This is a column about productivity. No, wait! Don't go. I admit, the word “productivity” sounds less cuddly than “wellbeing” – a word we hear too often, but only Treasury and life coaches can define. See also “Circular Economy” and “Mindfulness”.
Productivity refers to a real concept: The amount of valuable products and services created with the stuff we put in. Productivity growth is about getting more from fewer inputs.
Having given Treasury grief for their decorative wellbeing work, I give them credit for hosting a global expert on productivity: Chad Syverson from the Chicago Booth School of Business, whom Treasury invited to talk about why worldwide productivity has been slowing for 15 years.
Productivity growth matters. A 1% increase in productivity is worth about $730 per person each year in New Zealand. Multiply that over 10 or 25 years, and you can see how growing our productivity means we don't have to make as many choices between “nice to haves” and instead we can have “all of the above”. Even more wellbeing, if that's your cup of kombucha.
For decades, our productivity has been growing more slowly than other developed countries.
We work longer hours than just about anyone, and our wages have stayed at about 70% of the average in like countries for decades. All the way through the 80s and 90s economic restructuring and pain: None of it changed our relative position.
We are used to explaining this away by saying we are too small and far away, and geography is destiny. Perhaps, but other countries are like us and prosper more because smallness and remoteness offer pluses as well as minuses.
Chad pointed out two explanations I haven't heard before.
First, our business management is a bit average. Economists have figured out a way to measure the difference that managers make to business performance. Using this data, Chad showed that half a dozen highly productive countries also have the most competent business managers. We don't have either.
Good managers attract the right talent, come up with new products, and can make tough choices.
Instead we reward our top dogs with whopping pay packets when they fail. First among equally useless, former Fonterra chief executive, Theo Spierings was paid nearly $5 million after the dairy company lost $675 million.
Which leads to Chad’s second insight. The importance of competition. We're used to thinking about competition affecting the price of products, but it also affects our national income.
In competitive markets, innovative businesses sweep away less productive ones, which is tough for the business that closes, but overall leads to resources being switched to doing things that create more with the same inputs. Competition causes innovation, boosts our wealth, and our wages.
Now think about most of the businesses you deal with everyday: Supermarkets, banks, phones, power, even parking companies. When was the last time you can remember one of them being put out of business by an innovative upstart? They're comfortable with barriers to new, more fleet challengers so they don't have to innovate as much to stay in the game.
Outside of the retail sector and some agile sectors like retirement care, most of our largest firms supplying the local market are comfortable oligopolies.
Our low national productivity is the result and the cause of our low relative incomes.
Chad reckons we have a chance to turn our productivity dial in the right direction. We're due some transformation, with too many kids going overseas because there’s not enough for them here.
We'll need to do much better at education, and devote a larger share of our economy to science, and R&D. When Singapore decided to become a biotech centre, it planned and built research institutes, lured global research companies and hired away underpaid PhDs – including from us. We need to create advantages out of our universities and science institutes, too.
Increase competition. Break up Fonterra. It has had its time to prove that it deserved its legislated protection from the Commerce Act, but it’s still stuck exporting 1950s raw milk powder.
It has become an organisation so far from its potential, it would need to enlist Nasa to reach it.
Prioritise selling more and better stuff to the world.
I heard the former US Treasury Secretary Larry H Summers explain why global trade is so important. If your local butcher has no beef, your response should not be to buy your own cow.
Better for all of us that the butcher finds alternative sources. Increasing competition provides us with more than alternative sources of beef, it also helps to turn cow’s milk into valuable medicines or the best cheese in the world instead of the cheapest...The full article is published HERE
Josie Pagani is a commentator on current affairs and a regular contributor to Stuff. She works in geopolitics, aid and development, and governance.
Productivity growth matters. A 1% increase in productivity is worth about $730 per person each year in New Zealand. Multiply that over 10 or 25 years, and you can see how growing our productivity means we don't have to make as many choices between “nice to haves” and instead we can have “all of the above”. Even more wellbeing, if that's your cup of kombucha.
For decades, our productivity has been growing more slowly than other developed countries.
We work longer hours than just about anyone, and our wages have stayed at about 70% of the average in like countries for decades. All the way through the 80s and 90s economic restructuring and pain: None of it changed our relative position.
We are used to explaining this away by saying we are too small and far away, and geography is destiny. Perhaps, but other countries are like us and prosper more because smallness and remoteness offer pluses as well as minuses.
Chad pointed out two explanations I haven't heard before.
First, our business management is a bit average. Economists have figured out a way to measure the difference that managers make to business performance. Using this data, Chad showed that half a dozen highly productive countries also have the most competent business managers. We don't have either.
Good managers attract the right talent, come up with new products, and can make tough choices.
Instead we reward our top dogs with whopping pay packets when they fail. First among equally useless, former Fonterra chief executive, Theo Spierings was paid nearly $5 million after the dairy company lost $675 million.
Which leads to Chad’s second insight. The importance of competition. We're used to thinking about competition affecting the price of products, but it also affects our national income.
In competitive markets, innovative businesses sweep away less productive ones, which is tough for the business that closes, but overall leads to resources being switched to doing things that create more with the same inputs. Competition causes innovation, boosts our wealth, and our wages.
Now think about most of the businesses you deal with everyday: Supermarkets, banks, phones, power, even parking companies. When was the last time you can remember one of them being put out of business by an innovative upstart? They're comfortable with barriers to new, more fleet challengers so they don't have to innovate as much to stay in the game.
Outside of the retail sector and some agile sectors like retirement care, most of our largest firms supplying the local market are comfortable oligopolies.
Our low national productivity is the result and the cause of our low relative incomes.
Chad reckons we have a chance to turn our productivity dial in the right direction. We're due some transformation, with too many kids going overseas because there’s not enough for them here.
We'll need to do much better at education, and devote a larger share of our economy to science, and R&D. When Singapore decided to become a biotech centre, it planned and built research institutes, lured global research companies and hired away underpaid PhDs – including from us. We need to create advantages out of our universities and science institutes, too.
Increase competition. Break up Fonterra. It has had its time to prove that it deserved its legislated protection from the Commerce Act, but it’s still stuck exporting 1950s raw milk powder.
It has become an organisation so far from its potential, it would need to enlist Nasa to reach it.
Prioritise selling more and better stuff to the world.
I heard the former US Treasury Secretary Larry H Summers explain why global trade is so important. If your local butcher has no beef, your response should not be to buy your own cow.
Better for all of us that the butcher finds alternative sources. Increasing competition provides us with more than alternative sources of beef, it also helps to turn cow’s milk into valuable medicines or the best cheese in the world instead of the cheapest...The full article is published HERE
Josie Pagani is a commentator on current affairs and a regular contributor to Stuff. She works in geopolitics, aid and development, and governance.
1 comment:
The term Productivity, like GDP, CoL Index, CPI etc is fraught. Overall net sold output may increase per hour of input, but this does not recognise the inherent worth or not of the output. It includes repairing ram raid damage, cone shepherding, the loafing guarding of libraries, WINS offices, te reo teaching etc. Not distinguished from hip replacement surgery or building of flood resistant bridges etc. not only is productivity growth slow, but seems much of it is just make work.
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