New Zealand has gone from being one of the most productive economies in the OECD to being one of the least productive, according to the New Zealand Productivity Commission Te Kōmihana Whai Hua o Aotearoa.
That is not because productivity has fallen - there was little change in the trend - but other countries' productivity has grown faster.
This information has come in a new publication called "Productivity by the Numbers." This report does not break new ground but pulls together large amounts of research done over many years and puts them under one roof.
Some of the statistics date back 50 years or more, or even into the 19th century, and are designed to show how historic trends have developed over a long period of time.
"The numbers show that the productivity record of Aotearoa New Zealand leaves a lot to be desired," says the Productivity Commission Chairman Ganesh Nana.
He says working more hours and putting more people into work has been the main way that production and income have grown over the last decades.
“New Zealand has a relatively defensible record in producing more goods and services. But this has come from.....more New Zealanders working more hours."
Nana says productivity matters for wellbeing, because it enables investment in public goods and services that benefit everyone, such as schools, hospitals, and infrastructure.
The Commission's research contains information dating back to 1870. It shows New Zealand's economy was one of the most productive in the world, alongside Australia and the US, at the end of the 19th century.
But gross domestic product (GDP) per capita largely stagnated between 1970 and 1990, at a time when other countries were shooting ahead. Since 1990, New Zealand's productivity growth has improved but not by enough to catch up with the pack.
As usual, insufficient research and development (R&D) gets a lot of the blame. One graph shows New Zealand spending just a small fraction of its wealth, relatively speaking, on R&D compared with the OECD leaders, Israel and South Korea. New Zealand is also left in the rear by like minded countries such as the UK, Canada and Australia.
To make matters worse, New Zealand is "capital shallow." In other words, not enough money is put into products and structures that will be used for production in future years. In addition, New Zealand is near the bottom of the list in terms of how much machinery is used per worker.
The Productivity Commission report makes another point. The New Zealand population is reasonably well educated with a similar proportion of graduates here as in overseas countries. But the impact of this is diluted by the fact that a lot of New Zealanders live overseas, and have taken their skills with them.
The report finds some good things to say about New Zealand. There is a lot of trust in government by its citizens, relative to the OECD average, and this is important because people are confident that the results of their hard work will not be taken from them.
On the downside, the degree of trust has slipped in the last decade. On the other hand, the business environment is relatively good, with the amount of state regulation slightly lower than for other small developed economies like Denmark or Sweden. And the administrative burden on start-ups is relatively low.
In releasing its report, the Commission calls for a long term commitment to innovation and technological change.
"The Government’s efforts need to be focused, aligned, well connected to businesses, iwi, Māori, researchers, and workers," Nana says.
"Improving productivity requires investments to maintain, enhance, and improve the capabilities and qualities of the range of productive factors, institutional arrangements, and resources."
“As for any investment, this needs to be sustained and exercised over a longer term – across years, decades, and generations," says Nana.
24 Comments
Reposting from this morning:
NZ's low savings rate and domestic resources have shifted from investment and exporting to supplying non-tradeable output to satisfy government and household consumption. Higher imports have been necessary to meet demand.
This from a paper published by the Treasury back in 2010 raising red flags on the troubling roads our economy was being led down.
However, in the past 13 years, a combination of broken policies has led to a shift further away from "investment and exports" by flooding NZ with over half-million more consumers while the government has increased its "tax/borrow and spend" programme phenomenally. Core Crown expenses in NZ have literally doubled in 13 years from 64b to an eyewatering 128b.
Productivity declines are directly related to a lack of re-investment in R&D and technology, in favour of returns to owners and investors. Below is a very interesting watch from the Australia Institute in relation to Australia's productivity decline, and I imagine is the result of the exact same catalysts in all developed nations...
two comments
To improve productivity - education, education, education -and of STEM not the rubbish being promulgated in the new curriculum
Page 45 of the report - Reported productivity growth of the public sector has been low - and this matters because of the large outputs such as Health, Education, Transport and infrastructure build that the Crown is involved with. Crown is definitely a drag compounded by making efficient capital allocation difficult
Yes. When you look at what they are planning for stem subjects, that alone is a powerful reason to leave NZ. There are so many reasons to leave NZ now.
education system
home affordability
health system
wealth disparity
hopeless infrastructure
failing economy
a political system that does nothing for the general population
etc etc
our kids will get through ok, but the grandkids have no show.
It's a new buzzword that has been added to make the boring subjects more appealing to a wider audience of school students.
It basically means technologists and engineers should borrow thinking from arts in usual tasks such as thinking outside the box, designing a new product, etc.
And it will continue to fall while we have an economy based on low wage low skilled immigrant labour. It will only improve when we stop this and allow wages to rise. Only then will employers take productivity seriously. At the moment it is just too easy to import a whole army of cheap peons. Enterprises that choose not to adjust need to go broke. We are all better off without them. Self evident every body will be working for employers who are sufficiently productive and profitable to pay the best wages.
The finger can also be pointed at the banks, who would rather lend on 'low-risk' houses than on new businesses. It's very hard to get a small business loan in NZ, and even when you do generally it has to be backed with a house as collateral anyway.
RBNZ doesn't help, by setting the capital ratios such that houses are significantly lower risk than businesses, which in turn makes the big banks behave the way they do.
Neither of the main parties want to address any of this, low productivity for them is BAU. Despite often ridiculous rhetoric, neither has the guts to implement actual changes to things like the tax system, to encourage productivity. The further left leaning parties want to tax us into oblivion and the further right ones want to turn us into a libertarian utopia, neither of which have worked anywhere ever. Its time for the extreme centre party to come to the fore if we really want change. But most likely everyone will keep voting tribally for the same failed policies and wonder why nothing ever changes.
Productivity is an energy-efficiency ratio. Period.
Ask why NZ has slipped vis-a-vis others (apart from playing ponzi with houses, because that is a global issue) and the one factor is cost of transport; we're further from anyone, than anyone else.
It's a bullsh-t measure, though; one $70 barrel of oil does the work of 4.5 years of human toil. Yet this is about hunman toil - mere statistical noise.
Eric - you need to do some homework.
So many of the comments in the commentary section and the report are so spot on. We can’t overcome the tyranny of distance but we’ve scored own goals on everything else that could have helped.
Our politicians are simply useless and don’t give a damn about productivity per capita and there seems no way around this.
Really? No mention of the grotesque levels of immigration that New Zealand has endured over the last 20 years!
We say we need to do more to stop the brain drain, while actively causing a dumb flood.
Losing people from one side of the productivity scale while simultaneously adding to the other side has surely got to be the biggest productivity issue.
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