While many advanced countries have suffered from falling productivity since the Global Financial Crisis, New Zealand’s productivity performance has been lacklustre since the mid-1990s. Our productivity growth since 1996 has been a paltry 1.4 percent and our output per hour worked is 40 percent below the top half of OECD countries.
This is concerning since a country's ability to improve its standard of living in the long term depends almost entirely on its ability to raise its output per worker. In fact it has been shown that at least two thirds of global GDP growth since the beginning of the first industrial revolution resulted from increased labour productivity.
Source: OECD
The latest report from the Productivity Commission notes that the most productive New Zealand firms are less than half as productive as their international peers in other small advanced economies (SAE) like Belgium, Denmark, Sweden, Finland and The Netherlands.
However New Zealand has several idiosyncrasies that make direct comparisons with other SAE difficult. New Zealand is a small country with a dispersed population, and it is also more geographically remote from its trading partners than most of its small, advanced country peers.
This has meant New Zealand is less connected internationally and has not had the benefits of technology diffusion from foreign firms that other SAE have had. Most of New Zealand’s larger firms are servicing the small domestic market with very few exporters for a small remote country. According to the Productivity Commission, only 30 firms account for half of our exports. Domestically, firms are not exposed to competitive pressures of much higher performing international firms that might otherwise lift their productivity performance.
The tyranny of distance
There is no doubt that geographic remoteness affects the level of economic activity that can be achieved. The Australian Treasury estimates distance from major markets accounts for around 45 percent of the gap in labour productivity between Australia and the United States.
A 2014 Productivity Commission report on the subject similarly concluded New Zealand’s small size and isolation, limited domestic competition, clustering of economic activity and “the extent to which domestic firms are able to exploit opportunities for scale and specialisation” all of which are key drivers of productivity.
The also OECD released a paper in the same year that estimated New Zealand’s distance from markets plus persistently underinvestment in R & D by the public and private sector could account for most of the productivity gap with the average OECD countries.
Given that geographic isolation cannot be changed, are there are still things that can be done to improve our productivity performance?
Role of the government in productivity growth
Governments alone cannot “fix” the productivity problem but they can clear the way for productive firms to grow. Productive businesses need sufficient capital, people with the right skills and access to international markets. Governments can assist this by forming long term strategies to:
- Form close trade ties with our nearest neighbours and markets
- Reduce barriers to foreign direct investment including changes to tax regime
- Incentivise the development of industries that play to our natural advantages and are not precluded through remoteness e.g. agritech
- Create a culture of celebrating export firms
- Reduce regulatory requirements on businesses
- Encourage greater household savings
- Invest in business education to upskill our managers and digital skills for all workers
- Invest in infrastructure.
While changes have been announced on a number of these fronts (e.g. reforms to vocational training and infrastructure investment) these changes are not happening at a fast pace. Meanwhile the government has also introduced labour market reforms (e.g. minimum wage and Fair Pay Agreements) which the OECD warned in their 2019 economic survey are likely to further dampen productivity growth.
In addition, successive governments have enabled high levels of immigration without targeting this to close the skills gap of NZ workers. This has resulted in high levels of labour force participation but poor productivity and low wages.
Role of Business in productivity growth
Businesses also need to take responsibility for increasing their own productivity. The few highly productive, or “frontier firms” we have managed to develop have forged ahead rather than waiting for government assistance.
Businesses across the board need to take more responsibility for developing the skills of their managers and employees. New Zealand ranks poorly in terms of managerial competence compared to our OECD counterparts (Green and Agarwal (2011)). Management capability also plays a big role in whether technology is successfully adopted.
Other things businesses can do which will make a material difference to productivity include adopting new technology and adapting their business process to get the full benefits of this the technology.
According to a recent OECD working paper firms who adopted technology into their core business processes can achieve significant productivity gains both for the individual firm and the industry sector.
Productivity growth associated with digital adoption
Source: OECD
Digital Skills Shortage
The latest Digital Skills Report 2021 confirms that New Zealand has a huge digital skills shortage, and yet at the same time is producing too many under-skilled graduates.
The report highlights the shocking finding that in 2019, 3,265 students graduated with computer science, IT, or software engineering degrees, but only 352 were able to get internships, despite 2,699 registering. Meanwhile 2,683 visas were approved for IT professionals.
It is clear that businesses have relied on immigration to fill the digital skills gaps but have under invested in developing the technical skills of their own staff. In fact, “Less than 10 percent of large organisations and Government agency training was spent on digital technology upskilling”. This has been exacerbated by declining interest in IT and maths-related subjects for domestic students at both secondary and tertiary level.
Trying to be the best
In a global market, we are all ultimately competing on the world stage and we need to ask ourselves if our products, business processes and governance are truly world-class. Research from McKinsey showed that 75 percent of productivity growth can be achieved simply “catching up” with existing best practices. There is no silver bullet for improving productivity however New Zealand can achieve a great deal by aspiring to adopt work practices, processes, and technologies of our more productive international peers, while making a commitment to invest in the capabilities of our people.
With so much at stake, the question is what is holding us back?
*Alison Brook is from the Knowledge Exchange Hub at the Massey University campus at Albany, Auckland. She is on the GDPLive team. This article is a post from the GDPLive blog, and is here with permission. The New Zealand GDPLive resource can also be accessed here.
82 Comments
My partners IT firm has grown exponentially through COVID. Massive surge in staffing, they have gained close to 40 new staff and still hiring. Out of the 40, I am not kidding, they employed 2 NZs, every other person has been a student who got a work visa and has been idling since COVID. They are paid under what a kiwi would ask for, they have been working odd jobs in restaurants, cafes up until now. Only aim is residency. Can’t wait for borders to open so they can get family over. Some are actively moaning about they miss their family and NZ government is cruel and heartless. Meanwhile staff haven’t got a rise since the beginning of last year. Yes! Productive as! I can’t wait for the borders to open so they can all bring their family over!!!! New Zealand, a land where kiwis have no choice but to flee to find a decent living.
Like NZ in 80s, before the mass immigration, was the heaven on earth? NZ became a bankrupted country when it lost the ability to command lucrative prices for a captured market in the 70s, wool losing to synthetics and oil prices going up. Way before mass immigration. People love to blame immigrants for everything.
How would you blame immigrants for that? did they sneak up into NZ without anyone noticing? NZ is one of the very few countries on the planet who has a very small population of illegal immigrants. All immigrants, have gone through NZ immigration system and have been granted legal entry into NZ. How can you blame them for the outcome they had no control over?
How many times do I have to hear from an academic saying we need to be more productive!! Mass immigration was enabled in part by greedy universities more or less getting an education export subsidy.
This we need to get more educated narrative is tiresome. We have never been more educated in history on paper than in anytime.
It would seem we were more productive when we were formally less educated.
Obviously flawed.
Having said that, in Japan you don't leave work until the boss has - cultural imperative. So staff stay on for ridiculous hours into the night. Long hours but a lot of it is wasted - time serving rather than productive. This has long explained the higher productivity of Germany (a useful comparison country) than Japan.
We don't have a mentality of excellence in this country. The education system wallows in mediocrity - for those of a white hue it prioritizes guilt and self loathing, for those of other hues it sets the bar low - the ultimate bigotry.
It's why proud and self respecting ethno-states (China) will win the 21st century.
Well said!
proud and self respecting ethno-states
Reminds me how the Nordic people pride themselves on building great nations on a culture of innovation and hard-work.
Now their media is constantly shaming its own indigenous people as racist and burdening them with guilt for simply not having enough cultural diversity among its population.
Clearly, not serving well for Sweden so far... more to come!
A bit of farming and selling houses to each other. That’s about all we do. No wonder we are so poor as a country and our wages are so low. If you want a decent income you need to shift offshore. The current government don’t help. Our minerals stay in the ground and we import them. They are so average and only slightly better than National.
We are more open to foreign investment than anywhere on the planet. How can that be the problem?
That stat about IT internships is a shocker. It does fit with my own experience though, namely that very few firms are willing to train someone even when there’s no formal pathway for learning the work. I blame the proliferation of the HR industry for that. Important decisions about who works are in the hands of people who know nothing about the work, because it allows managers to cover their arses.
It was pathetic facing rejection as a uni grad with no experience for “graduate” roles paying $45k in finance to migrants in their 30s who had years of experience, engineering degrees and CFA charters.
Thanks to big-4 audit firms and Aussie-owned banks, and their informal policy to exclusively hire PR holders/NZ citizens for their grad rotation programmes, I managed to get my foot in the door.
The management at my uni lobbied hard to dissuade these organisations from this “unfair” practice since transitioning foreign students into jobs at the expense of Kiwis kept those degree-mills running.
YES! Am also in IT and knew about that stat and have been raging against it for a long time. Any org that doesn't have a good internship program really needs to think about it and I bring it up constantly with firms I am involved in.
Completely agree regarding HR and more broadly recruiters in the area. I can't remember a time when an IT recruiter added any value to any role or business. In IT we have outsourced HR to clueless middle men who do nothing but match worded requirements on one side with resume's on the other. Often they don't even do this, the number of times I have seen resume's come across managers desks of people completely not suited to a role only later to find out they excluded those that were, often for spurious reasons. Sometimes I feel like saying to them "Just give me everyone who applies", which some have done anyway, then leave all the requirements matching to the hiring firm anyway.
They are the ultimate ticket clippers, often the only added thing they provide is professional indemnity insurance (which you can buy online in 10 minutes) or timesheeting (which you can do in an excel template in 2 minutes). For all that trouble, they will easily get $10 per hour worked for a contractor and 10s of thousands for a permie. They are much worse than Real Estate Agents in my book - at least a REA is adding value by advising someone who may be new to the process around laws and is sorting out much of the organisation of open homes etc. Recruiters 90% of the time just get in the way. And the disturbing thing is recruiters are often smart people! They could be employed in real jobs and doing pretty well at them.
NZ has many small businesses. It's tough for them to take on inexperienced IT workers as that takes time out from the experienced workers for mentoring, checking, fixing. You need to reach a certain scale before it makes sense to do that. All the places I've worked at that have >10 developers do take on interns and recent grads.
Somewhat disagree with this, I think people believe the effort of getting a young person up to speed is well overblown. We had a company with 9 IT staff and we took on 2 interns. They had pretty average jobs to start with, doing some of the crap work that we didn't want to do, but had keen minds and the right attitude. We barely had to mentor them, they would sit around looking over our shoulders, go through previous work, watch training videos online, ask some good questions and within a few months they were junior developers. It's really not that hard.
What will it take to make New Zealand more productive?
I thought buying and selling house to each other is being productive as that is what government support and that is what reserve bank promote and is that not NZ economy in nutshell so what prodactivity is been talked about.
Can anyone make as easy and fast money as in housing and that too safely as support is guaranteed by prime minister and reserve bank has assured that has no intention to act on speculation infact if fear that ponzi is been affected adversely will go out with their now famous policy / approach of "least regret" and to avoid question can always take a sicky.
NZ = Economy = Housing = Government support = RBNZ Promote = Fast Money = Secured = Tension Free.
This is productivity for NZ and prosperity :
https://www.oneroof.co.nz/news/ponsonby-dump-sells-for-more-than-3m-at-…
Yes, this article seems an exercise in not mentioning the elephant in the room. How to encourage productivity?
1. Reward productivity instead of penalising it
2. Stop rewarding parking all money in property instead of productive business.
If we don't do this, we'll keep on getting low productivity. Bleeding obvious.
The most useful people I know have a good training background. (often trade). But that's often in a completely different area from how they contribute now.
We have developed HR recruitment practice that relies on tickbox for qualifications. (as per comments above) And allowed education to become a self serving industry, with immense padding to fill time and less content.
https://www.nzherald.co.nz/nz/minister-whacks-acc-over-decision-to-pay-…
‘ACC paid its executives $1 million in bonuses during peak Covid-19 austerity even though it followed "pay restraint" advice for its general staff.’
It's notable the two highest GDP per hour (USD) nations are tax havens.
Not the same $values: Amazon had sales income of €44bn in Europe in 2020 but paid no corporation tax.
A couple of things from above that knit together and fit anecdotally. Lack of Managerial competence coupled with the easy way out of using imported cheap labour.
Heard yesterday of a worker having been looking a giving up work as the manager she'd had was unrelenting with her roster so the cost of child care was a killer. New manager came along and actually manages things and suddenly lots of things are possible. Seen the same thing in horticulture, managers who only know one way bringing work down to the lowest common denominator. Perhaps it's because we don't train managers in most industries, I've known a lot of graduates who have been severely disappointed to discover that their industry never expected them to actually work at their profession but to be able to to manage workers within that industry. Fact is managing people is a specific ability, some like me have absolutely zero interest in it.
' A missing collective aspiration to be better, to trying harder, is holding us back'
Alison, Question is, Why is it missing and answere maybe that the entire focus is on housing.
Why in housing - when one observes that anyone involved in speculation are making million just by buying and selling than why look elsewhere.
Also is known that Finance Minister along with reserve bank governor will never touch the housing market.
If anyone of them deny that their intention is not to support the ponzi, their action proves otherwise and perception that government and RBNZ are all in to support the ponzi is not without valid reason.
Even if we look around ourselves, most conversation is around housing and am sure many will know of friends, who have put their business in a silent mode and are now concentrating more on housing business, where money is assured and also guaranteed.
This lead to a final question : Though we all know and most importantly government and RBNZ, what are they doing ....answere is wait and watch = Nothing.
Last announcement by RBNZ confirms that despite everything pointing / screaming for RBNZ to take action, they are in no mood to act. Just looking at their body language on TV confirmed, how uncomfortable they were as were asked to act against the tide by their boss, who excused himself.
To a 20-year old, the housing market looks like purely a path to easy money. With no evidence of hard work it seems like a lot of people have really got it made through housing, taking some risks at the right time and being born at the right time too.
It certainly doesn't inspire our youth to anything that will actually help the country.
Exactly.
Related to this, we have a culture of anti-intellectualism. Being articulate, smart and creative are not really things celebrated much in this country.
Rather, it's sporting prowess, and whether or not you are a 'good bugger'. Oh yeah, and how many investment properties you have.
I guess Aussie is similar.
The USA is different, at least in the bigger, more liberal cities. So too Europe.
The older I get the more I understand the human similarities, as a species, to a social insect. Never ask the question what is all this productivity for? The answer may be an uncomfortable revelation of how facile human existence really is. Keep feeding the economic superorganism. Never ask why?
In previous centuries mankind had religion as a theme for what life was all about. That has now, for most westerners, been phased out and this obsession with economic growth has filled the void. If we discovered a desert island where the people lived long, happy, harmonious lives but ran around in grass skirts, we would feel sorry for them because their GDP per capita was so low.
This is actually what happens in much of the world. For instance Western imperialism via colonialism did this constantly, or more recently the Chinese economic policies in Africa. "But we built their hospitals, gave them roads and raised their GDP!!". Yeah, but now they are depressed and have lost all sense of belonging and are having massive social issues that require even more infrastructure to deal with it...
Ask any development expert and they will sit in silent rage of the stupidity of such policies of the past and present.
Imperialism I can understand - generally multi-cultural sometimes evil (Belgium Congo) with military force and economic dominance etc. Its alternative is nationalism. So WW1 so Empires: UK, France, Russia, Ottoman, Austro-Hungarian and effectively won by a nation: USA. WW2 was mainly nations: Germany, Italy, Russia, Poland, Czechoslovakia, Greece, etc. Some nations also evil.
What I cannot understand is colonialism as currently used. When I was young it a colony was a group of breeding aliens - eg NZ, mold on cheese, Hong Kong, etc. Now it seems to be so general it covers Singapore and PNG, Fiji and Bermuda, Canada and Malaysia. If colonialism means cultural dominance then the USA is colonising SE Asia judging by use of language in Korean, Filipino, Japanese films. Colonisation seems to mean whatever you want as long as it is negative.
It's a great question. I hope I see the day when we actually face up to this question. For me it should be about: to increase human happiness/well being, but not at the expense of other species and environment. Plus to push forward into space so we aren't 100% reliant on one planet for our existence, which is highly fragile in a unforgiving universe.
And I think if we answer this question with something similar to the above and we structured our whole society and economic systems to support such goals, we would be very much better off long term. Problem is we have short term thinking from brains evolved to prioritise short term benefit. Combined with a tribal sense of self where we believe that our winning must mean everyone else loses in often zero sum games of stupidity.
A lot of careful training has gone into converting people into zombie like, growth obsessed, consumption junkies. It's learnt behaviour, it can be unlearned as well, but not with this continual barrage from "experts" that we haven't truely reached our potential, unless we produce more, earn more, consume more. Seems the past production, consumption etc now counts for nothing? Certainly that historical currency value has been trashed. The consumption sits in piles of mouldering waste somewhere and somehow this hasn't proved satisfying to the human beast. More is needed. Just don't think too deeply about what's asked. Or think at all! Edward Bernays knew a thing, or two.
First step is to get rid of this incompetent government and all the unnecessary compliance that is choking our hard working business owners to death.
In the not to distant future there will be a fifty fifty split in those working and those taking. Labour will have achieved there goal of mediocrity, apathy, and a racially divided New Zealand.
... I'm doing my bit ... always voting for the only leader in parliament who consistently makes commonsense .... David Seymour , ACT ...
I do wish more folks would wake up to the fact that the current Ardern government are an absolute disaster ... worst since Muldoon ...
Gummy bear, as a collective group of kiwis, we need to raise together and grow together. To say no to minimum wage rise Is just unethical in my opinion. Seymour thinks people should be paid less. How do we grow from there? He is pretty rational but gets some of the core basics absolutely wrong.
You only have to read this to see a very typical reason as to how bad the problem really is, mind boggling.
https://www.google.com/search?q=There+And+Back+Again%3A+Taxpayers+Shell…
No, that's a simplistic view.
Here's a good example. Think about dairy farming at the moment, requires fencing, lots of work by farmers to gather stock, lots of time required to check and monitor stock, early days and late nights for all that work. Big compliance costs for tagging and tracing cows. However, if we went big and introduced these everywhere: https://halterhq.com/
No fencing required (animals are trained and geo fenced and can be moved with an app or on automated schedules). Automated monitoring of lame cows and AI detection of cows acting strangely. No requirement for bringing cows in manually. Animals are tagged via their collars fulfilling all tracing requirements and disease management objectives. Less stressed stock (not chased by dogs all the time), increased on farm traceability leading to higher quality tracing requirements demanded by our customers.
Much of productivity increases can be technology related, leading us to have less need of inputs, allowing computers to do things they do best and freeing up much of our human capital for increasing value up the food chain. How many times have I heard farmers say they just don't have the time to do XYZ... well a solution like Halter gives them time back to improve their farms or spend more time relaxing, which is definitely what they need. Drones are another example in use in Central Otago as a smart replacement for sheep dogs.
Even a rat stop working (finding food) & become super lazy if you feed him at his bed. I don't think kiwis need to invent, create, explore, dream, vision, lead the world because it will take great amount of effort. Why to put effort when you earn by buying selling houses.
Your problem is housing not education quality, exploring space, encouraging start ups, selecting quality immigrants, scientific discoveries, finding Covid vaccination NADA.
Just Housing.
We need to go back to first principles and follow the money:
a) Implement environmental taxes and reduce taxes on labour and capital. (we have to diversify from farming further)
b) Level the tax playing field & further increase savings. Add land tax on housing (land) and do not tax the inflation component of savings interest (savings=investment)
c) Set a population strategy aimed at maximising marginal wellbeing per capita growth (i.e. maximise gdp/capita growth but taking account of externalities like zero carbon requirements, etc)
d) The population strategy will require an certain immigration rate. Let employers then bid for oversees workers to meet that immigration rate. They can choose to bid or train NZers instead.
e) Work with other countries to remove international tax havens (Luxemboug, Ireland, Swizterland & parts of the USA are nothing more than tax havens. Norway also near the top of the list has oil wealth)
f) Given how massively other countries apply R&D subsidies, NZ needs to find a smart way of supporting productive R&D more extensively than it currently does.
g) Require all central & local government spending to do through social cost benefit analysis to confirm it is "productively" adding to NZ's net wellbeing.
NZ's productivity debacle is deep seated, and multi-factoral. Similar in many ways to the housing debacle.
I think deep seated cultural issues are a massive part of it.
There's no remotely easy way out of it.
At least with housing a crash could have some impact on resetting the whole thing.
What is the point in The Productivity Comission? Every few years they make recommendations, then the government of the time dutifully ignores those recommendations and does what it was going to do anyway. The problem is that we don't really want a more productive economy.
To repair our productivity, you need to repair the incentives. Productivity isn't rewarded particularly well in NZ. There's far more reward in placing yourself as a barrier between people and their needs.
The solution is elegant in its simplicity. Land value tax: https://en.wikipedia.org/wiki/Progress_and_Poverty
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