Democracy Briefing: Are Business leaders to blame for the broken state of New Zealand?

A deep and persistent malaise has settled over New Zealand. What was once dismissed as a temporary “Winter of Discontent” now feels like a permanent state, a structural decline that no amount of government tinkering seems able to fix. A pervasive cost of living crisis, stubbornly high unemployment, and anaemic growth have fostered a sense of national gloom and a narrative that “New Zealand is broken”.

Interestingly, some of the most vocal proponents of this narrative are the country’s most senior business leaders. The New Zealand Herald’s recent “Mood of the Boardroom” report was a testament to their discontent, a litany of complaints directed at the current Government, including Prime Minister Christopher Luxon and Finance Minister Nicola Willis.

Yet, for all the angst expressed, the Mood of the Boardroom report offered little in the way of solutions. It amounted to an incoherent whine about the direction of the country, together with a plea for those in the Capital to help them out.

This public performance of grievance raises a critical question. While our corporate elite are busy lobbying Wellington for special treatment, what does their own report card look like? The vocal campaign to frame New Zealand’s economic problems as a failure of political leadership serves as a convenient diversion, shifting the national focus away from the performance of the boardrooms that steer the private sector.

A closer examination of the evidence suggests that the real source of our economic stagnation may not just lie in the Beehive, but in the very boardrooms from which the loudest complaints emanate. It is time to turn the mirror on New Zealand’s corporate leadership and ask a difficult question: are they the victims of a broken economy, or its primary architects? And is it time for business leaders to shift away from the now-dominant “crony capitalist” business model of lobbying Wellington for favours, and get back to innovating and productive business?

Turning the mirror on the boardroom: The Unproductive economy

Amid the chorus of CEO complaints last month in the Mood of the Boardroom report, one voice offered a starkly different and more challenging analysis. Economist Cameron Bagrie, in a piece titled “Performance of the Boardroom”, deviated from the CEO whinefest and turned the focus back on the corporate leaders themselves.

His critique was severe and direct: “It’s easy to point the finger at the Government — and we often do. Yet, there are some major listed companies that have destroyed a lot of shareholder value of late and over time. It is time we also focused on the Performance of the Boardroom”.

Bagrie’s central diagnosis is that New Zealand’s form of capitalism has become fundamentally unproductive, addicted to an asset class that creates the illusion of wealth without generating real economic value. As he bluntly puts it, “You do not get wealthy selling more expensive houses to each other”. The national economy, he argues, is not building its future on innovation or productive enterprise, but is instead “banking’ on houses”.

The data substantiates this claim with alarming clarity. Bagrie points out that bank lending for housing has ballooned from 50% of total lending in 2000 to over 63% today. During the 2024 recession, New Zealand’s banks recorded a staggering $10 billion in profit, with an impairment expense of just 0.08%. Bagrie argues that this demonstrates a massive and sustained misallocation of national capital away from productive businesses and towards the recycling of existing property assets.

The latest OECD Economic Survey of New Zealand supports this, noting that the high profitability of the country’s banks is “unlikely to be explained solely by the riskiness of conducting a banking business”, suggesting low-risk, high-return behaviour is the norm.

This obsession with property has come at a direct and measurable cost to the nation’s productivity. Bagrie points to a catastrophic decline in capital productivity, which fell by 6.6% between 2022 and 2024 alone. The long-term trend is even more damning, with a decline in capital efficiency of 8.7% since 1996. This chronic underperformance places New Zealand in an abysmal position globally, ranking 177th out of 190 countries for GDP per capita growth.

This is not simply a cyclical problem but a deep-seated issue of managerial capability. The OECD’s 2022 Economic Survey of New Zealand, cited by Bagrie, concludes that “Managerial practices in New Zealand lag behind other advanced OECD economies, holding back the adoption and effective uses of digital technologies”. The report identifies a corporate culture geared towards stasis, not growth. It finds that management boards are “often more focused on preserving existing value and regulatory compliance than on growth strategies that involve productivity-enhancing investments and international expansion”.

A key reason for this risk-averse culture is the very composition of the boards themselves. The OECD notes a critical “shortage of board members with rich managerial experience as opposed to a preponderance of those from accounting and legal backgrounds”.

This creates a self-reinforcing cycle of mediocrity. A business class dominated by professionals trained in compliance and risk mitigation will naturally gravitate towards the safest, least innovative path to profit. In New Zealand’s economic landscape, that path has overwhelmingly been property.

The easy, low-risk capital gains available from the housing market disincentivise the difficult, high-risk work of genuine innovation and business expansion. In turn, a corporate culture that shuns risk and lacks entrepreneurial dynamism sees property as the most logical and attractive place to allocate capital. This creates a symbiotic relationship between lazy capital and complacent management, trapping the economy in a low-growth, low-productivity equilibrium.

The High price of complacency: When monopolies can’t make a buck

The critique of New Zealand’s corporate leadership deepens when one considers the uniquely favourable conditions under which many of our largest companies operate. Auckland University economist Robert MacCulloch has identified the country’s business leaders — particularly those at the helm of large, incumbent firms — as the real drag on New Zealand and the primary “source of our malaise”. His research presents a stunning picture of corporate failure that cannot be blamed on government policy or market headwinds.

MacCulloch’s most damning evidence comes from the performance of the New Zealand stock market. Over the last five years, the NZX50 index has delivered a growth rate of just 0.15% per year — a figure far below inflation, meaning it has gone backwards in real terms. This performance stands in stark contrast to the US Dow Jones, which surged by approximately 70% over the same period. This is not a story of market stagnation; it is a story of profound value destruction presided over by the country’s top executives.

This failure is not abstract; it is concentrated in some of the nation’s largest and most dominant companies. MacCulloch points to the dramatic share price collapses of firms that operate with minimal competition, a situation he describes as “abysmal corporate leadership”. The scale of this failure, even among firms with entrenched market power, is breathtaking. Here’s MacCulloch’s examples of share price decline since 2020:

• Ryman Healthcare: Down 80%

• Spark: Down over 50%

• Fletcher Building: Down nearly 60%

• Air New Zealand: Down over 60%

Such poor performance leads MacCulloch to ask a provocative and essential question: how is it possible that these executives are “so incompetently useless they can’t make a buck even when they have no competition?”. He notes that it is difficult to find another developed country where multiple virtual monopolies are effectively “run at a loss” in terms of shareholder value, suggesting an endemic failure of talent and vision in New Zealand’s C-suites.

This phenomenon points to a problem that goes beyond mere complacency. The standard economic argument, articulated by Cameron Bagrie, is that “Weak competition just inhibits innovation and drives complacency”. This is certainly true for sectors like supermarkets, banking, and electricity, which are controlled by powerful oligopolists where profits are high and innovation is non-existent.

However, MacCulloch’s data suggests something far more corrosive is at play. The protective bubble of a near-monopoly does not just remove the incentive for excellence; it appears to atrophy the fundamental corporate skills required to run a successful enterprise. Without the constant evolutionary pressure of competition, the corporate “muscle” required for sound strategy, efficient operations, and value creation withers away. The result is a business class that is not just risk-averse but, in many cases, actively incompetent, presiding over the decline of the very firms they are paid handsomely to lead.

The Vicious cycle: How corporate failure feeds national decline

The consequences of this boardroom failure extend far beyond shareholder returns; they reverberate through the entire national economy, directly impacting the lives and prospects of ordinary New Zealanders. In a stark contrast to the performance of the C-suite, Robert MacCulloch argues that the country is being kept afloat by its frontline workers: “the only reason NZ is continuing to scrape along is that our teachers, nurses, doctors, social service workers – these folks are rolling up their sleeves and delivering incredible services every day”.

These workers, however, are trapped in a productivity paradox. New Zealanders work some of the longest hours in the developed world, yet their output per hour remains stubbornly low. This is not a reflection of their effort but a direct consequence of systemic underinvestment by the corporate sector. Businesses have failed to provide their workforce with the modern equipment, advanced technologies, and R&D-driven processes needed to boost productivity.

This dynamic is the engine of a vicious, self-perpetuating cycle of national decline. An analysis presented in a video featuring US socialist economist Richard D. Wolff provides a powerful framework for understanding this process. The argument, posted on Youtube yesterday, posits that “low R&D investment, weak productivity growth, a lack of economic complexity, and the resulting shortage of high-paying jobs feed into each other creating a vicious cycle that culminates in the brain drain”.

The corporate failures detailed by Bagrie and MacCulloch are the direct inputs to this cycle. The decision to pour capital into unproductive housing rather than productive enterprise, as identified by Bagrie, is precisely the “low R&D investment” that kicks off the cycle. According to Prof Wolff, the incompetence of monopoly leadership, as documented by MacCulloch, ensures a “lack of economic complexity” as firms fail to innovate or expand into new markets. The inevitable result is a “shortage of high-paying jobs”, which in turn fuels the “brain drain” as New Zealand’s most talented and ambitious citizens — the “scientists, engineers and entrepreneurs” — are forced to leave for better opportunities elsewhere.

The brain drain, therefore, should not be viewed as a vague cultural phenomenon or a simple reaction to, say, tax rates. It is a direct and predictable outcome of the capital allocation decisions made in New Zealand’s boardrooms. The corporate elite, through its collective investment choices, has effectively decided against building an economy that can retain its best and brightest. The exodus of talent is not a passive occurrence; it is an active expulsion driven by a corporate strategy that prioritises the low-hanging fruit of property speculation over the hard work of building complex, high-value industries.

This hollowing-out process leaves New Zealand dangerously exposed. For years, the country was able to mask these deep structural weaknesses with property booms and high commodity prices. But as those props begin to wobble, the profound lack of an innovative, productive core is being laid bare. The ultimate risk, as Wolff’s analysis warns, is that New Zealand becomes “a beautiful but economically hollowed-out retirement destination, served by a transient workforce while its own citizens build their futures elsewhere”.

A Rising critique of NZ’s crony culture

Observers have increasingly argued that New Zealand’s political economy suffers from a strain of “crony capitalism”. This term refers to businesses thriving less on innovation or efficiency and more on close relationships with government – lobbying for favourable treatment, subsidies, or protection from competition.

Critics say many Kiwi CEOs and boardrooms spend undue energy courting politicians in Wellington instead of improving products or productivity. The result, they warn, is a “broken” economy with sluggish innovation and entrenched insiders prospering at the expense of broader progress. Recent analysis, including by myself, highlights the strength of NZ’s corporate lobbying industry. But we are now witnessing the troubling incentives this cronyistic-lobbying culture creates for business behaviour.

Political commentator Dr Matthew Hooton has been particularly strong on this point. In a 2023 NZ Herald column, Hooton admonished New Zealand business leaders for obsessing over which party is in power. He urged them to “drop the New Zealand… habit of worrying about the politicians” and adopt the attitude found in the US, UK or Australia of simply running their businesses regardless of “which group of clowns is running the Wellington circus.” The clear implication is that Kiwi firms spend too much time seeking government influence or hand-holding, instead of pursuing growth on their own terms.

Hooton’s perspective is notable because he himself has decades of experience in political PR and lobbying. His critique argues that firms have become over-reliant on political lobbying as a strategy. Instead of innovating or competing vigorously, too many firms try to “manage” the regulatory environment or seek special deals from ministers. This dynamic, Hooton argues, is holding back New Zealand’s economic performance. In essence, when businesses camp out in Wellington boardrooms or chase ministerial meetings, they neglect investment in productivity and customer value.

This is really the big story of New Zealand’s decline: poorly performing cronyistic capitalism, together with the emergence of “broken markets” of monopolistic behaviour from banks, supermarkets, electricity companies, etc, means that New Zealanders continue to live in a very broken country.

I’ll write more on the monopoly and lobbying problems of crony capitalism in another column.

Dr Bryce Edwards

Director of The Integrity Institute

Further Reading:

Cameron Bagrie (Herald): Poor governance is stalling NZ productivity growth (paywalled)

Robert MacCulloch: Low Productivity in New Zealand

Danyl McLauchlan (Listener): Paradise Lost: How short-term thinking, top-down governance and weak economic policies squandered NZ’s potential (paywalled)

Richard D. Wolff (Youtube): New Zealand’s Economy Is Crashing — Here’s Why

Centrist: Economist: New Zealand’s emigration rivals some conflict zones “a beautiful but economically hollowed-out retirement destination

Matthew Hooton (Herald): Businesses need to run their own show and ignore the Wellington circus (paywalled)