One positive recent development in the study of comparative political economy is the increased amount of attention given to skills formation, especially the role that vocational education and training (VET) plays in economic development. One of the key insights drawn from this literature is that there are two main paths to success in this arena, and that the two main types of skills regime found across the OECD “complement” or fit together with other institutional features of national political economies. VET in so-called Coordinated Market Economies, found across Western Continental Europe and identified most strongly with German capitalism, is much more likely to be provided “on the job”. Inter-firm and business-labour coordination in this model also lends itself to the establishment of nationally enforced uniform industry training standards in which employers or employer associations also fund the delivery of VET. By contrast, so-called Liberal Market Economies, exemplified by the United States and the United Kingdom, tend to have “voluntarist” training regimes in which (private) apprenticeship agreements between individual firms and employees predominate. It also makes sense that in these more liberal and increasingly liberalised economies, where job security is low and employees tend to change jobs more frequently, employers rely on “externally” recognised qualifications conferred by a polytechnic institute or university when making hiring decisions. Under coordinated capitalism, where businesses and their industry-wide representatives have themselves invested heavily in VET, there tends to be a much greater incentive to retain workers, hence higher job security.
So where does New Zealand sit in this mix and what are some of the real-world policy implications that stem from this analytic framework? While students of comparative political economy tend to emphasize path dependency in general (or the “stickiness” of institutions), and the origins of contemporary skills regimes in the late nineteenth or early twentieth centuries, anyone familiar with our local context knows that the New Zealand political economy has undergone profound changes over the past four decades. While this is usually characterised as the rollback of the state in favour of market forces, careful analysis of the development of the country’s political economy along a number of dimensions suggests nearly as much continuity as change. Statistical analyses usually identify New Zealand as, at the very least, liberal market economy-like, and comparative historical institutional analysis shows that we had very few truly coordinated-like elements preceding the market shift. Rather, it can be argued, New Zealand’s political economy prior to the mid-1980s combined essentially liberal institutions with a heavy dose of statism. Furthermore, the fact that the state took over many of the functions that firms might have done themselves, before suddenly giving up these functions, arguably has an observable impact on contemporary economic outcomes.
From the 1940s to the 1980s, New Zealand’s apprenticeship-based skills regime was framed by the Industrial Conciliation and Arbitration occupational bargaining system, with greater involvement from both the state and, to a more limited extent, employer organisations, than might have been expected in a purely market-based system. Enrolment in formal educational also became compulsory for apprentices, with the state massively investing in the creation of a public polytechnic system from the 1950s. Yet this apprenticeship model depended on the existence of the arbitration system; when that was abolished in 1991, it collapsed also, underlining the shallowness of employer support for the “collective” provision of VET. This is in marked contrast to the German model. In 1992 the apprenticeship system was replaced with voluntary, employer-based Industry Training Organisations (ITO) charged with setting industry standards and purchasing off-job education and training, not only from public polytechnics, but also from private providers. This deepened the “drift” away from traditional training in technical skills on the part of polytechnics, and the mushrooming of private training institutes that are extremely varied in terms of the quality of education and training they provide. Concerns about declining skill levels in the workforce and the lack of coordination in a generally market-based model of post-secondary school education led to the introduction of the Modern Apprenticeships scheme in 2000 as a complement to the ITO-based system, but the take-up rate of these apprenticeships has been disappointing. The decline of the hybrid liberal-statist system and its failure to be fully replaced with something else provides a partial explanation for the current situation that New Zealand finds itself in. In the wake of the reforms of the 1990s, just 7 percent of New Zealanders participated in secondary or post-secondary school VET, compared to an average of 34.5 percent across the European “coordinated” economies.[1] That has not changed as the result of piecemeal reform in the 2000s, with persistent concerns about the links between skills shortages and the content of higher education: New Zealand has high rates of post-secondary educational participation but skills shortages across a number of industries.[2]
Unfortunately, the comparative political economy literature is much better at placing New Zealand in an international context and conceptualizing the policy problem at hand than offering obvious solutions to it. However, the focus of this kind of analysis on how different institutions in the political economy “fit together” might give us some clues about what is and what is not feasible in our particular national context. The German skills regime, itself under serious pressure due to advent of post-industrialism and declining union membership, is institutionally underpinned by the political centralization of business and corporatist wage bargaining, neither of which New Zealand has ever had. More importantly, one of the critiques of the literature on which the preceding discussion is based is that it is too grounded in the experiences of the larger economies, especially Germany and the United States. There is a growing recognition that smaller countries often need to do things differently, due to factors as basic as firm and industry size.
Taking two very different countries with similar population sizes to New Zealand, Irish economic successes in the 1990s were built on the maintenance of a “binary” system of post-secondary (largely public) education in which the kind of institutional drift experienced locally was kept under strict control. Similarly, while acknowledging its tendency to intensify inequality in an ethnically stratified society, the Singaporean dual-track secondary education system provides alternatives to a university-based general education pathway. In both cases, the state has played and continues to play a strong role in preventing the proliferation of cheap-to-run private educational institutions that provide general rather than specific skills—this being the result countries tend to get when they allow “the market” rather the state or industry to firmly guide institutional development. Bringing this home and to immediate policy concerns, this further cautions against the direction recently advocated by both the Productivity Commission and the current National Government to do (or carry on doing) precisely that. On the other hand, Labour’s strategy for strengthening non-university based vocational pathways might provide a more promising start.
[1] Data from Estevez-Abe, M., Iversen, T and Soskice, D. 2001. Social Protection and the Formation of Skills, A Reinterpretation of the Welfare State. In P. Hall and D. Soskice, eds. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press: 170.
[2] See OECD (The Organisation for Economic Co-operation and Development), 2015. OECD Economic Surveys: New Zealand, Paris: OECD: 75-78.
