Monday, November 6, 2017

Stephen Franks: NZ’s productivity mystery not mysterious to me

I’ve been musing on the official puzzlement about our country’s woeful lack of productivity improvement. 

It turns out that for years our productivity has barely improved. In other words we are generating too little more per head than 20 years ago. Our GDP has grown, but disappointingly little more than population growth.

We have a whole Productivity Commission to agonise over the issue.

Croaking Cassandra (Michael Reddell) offered a shockingly non PC theory last year, that it could be because of excessive low quality immigration. If I correctly distil what I’ve taken from his writing it is that our natural competitive advantage has been in our high productivity rural base. Our urban lack of competitiveness (distance, inefficiency, whatever)  has been subsidised by rural efficiency enabled by having few people using large areas of land.

It’s a puzzle to economists because we’ve seemed to do so many things  right:

  • our economic reforms have been lauded;
  • we rank high in the ease-of-doing-business ratings;
  • we are low on corruption – a handicap that undermines even the best resourced people;
  • we’ve bought lots of gee whizz capital equipment that should make us more productive;
  • we’ve invested in fast internet and lots of computing power;
  • we’re keeping kids studying for much longer;
  • we work long hours – 6th highest in the OECD for average hours worked;
  • we have one of the highest engagement rates in the OECD (proportion choosing to work);
  • we have one of the lowest unemployment rates in the OECD;
  • we’ve had 8 years of stellar performance compared with the countries that panicked after the GFC.
One can think of things that could have negated the benefits. For example:

  • we’ve been buying capital equipment with foreigner’s savings – the same kit is available everywhere and the goods it produces have been dropping in price accordingly;
  • while we are not yet corrupt, our lawyers and courts have become constipated. It is too expensive  to enforce simple contracts and a massively bigger legal establishment feeds off the uncertainties that come with its self-asserted discretions;
  • instead of upgrading tertiary staff quality and resources our “investment” in education has been diverted through free student loans to bribing more kids to eat and drink more while studying, teaching them that debt does not matter and then exporting many of the brightest and best;
  • many now going into tertiary education might be just extending their time of juvenile irresponsibility and dependency. They’d have learnt more on the job from people who do;
  • the international measures of ease to start a company etc do not pick up changes in the time wasted on fruitless compliance and virtue signalling that has never had proper cost-benefit assessment;
  • many health n safety measures require new supervision, and plainly pointless costs that induce worker cynicism about efficiency, and deprive ordinary workers of  autonomy, initiative and personal satisfaction;
  • a low jobless rate means marginal engagement of many of our most useless workers. The feral marginal workers may be nobbling the productivity of both employers and their fellow employees;
  • the burden of dealing with “work unready” people is magnified across the economy by the steps all employers must now take to minimise exposure to our most stupid lawyers and judges. They’ve  created deadweight employment costs for no benefit, even to those they claim to protect;
An economist might be able to say whether any of the above are readily testable.  It interests me that the Productivity Commission has shown no apparent interest in the vast increase in the proportion of our intelligent and anxious people doing ruler/lawyer/judge/police/security type work – essentially bossing other people around without any skin in the game (rulers who bear none of the costs they impose from over or under enforcing).

Ordinary workers have been emasculated, to use an old term deliberately. They must  work under managers terrified into generating back-covering records of close supervision. Much of it has been developed without any proven safety gain, and certainly no cost benefit evidence. For example, a recent study  suggests that scaffolding costs are adding appreciably to housing costs, to stop workers falling from single story buildings, when:

  • figures show that was a very rare risk;
  • the cost per life saved may be $180m, over 50 times what we consider the proper test for spending to make roads safer;
  • no account has been taken at all of the extra death and injury flowing from householders doing their own roof and wall painting work, because they can’t afford the scaffolding cost.
But there may be an even more simple contributor to our sorry productivity figures. I’d be interested to know if my impression chimes with what others are experiencing.

Last Christmas I concluded that we were in the midst of a serious culture shift when tradesmen friends sent details of when they would be back to finish a project. I’ve seen more this year from the roads on Fridays before a long weekend. I’ve never seen such full mid-week carparks at Mt Ruapehu, and many of the vehicles have work logos. I saw it last Christmas in the the emailed out-of-office responses to my messages. And this year in August, and again recently during the school holidays, my inbox had numerous out-of office responses.

I’m convinced that many more of us are informally taking much more time off. Many tradies seemed to close a week before Christmas, and come back only for the full  fourth week of January. Families that would have previously taken time away, now expect both parents to go during the year, when in the past it might have been only over Christmas.

I do not think it is just my age group. Friends with school age kids report that class-rooms are often noticeably emptier on days attached to long weekends. It is easier to pick their kids up, because so many families have gone before 3 pm. In Auckland they may have become accustomed to that, because of the terrible traffic delays before long weekends. But I hear that schools in other cities are not immune.

Young friends, and German and French work visa woofers we’ve hosted just love what they call NZ’s “laid-back” approach to work. They think it is remote from what they will return to.

Are only our self-employed taking more time off? Are other employees insisting on the same, without pay? Or accepting that employers who allow more leave will probably not offer pay increases. Is the trade-off overt? My impression is that it is not confined just to my baby boomer friends still working but taking much more time off.

Perhaps employees in a tight labour market are taking more unauthorised advantage of “glide time” or other twilight allowance time. Will they see that as compensation for lower pay increases? Perhaps what were once disguised as “sickies” have become mainstream and regularised.

Maybe most of us are not as materialistic as the Greens feared.  There has always been a worry that NZ business don’t grow big because the founder’s  ambition is beach, bach and BMW. Once they get comfortable, they take things easy.

It is pretty tax efficient for individuals. The current system can’t tax income we haven’t generated. If we’ve subconsciously  decided to take more leisure instead of increased income it may be very hard for any government to stop us.

If this is a collective move, I applaud it – as long as those who have been depending on an ever increasing pie understand that it might not come. Other countries have suffered similar experiences. The Scissors Crisis occurred when Lenin freed Russian peasants from their landlords. The young Soviet government was shocked when production dropped sharply as peasants decided on some leisure instead of the backbreaking work needed to grow enough to pay the rents.

History has accounts of taxes imposed on populations solely to force them to earn money, because they were too happy with subsistence and preferred it to working. Will wealth taxes be imposed to force us to work our assets?

Can the Productivity Commission measure whether we have quietly decided to forgo income increases? Is it widespread? Is it a response to less work satisfaction? Or just a privilege in a society that genuinely does not place high value on being rich?

Stephen Franks is a principal of Wellington law firm Franks & Ogilvie and a former MP. He blogs at


Brian said...

Three cheers for this analysis and the exposure of our sanctimonious idea of our employment situation.

It was a modern interpretation of Robbie Burns’ “To see ourselves as others see us”.
Our “Productivity Commission” needs either scrapping or a removal of anyone on that body, who has no experience of business. That means those bureaucrats who have, and are destroying our capability to trade successfully by instituting more and more rules and regulations to justify their existence.

All it seems to many in power in New Zealand is to tax indirectly and directly and borrow to maintain a standard of living that we are not earning. This increase in debt will avoid the painful necessity of any re-adjustment by a sustained period of austerity; at the same time reducing any possible electoral debacle.

The cost of any non re-adjustment will mean that future generations will be landed with an unsustainable probably un-payable debt against our economy. Our descendents will therefore inherit a Greek tragedy, without any “Mother European Union” to affect a bail out.

Our real tragedy is that the only real saviour is our ability to produce food, namely our agricultural exports. Now this is totally threatened by the Green aversion and policy towards “Dirty Dairying”. This will be followed progressively with an attack on the sheep and beef industry (pollution again being the banner, probably to gain more traction in cahoots with the animal rights movement). What next the horticulture industry, sprays, noise, etc?

We have an ever increasing disincentive to work in New Zealand which is initially coming from our adoption of “Bureaucratic Communism”. Until we realise that only by drastically reducing both Central and Local bureaucracy to a realistic economic level, will we give our business community and work force the necessary tools to do the job.

Bill Treuren said...

The one you missed is climate change cost.
We in NZ have built wind farms and solar panel installations while at the same time taken to bits gas fired power stations.
Even if you believe that CAGW is real the tipping of money via subsidy into this sector reduces productivity.
Since 2000 the cost of electricity has risen by 150% to the house holds of NZ it can be argued that that a 50% is realistic but that and the industrial electricity cost increase must have reduced productivity and lifted "poverty".

colmac said...

Right on Stephen. I would add to your list a couple of small (at n individual level) items. First, morning and afternoon tea breaks taken in the local café rather than in the workplace facility. Second, leaving the office for a cigarette, out side of the paid tea breaks.

Anonymous said...

Gst registering was set for high earners. The threshold did not change in the time it took to start it and so a lot of small people got scooped into unreasonable costs. Similarly with the tax bands wher if you earn 5 dollars more you go into a higher tax bracket and actually lose money. As an employer if I paid staff more they promptly paid more tax and if I earned more I paid more tax. = don't work so much. This killed initiave. The last govt. talked about a lowering ?? all they had to do was raise the Tax rate bands (this should have been easier to do ) and a pay rise would actually go to the worker. They missed that boat.

Clunking Fist said...

This isn't a problem totally unique to NZ, though, is it? Could it be the age old problem of measuring productivity in the service industry? More and more of us are in the so-called service sector. We don't produce physical "things", so how do economitsts measure output per worker? Especially when, for a lot of things, prices have gone down.

I like Brian's “Bureaucratic Communism”. It is the slow (and sometimes not-so-slow) increase in regulation. Every now and then we have to have a purge and reduce the ridiculous mass of red tape.