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New Zealand scores notoriously low on productivity measures and there is a big push to discover why.
The most recent research into productivity from Motu Economic and Public Policy Research Trust looks at the possible importance of intangible investment – elements such as R&D, employee training, marketing and organisational restructuring – to see what effect investment in these areas has on a firm’s performance.
The OECD recently found that investment in intangible assets is rising, and even exceeds investment in machinery and equipment in several OECD countries.
“Though researchers have found positive effects of intangible investment in other countries, we found no evidence that intangible investment increases productivity in New Zealand.,” said Adam Jaffe, Director of Motu and senior researcher on this project. “We don’t know if this is because of weakness in the data or real differences between New Zealand firms and those abroad.”
The figure below shows which types of firms invest in the different types of intangible investment.
Employee training and computer-ware are the most common, with around 70 - 80 percent of firms reporting such investments across different years. R&D spending occurs less than 10 percent of the time in most firms. Manufacturing is the exception, with a proportion of nearly 30 percent.
“The bigger a firm was the more it spent on intangible investment and the older a firm was the less it spent,” said Dr Jaffe. “Importantly, this kind of spending doesn’t seem to be related to past firm growth – investing firms are neither struggling nor flourishing.”
The study did find evidence that intangible investment is associated with increased spending on capital and labour inputs and firm revenue. Firms that invest also report an improvement in customer and employee satisfaction.
“So what we found is that if productivity improvement is the goal, encouraging intangible investment is unlikely to be a powerful tool,” said Dr Jaffe. “There are probably areas other than productivity that are more important in measuring intangible investment success.”
The Longitudinal Business Database contains financial data, merchandise and trade data, information on business practices and outcomes, along with demographic characteristics, business activity and performance. The research looked at 13,000 firms from 2005 to 2013 and their investment in research and development, employee training, marketing and organisational restructuring alongside measures of firm performance and activity.
“There is, of course, much more to investigate around what kind of investment leads to an increase in productivity, particularly around understanding how intangible investment translates or fails to translate into intangible assets,” said Dr Jaffe.
The independent report Intangible Investment and Firm Performance by Adam Jaffe and Nathan Chappell was funded through the Productivity Hub and Queensland University of Technology.
Motu Economic and Public Policy Research is an independent economic research institute which never advocates an expressed ideology or political position. A charitable trust, Motu is founded on the belief that sound public policy depends on sound research accompanied by rigorous public debate.
6 Comments
I wonder if the productivity metrics have lost their way over the decades. A financial trader sitting in front of a computer screen in London can clip the ticket on billions of dollars, pounds and euro every day, and appear quite efficient and extremely productive. A farmer tending his crops and cows to produce commodities so we can eat, not so much.
Agree, and with Workingman. Our service and government sectors (the huge majority of the economy) are now mostly fluff - professional sportsman, tattoo parlours, dog groomers, social workers and so on. What possible difference does it make how productive they are? It does seem strange that we can afford all this complete and utter nonsense but can't put a roof over our young families heads or afford future care for our old folk. What's up with that.
Chasing measures of productivity is a redundant exercise. The world is over-supplied with productive capacity. Whatever you make, in terms of tangible products, someone else can make more of them and more cheaply. For better or worse, whichever side of the fence you're on, or according to where your income's coming from, that's the fact - detriment or benefit - of globalisation.
And products no longer have the under-supplied markets they used to. (I'm talking about the parts of the world that can afford to buy things, or aren't mired in warfare.) Remember when products used to be called 'goods'? Like someone's first washing machine? That world has gone. So products (few of which are genuine goods) are promoted and sold according to intangible values - eg, sophistication or some such aspirational tag is attached to a car. This is why intangibles matter - because without them the products are not that competitively attractive. And it's why other intangibles, such as culture, IP, etc, matter to companies. Because the tangibles are endlessly replicable.
Not least, we are - in the developed world - moving from a consumer society to a conserver society. Productivity? Just how much environmental degradation and raw materials wastage do we think the globe can stand? And we're still thinking growth in tangibles?
Then there's debt. Suffice it to point out that growth has its legs in the air globally. More and more debt is achieving less and less in results.
Maybe instead of trying to give mouth-to-mouth to the 20th century dinosaur, productivity in tangibles, we should be looking for the factors necessary for a sustainable and half-civilised future?
And therein lies the crux of the problem. To achieve the sustainable and half civilised future, the first thing to change may actually be the belief in money and the current concept of wealth and not just by those at the top. I don't see that happening voluntarily.
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