Tuesday, 2 July 2013

Today's symposium on 'Unpicking New Zealand's Productivity Paradox'

I mentioned yesterday that the Productivity Hub was hosting a day-long symposium on New Zealand's apparently poor productivity performance when compared with Australia or with the OECD as a whole.

It was a highly interesting day, but difficult to summarise let alone synthesise.

Preliminary thought - yesterday I described the 'productivity paradox' as being the strange situation where we had access to the same technologies as everyone else, but didn't seem to be as good at taking them up or using them effectively, and some speakers today also described the 'paradox' that way.

Some folks put it a bit differently, and think the paradox is that we have apparently a world-leading set of institutions and policies - secure rights for investors, ease of starting a business, low tariffs and the like - but don't appear to have the performance payoff we might have expected from doing all these good things. However you define the 'paradox', it's about a lower productivity outcome than you might have imagined we should have enjoyed.

Highlights for me?

I liked the presentation from Alan de Serres from the OECD, who documented that GDP per capita is heavily affected by how much you invest in both physical and human capital, by the amount of business R&D spending you undertake, and by much your economy is integrated into the world economy, this latter point being a particular issue for New Zealand as being on the far end of everything. There was quite a bit of coverage throughout the day on how much of a drawback geographical isolation might or might not be: the internet may well have reduced our effective level of isolation, but there were also arguments that while the cost of accessing overseas relationships may have gone down, the benefits from face-to-face proximity have also risen, so it's not obvious, net, whether distance has become less of a handicap.

Roger Procter from MBIE had a lot of interesting ideas, the two big ones (in my view) being a relatively low level of Schumpeterian competition in New Zealand (allowing a long tail of low productivity firms to survive, when vigorous competition would have seen them knocked off and resources freed up for more productive use) and a strange pattern in recent years of resources moving from high productivity industries to lower productivity industries. That provoked some debate, too: one possibility was that it mightn't be as irrational or backward as it looked at first sight, if (for example) resources are moving into new dairy farm conversions. They may not be especially productive, but they may be highly profitable at current high world prices. I expect we'll be hearing more from MBIE in due course about their estimates of the level of competition in different industries.

Geoff Mason from the UK's National Institute of Economics and Social Research, presented some highly detailed comparisons of sectoral productivity in New Zealand and Australia. For most industries, Australia is well ahead: on average we achieve only 62% of Australia's labour productivity. Geoff's been able to pinpoint how much is down to, broadly speaking,  better ways of doing things in Australia ('multi factor productivity'), which explains 58% of the difference; how much is down to Australians working with more capital equipment than we do (39%); and how much is down to higher skill levels in Australia (very little, as it happens, only 3%).

Helen Anderson reported on the Productivity Partnership's research into construction, which has had one of the worse productivity track records. It was notable for going beyond diagnosis and analysis, to putting up some tentative policy initiative ideas.

And Hayden Glass from Sapere Research Group had a lot of interesting things to say about how information and communication technology (ICT) could be used more effectively to raise productivity. Hayden's main points were that we have been stuck debating issues that have mostly been resolved or on their way to being resolved (access to broadband, take-up rates, pricing and the like) and that we need to concentrate on the big point, which is how to use ICT to improve business processes.

Physical attendees were given a USB stick with the presentations, so they are available in e-copies, but I'm not sure yet how much of all of this has been made available more widely online. If you're interested in following it up yourself in the meantime, you can contact Camilla Lundbak at the Hub secretariat, and if I find a link to the papers I'll post it later.

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