, abandons one of the key assumptions that has informed much economic analysis – that (plant and industry) economies of scale are not important. Their introduction changes the shape of the mathematical spaces, and undermines the intuitions that go with them, without offering – as yet – replacing intuitions. Much of this paragraph will be opaque to the target audience, and yet any presentation to them needs to be true to the underlying theory.

The developments are very exciting. While economics has some history (going back to J. H. von Thunen in the nineteenth century) of a spacial dimension in the economy, it is very limited, as illustrated by the rarity of maps in most economic texts, or that standard international theory is not greatly concerned whether the two countries have a common border or on opposite sides of the world. Distinct economies existed because countries had immovable resources, such as land (it was frequently assumed labour, capital and technology were also immovable).

Once the costs of distance – ‘trade costs’, which are more than just transport costs – are introduced, location becomes a vital element of economic behaviour. The interaction between such costs and economies of scales generates outcomes which seem to be quite different from the standard theory without costs of distance and only diminishing returns. This is frontier of economics stuff, which if economists can get the analytics and intuitions right, represents a major shift in the paradigm.

Thus the writing challenge is to convey to the general audience some of the notions – and the excitements – of these developments.

Second, the book will be deeply based in history and geography, which is where globalisation actually occur. Much of the popular debate is about the now of globalisation, with little recognition that the phenomenon is around two hundred years old. History and geography opens a welter of examples . For the reader it embeds the analysis in a practical reality, which if more demanding to the presenter, should enable the reader to connect better.

This realisation led to the third consideration. Originally the book was to focus on New Zealand in a globalising world. But that traps the framework into the standard economics space of two columns in a table or two axes on a graph, rather than there being some sort of geographical proximity, or lack of it.

Eventually I concluded that in order to break out of the framework, the book should be written for an international audience as well as a New Zealand one. This does not mean New Zealand will be neglected. Leaving aside there will be at least one chapter devoted to New Zealand (and possibly more), many chapters draw on New Zealand material to supplement the themes. For instance, the opening chapter contrasts the colonial experiences of Hawaii and Samoa, but the experiences of the New Zealand Maori are also used. One can think of the analysis remaining New Zealand centred but it is checked against the rest of the world.

Fourth, on learning that I am working on globalisation, potential readers commonly ask ‘are you for it or against it?’ I explain that I have the methodological stance that I would not answer this question until I had completed the analysis. That remains my overall position, although the analysis so far leads one toward the view that globalisation is one of the great forces of history, which is largely unstoppable but to some extent is governable. Asking whether it is a good thing or not is not particularly helpful. First, one must define it and analyse it, and then query what are the harnessing options. The book will aim to give the reader better understandings in order to enable make her or his to make my own decisions rather than imposing my political views and expecting the reader to agree. .

Indeed, I am as intrigued as those who pose the question, as to what the conclusion say. I am continually equivocating over whether there is (or rather what king of) convergence in culture and policy as a result of globalisation. I shant be surprised in that equivocation remains in the conclusion.

The fifth decision was that the book will not consider the implications of globalisation for military activities or vice versa. It is written by an economist with a limited span of expertise. Having said that, there is a story to be written about how the military, as much of the economy, has been shaped by effective distance. It took the US almost three years to get their troops onto the European continent during the Second World War: it took them just over three months to invade the much trickier logistical proposition of Iraq sixty years later.

The sixth decision was to leave the process of economic growth as largely exogenous. The book would otherwise be large. In any case the theories I am using largely make the same assumption. Of course that cannot be quite right, since the diminishing cost of distance is a part of the growth process even in a non-spatial model, since it releases resources and creates new products. Oh dear. This is the assumption most likely to be abandoned as the work progresses.


The central themes of the research can be summarised as follows:

1. Globalisation is the economic integration of economies – regional and national economies – and the social and political consequences of that integration.

2. Globalisation began in the early nineteenth century, so the phenomenon is almost two centuries old. Since globalisation an historical phenomenon, so focusing on it in just the last few decades throws away a rich source of insights.

3. Globalisation is caused by the falling cost of distance – not just transport costs, but the costs of storage security and information. This gives a driver for the globalisation process. Costs of distance are a trade cost, like tariffs but larger. So one can use the economic theory of tariffs to model globalisation.

4. Globalisation is not solely an economic phenomenon. It has political and social consequences.

5. The policy issue is not being for or against globalisation, but how it can be channelled to give desirable outcomes.

The Structure of the Book

Aside from the Introduction (which the previous section drew upon) and the Conclusion, the book is in three parts: Part I presents the underlying economic theory; Part II looks and the political and social consequences of the economic transformation; Part III looks at different ways of accommodating with a globalised world. Details.


Of the 28 chapters, only six have been written or near written. Considerable material has been collected for many other chapters. This reflects the usual time it takes to set up a research project. It is currently anticipated that the project should be finished near schedule, although it will be much tighter than originally proposed because the funding is for three days a week rather than four. Some sacrifices have had to be made on lower priority parts of the project.

Ironically, a major disruption to writing is overseas travel, and yet it has been vital for informing the book. Last year Fullbright New Zealand enabled me to spend four months in the United States (at the Centre for Australian and New Zealand Studies, Georgetown University, Washington DC and at the Economics Department, Harvard University, Massachusetts as well as visiting some other states and institutions). I also visited Samoa. This year the government of the Federal Republic of Germany will enable me to spend two weeks in Germany, and I shall also be visit Canada partly from funding provided by a evaluation of drug abuse conference, and partly using Marsden funding.

The websites for the New Zealand Centre for Globalisation Studies has been set up, but the supervising structure has proved more difficult to establish than was expected.

Least progress has been made on writing up the theoretical models. I think that may be the cost of the funding limitations.

A major sacrifice has been the abandoning of the writing of Transforming New Zealand, another book mentioned in the application. It is two thirds complete. The completed chapters are on the website.

Other Work.

The Marden funding was for three days a week, not for full time research. The remaining time was to be available for consultancy and the like, and unpaid public good research. Some of the latter included additional time on the globalisation project. Ideally the consultancy work should support the Marsden Project intellectually as well as financially, although this has not always been possible, although so pervasive is globalisation that rarely is there no intellectual interaction.

What was unanticipated is that because I have been a researching for forty odd years on an extraordinary wide range of topics, I am still being consulted about them, in a way which is normal for an academic – often without recompense (e.g. academic refereeing, talking to journalists or officials, or presenting to voluntary organisations). While I have not charged this work to the Marsden Project, it has cut into the public good time available for it.

The following are among the major topics worked on outside the project over the last year, which have not been funded by the project. They are listed in order of their contribution to the Project.

1. Growth and Innovation Advisory Board

I am a member. The work program includes global connectedness, infrastructure, and growth culture which has been influenced by my globalisation work, and influences my work.

(Various direct contacts with officials have also already benefited from the globalisation research. I remain on a couple of officials’ committees – macroeconomic forecasting and statistics – which dont have a lot to do with globalisation.)

2. Measurement of GDP

The website reports a number of papers in this area. One is a major challenge to the conventional wisdom, showing that the conventional measure of PPP adjusted GDP is invalid. It is closer to PPP adjusted GDI, and the two are not equal. The research was presented at a conference at the University of Davis, and has been taken up by other academics (notably Rob Feenstra). It is likely to affect the next round of OECD estimates. (In passing this means much of the New Zealand research on comparative growth is invalid.)

3. New Zealand’s Economic Performance

I wrote three major papers last year (two with some external funding).:
‘The Development of the New Zealand Economy’ (February 2004)
‘Paradigms of New Zealand Economic Growth: A Memoir’ (August 2004)
‘The Economy’ for Te Ara (The On-line Encyclopaedia) (Launched February 2005)

This work is implicitly important for the Project out of which it developed, and which continues to enable me to explore some aspects of global connectedness, and the New Zealand economy.

4. Licit Drugs

I am both a national and international expert on the evaluation of the social costs of alcohol and tobacco use, and on their taxation and regulation. There has been some consultancy work over the year, and the usual amount of public good provision of free advice to officials, lobbyists, journalists and the general public.

Happily there has been two globalisation spinoffs. The chapter on policy convergence is using the EU difficulties over the regulation of alcohol to illustrate the problems of cross-border interfacing of public health policies and free trade. And attendance at an international seminar in Ottawa in June, will enable me also to do the field work for the Canada chapter on cultural convergence.

5. Miscellaneous Work

5.1 consultancy for a Pharmaceutical Company. It is an absolutely fascinating area, but does not particularly have a spatial dimension, although it is very instructive about how hi-technology growth occurs in a non-spatial economy (which is outside the scope of the book). Apparently my grasp of the industry is sufficient for one industry leader to suggest I write a book on it (most of the books are not much better than the popular books on globalisation). Alas I shall not have the time. Regrettably the material is confidential to the client, and not available on the website.

5.2. Advising SHORE (Massey University) on the economics of a gambling project. This was a (not large) commitment made before the Marsden Project was announced. There is a minor globalisation dimension with offshore electronic gambling. However the underlying problem (interfacing of policies) will be illustrated in the globalisation book by alcohol policy. Papers on the economics of gambling.

5.3 Medical Misadventure: This public good activity maintains an interest I have in ACC and also health policy. This has led to a paper on the evaluation of waiting times, and which will be submitted to a top-of-the-line British medical journal, after presentation to a Wellington seminar in April.

5.4 Family Policy. This has been a long term expertise and I continue to be consulted by officials, lobbyists, journalists and the general public, especially in 2004 when the government introduced a major fiscal package for families.

5.5 Nationbuilding. New work has explored nationalism and globalisation issues.

Omitted are details of publications, presentations and the like.

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