Koi Tū's case for a New Zealand population strategy

At the end of last month, Koi Tū Centre for Informed Futures released a report arguing that New Zealand needs a population strategy. The report, by Georgia Lala, Paul Spoonley and Sir Peter Gluckman, received a lot of media attention (see here and here and here), and attracted a response on The Conversation from my colleagues at Te Ngira Institute for Population Research. My view is that the case for a population strategy is strong, not because it would allow New Zealand to control demographic change, but because it would force governments to plan more coherently for changes that are already underway.

Now, Lala et al.'s argument is that New Zealand is facing a demographic inflection point. I’m not convinced that 'inflection point' is quite the right term, at least in the mathematical sense, but the underlying argument is sound. It is clear that New Zealand is facing a number of intersecting challenges, including:

1. Slowing population growth - Lala et al. note that "annual growth dropped to 0.7% between June 2024 and June 2025 from 1.7% between June 2023 and June 2024", and that slowing growth means that New Zealand faces a 'double-edged sword' of a constrained tax base and increasing costs;
2. Declining fertility - This is a long-run trend that all countries are facing, and no country has developed a sustainable policy solution (see here for more on that point);
3. Growing reliance on immigration - Immigration has become increasingly important for growing the labour force and population (but isn't a solution for population ageing), but the problem is that immigration (and net international migration) is very volatile, and New Zealand doesn't stack up well against other countries in the competition for global talent;
4. An ageing population - Population ageing has implications in terms of a smaller tax base, and higher healthcare and superannuation costs; and
5. Growing ethnic and cultural diversity - Lala et al. especially draw attention to diversity in Auckland, but it is a reality that is playing out across the country (it is just that Auckland is ahead of other places in terms of diversity).

The issues are just as important, if not more important, at the regional and local levels, and Lala et al. draw attention to that as well. [*] In the section on immigration, I felt like there was too much focus on citizenship (of emigrants), which misses the point that people leaving New Zealand are also increasingly diverse, reflecting the diversity of the New Zealand population. And the large net outflow of Māori in recent years, which is obvious from Figure 10 in the report, probably needed further comment. That matters because Māori migration patterns are not just another component of aggregate population change. They have implications for whānau, iwi, regional labour markets, and the government's obligations under Te Tiriti o Waitangi.

Lala et al. argue for a population strategy, which they define as:

...both actions by a government to identify demographic trends and, subsequently, actions to address the effects of such change.

This seems like a sensible recommendation, and you might be tempted to wonder why we don't have this already, given that national and local government should be keenly concerned about, and adequately planning for, population change. However, once Lala et al. spell out what would be required for a coherent population strategy, it becomes clear that New Zealand falls well short (and, indeed, they can't point to a single country that does all of the things they want from a population strategy for New Zealand). According to Lala et al., the enabling environment for a population strategy requires three things (emphasis is theirs):

First, a population strategy would help elevate key demographic topics above day-to-day political contestation...

Second, a population strategy would help elevate policy planning beyond an election cycle...

Finally, a coherent population strategy could enable strategic decisions across multiple sectors of government including between central and local government.

The problem is clear. We don't really have any of those elements. Decision-making related to population is highly politicised (think about immigration policy, or support for families, for example), policies are subject to reversal with every change of government, and there is little coherence of planning between central and local government (consider the example of Auckland housing, where central and local government are in constant disagreement).

Finally, Lala et al. argue for an independent population commission to:

...provide a robust governance and implementation model to ensure the effective execution of a population strategy.

There is a lot to like in this proposal for a population strategy. New Zealand definitely needs to be more intentional in population planning. However, there are also some serious challenges, as my colleagues Tahu Kukutai, John Bryant, and Polly Atatoa-Carr note in their article in The Conversation. They draw attention to fertility trends, which have proven stubbornly resistant to policy-induced change. They also point to migration, which is not as easy to control as many politicians believe. This is because New Zealanders have the right to live and work in Australia and vice versa, with large flows between the two countries. There is also a huge diaspora of New Zealanders living overseas, who have the right to return at any time (as we saw during the COVID pandemic). Kukutai et al. also argue that a population strategy should have diversity as a foundational design principle, rather than an afterthought. Finally, they note the challenges of adopting a data-informed policy-making, when the quality of population data is in question with the changes to the census.

Kukutai et al. raise some valid points. However, those are challenges to a strategy that should be confronted during its design and development, not a reason to avoid having a strategy at all. I've argued in public forums in the past that a population strategy may fit into the 'too hard basket', in particular because New Zealand can't manage the international migration flows of New Zealand citizens, and so much population change in New Zealand is driven by the economic cycle in Australia. I now believe that also isn't a good reason for not having a population strategy for New Zealand, it is a good reason for us to have a strategy so that these challenges can be met head-on.

The future may be uncertain, but the future demographic challenges that New Zealand will face are already visible. A population strategy would help New Zealand to grapple with those challenges in a more coherent way. At a minimum, such a strategy would need to connect migration settings, regional planning, infrastructure, housing, health workforce planning, Māori and Pacific population futures, and the future of population data. Good on Koi Tū for making this case, and hopefully the government is listening.

*****

[*] And Paul Spoonley (one of the report's authors) and I will be working together on some further research looking in greater detail at regional population change, in the near future.

David Oks on the bad business economics of airlines

Airlines are a strange business. They seem to have huge numbers of passengers, and yet we routinely hear about airlines struggling financially, entering administration, or shutting down. For example, in 2024 in Australia, Bonza collapsed, while Rex withdrew from major intercity routes after entering vountary administration (see this post for more on those examples). The most recent example is Spirit Airlines in the US, which shut down this month, after its second bankruptcy process in less than two years.

I just discovered David Oks's Substack, which has overnight become one of my favourites. The post that first attracted me was this one titled 'Why airlines are always going bankrupt', inspired by the Spirit Airlines story. Another recent post titled 'Why ATMs didn’t kill bank teller jobs, but the iPhone did' is also excellent, as is 'How funerals keep Africa poor'.

Oks's airline post has a huge amount of depth, so is difficult to summarise without losing part of the story. However, I'm going to try (but I really recommend that you read his entire post, as it is truly excellent).

Oks first notes that airlines are not just badly managed, they are structurally vulnerable and often fail to earn a positive return on capital. He then turns to the game theory of airlines, noting that there is an 'empty core' problem, meaning that there isn't any subset of the airline industry that can form a stable coalition, because some part of the coalition would always be able to make themselves better off by breaking away from the coalition. In other words, no group of airlines and routes is stable for long, because whenever capacity is tight and fares are high, another airline has an incentive to add seats. However, once those seats are added, the market can quickly become unprofitable.

The 'empty core' arises because airlines have high fixed costs, low marginal costs, volatile demand, weak product differentiation, and large minimum efficient scale. All of that means that adding one extra airline on a route, or one extra aircraft, can swing a market from being undersupplied and profitable to being undersupplied and unprofitable. So, what happens in the airline industry is that when there are few airlines, they are profitable and happy, but that encourages new airlines to enter, after which profits decrease until one or more of the airlines shuts down. And then the cycle starts over.

As you can see, there is a lot to unpack from Oks's post. Again, I encourage you to read the whole post. But the key points are, first, that airlines are always going bankrupt because the nature of the airline industry lends itself to a boom-bust cycle when airlines compete with each other.

Second, from the perspective of airline consumers (and, probably, governments as well) there is an uncomfortable trade-off. We want low fares from competition between airlines, and we also want airlines to be financially stable, but it may be difficult to have both. The pursuit of low fares can set off the cycle described above, with competition pushing fares down, leading to falling profitability, and eventually one or more airlines exiting the market. Airline financial stability, on the other hand, probably requires some limit on competition between airlines. One way of achieving this is to regulate airlines more closely, closer to the equilibrium that existed before deregulation in the late 1970s and early 1980s, when regulators had much greater control over fares, routes, and market entry. Airlines segmented the market, flew fewer routes, and were profitable in part because they were not actively competing with each other. The other alternative is to recognise that airlines can diversify into other markets. Oks’s most striking example of this is Delta:

...the most profitable airline in the United States, which started a fruitful partnership with American Express in 1996 and launched a co-branded card with them in 2008. Annual spending on Delta-branded American Express cards comes out to about 1 percent of U.S. GDP. In 2025, this produced about $8 billion in revenue for Delta, accounting for more than the entirety of its profit. That means that without the American Express partnership, Delta would be operating at a substantial loss. In effect, Delta’s aviation business is a loss leader for a much more profitable credit card partnership. So to the extent that Delta is now a good business, it is because it escaped the basic instability of the airline industry by becoming less of an airline.

Allowing airlines to operate in a cartel-like equilibrium, as airlines effectively did prior to the 1980s, doesn't strike me as a very positive solution, especially from the perspective of consumers. Having airlines shut down at short notice, cancelling thousands of flights, is clearly not good for consumers either. Perhaps then we need to tolerate airlines that try to sell us financial services, or unbundling the airline package and separately selling seat selection, checked baggage, meals, and so on (see this post about Jetstar's business practices, or this one).

The economics of castles

When I'm in Britain or Ireland, one of my favourite sightseeing trips is to visit medieval castles. Even the ruined ones are fun to visit. Actually, maybe the ruined ones are more fun to visit, because you get to imagine what they would have looked like in their heyday. Britain and Ireland are full of castles, many of which were built by and housed local nobles. In fact, in relative terms there were very few royal castles, which the literature in history and economic history has interpreted as a sign that centralised states were weak.

However, this recent article by Desiree Desierto and Mark Koyama (both George Mason University), published in the journal European Economic Review (ungated earlier version here) challenges that view. They instead show that there was an economic logic to the proliferation of private castles.

Desierto and Koyama develop a game theoretic model of medieval states, which first recognises that the monarch cannot rule alone but must rely on a coalition of local lords or barons. Each lord agrees to join the coalition, and pledges resources to the monarch in exchange for a (however small) share of control of the kingdom. The monarch can renege on the agreement, taking the resources without offering a share to the lord. However, the lord would then rebel, leaving the coalition. What allows the lord to leave the coalition, and gives them bargaining power, is the presence of their own castles, since they can retreat to their castle when they rebel against the monarch. Without a private castle, the lord would have little bargaining power, and would anticipate the monarch reneging on any agreement, and so they would not join the coalition in the first place. In economic terms, the castle gives the lord an outside option. 

So, the monarch tolerates private castles held by the lords, because the presence of those castles gives the lords the feeling of security they need to join the kingdom. And, in turn, the presence of those castles disciplines the monarch. Rebellions are more costly to suppress when the lords can retreat to a well-defended private castle. The lords' outside option increases the feasibility of rebellion and ensures that the monarch mostly keeps to their agreement with the lords.

In short, the private castles induce an equilibrium where the kingdom is larger and more stable than it would be without them. Notice that this is the opposite of the conventional view that private castles represent a sign that a state was weak.

Desierto and Koyama support their argument with descriptive evidence, noting that:

In Norman England after the Conquest, castles were built across the country: by 1154 there were 225 baronial castles (compared to 49 royal castles) in England... Baronial castles allowed the Dukes of Normandy to extend their authority over the far larger territory of Anglo-Saxon England. Similarly, in the twelfth century Angevin rule expanded over much of France as semi-independent lords in Gascony accepted the lordship of Henry II.

Desierto and Koyama also note that powerful medieval monarchs did not act to systematically eliminate private castles, and in fact the monarchs often gave away their own castles to local lords. And the power of the lords did keep the monarchs in check - a lord's probability of rebelling against the monarch was positively correlated with the number of private castles in the lord's family network. That last point might sound contradictory, but since castles make rebellion by lords a more credible threat, this can deter monarchs from reneging and reduce the number of rebellions overall. However, when rebellion does occur, lords connected to more castles were more likely to participate in the rebellion.

So, if private castles were so important for the stability of medieval states, why did private castles eventually disappear? Desierto and Koyama note that:

The answer is military technology, not the rising power of the state. Technological changes and the associated ‘‘military revolution’’ that took place beginning in the late Middle Ages reduced the value of medieval fortifications. The main technological innovation was the introduction and improvement of gunpowder weapons, which began in the fourteenth century but only really began to have a serious impact in the fifteenth century with the introduction of iron cannonballs.

This is not a new insight, but it does align well with their model. However, it somewhat reverses the logic of the conventional view, which is that greater state power, along with military technology, reduced the prevalence of private castles. Instead, in Desierto and Koyama's model, the rise of gunpowder reduces the ability of lords to retreat to a well-defended castle in the event of a rebellion (because the castle could not be as well-defended against cannons). This reduced the lords' bargaining power, giving the monarch and the centralised state greater power. As a result, the state should become less stable. In support of this, Desierto and Koyama use the Wars of the Roses in England as an example:

England experienced a large number of rebellions and civil wars between 1450 and 1500. These conflicts are conventionally grouped under the label of the Wars of the Roses (1455–1485), but the period of weak state capacity and frequent rebellion extended from Jack Cade’s uprising in 1450 through Perkin Warbeck’s invasion and the Second Cornish Uprising in 1497. The causes of these rebellions were complex, multifaceted, and varied across cases. Nonetheless, the frequency of civil war during this period is consistent with our model’s prediction that a decline in the military value of castles would destabilize feudal realms.

And so, as gunpowder reduced the military value of castles, private castles became much less useful as a source of bargaining power for lords. That helps explain why the medieval pattern of widespread private castles gave way to state-controlled castles from the mid-15th Century onwards. Now, I'll be thinking more carefully about the vintage of the castles I visit on my next trip to Europe next month!

This week in research #125

Here's what caught my eye in research over the past week (which was clearly another quiet week):

• Sinclair et al. (open access) compile a dataset of monthly birth rates by maternal age and parity for the Australian state of Victoria over the period from 1983 to 2020, and apply a variety of different time series models to the data, finding that Australian family policy has mainly altered the timing of births rather than reversing the long-run fertility decline, and that the Australian 'Baby Bonus' led to only a short-lived impact, concentrated among second births