Sunday, April 21, 2024

Dr Bryce Wilkinson: New Zealand's productivity puzzle

Imagine two farmers, each with a plot of land. One farmer finds ways to make his land just 1% more productive each year - a bit better irrigation, a new crop rotation strategy, or a slight improvement in fertiliser use. The other farmer, content with his current methods, sees no need for change.

Fast forward 20 years, and the difference between the two farms is dramatic. The innovative farmer's land is now 22% more productive, while the passive farmer's plot has stagnated. Which farm would an heir prefer to inherit?

This simple example illustrates the power of compound growth, a concept famously marvelled at by Albert Einstein, who reportedly called it the "eighth wonder of the world."

Just as small, consistent improvements can lead to dramatic long-term gains in farming, the same principle applies to a nation's productivity.

Unfortunately, New Zealand's productivity figures are troubling. Statistics New Zealand's latest estimates, released this week, show negative growth for the year ended March 2023 across all three measures - labour, capital, and multi-factor productivity.

Even more worrying is the long-term trend: decadal labour productivity growth has steadily declined from 1.9% p.a. in 2006, to a paltry 0.6% to 2023.

To put these numbers into perspective, let us consider their impact on the average New Zealand household. If labour productivity continues to grow at the current sluggish rate of 0.5% per year, the average household income from salaries and wages will only reach $92,000 in 2023 dollars by 2043.

However, if productivity growth is a robust 2% annually, that figure jumps to $124,000 – markedly helping future generations to afford a higher standard of living, a cleaner environment, and more leisure time.

So, what can be done to turn the tide on New Zealand's dismal productivity trend?

The answer lies in a concerted and sustained effort from successive governments, with businesses, and individuals able and willing to respond. Attracting overseas investment, reducing red tape to encourage innovation, and improving educational outcomes are all crucial components of the recipe.

Also important is helping those without jobs to find work and shifting people out of low-productivity roles, most immediately in the public sector.

The choices governments make today and tomorrow will have profound implications for the generations to come. By focusing on productivity growth, successive governments can unlock the key to a brighter future for all New Zealanders.

Just as the innovative farmer's land flourished through consistent improvements, so too can New Zealanders thrive by persistent improvements that harness the power of compound growth. The more the government focuses on productivity growth now the better the prospects for our children and grandchildren, who will inherit the New Zealand that current generations build.

Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.


Anonymous said...

Today, is productivity a valued objective pursued by ambitious and dynamic New Zealanders ( of all ages) because their education has given them the skills which equip them for this challenge?

Given the country now ranks last in the OECD productivity table, one is obliged to think not......Or, at least not in sufficient numbers.

Will this slide downwards continue unchecked? If so, with what consequences for the country?

Or, will people be told that the Maori Te Ao view of productivity ( whatever this may be) should be the new objective?

That is: will productivity meet the same fate as science?

Anonymous said...

Compound growth. That is the principle the brown clowns have been using - slowly but steadily destroying NZ. Jacinda gave it a kick along BUT the Luxons of the world just cant see it.

Mr. Sandy fontwit said...

Life throughout the modern industrial world has fallen into the grip of lenocracy—that is, a system in which pimping of one kind or another is the most common feature of economic life, or in less idiosyncratic language, a system in which every economic exchange is exploited by interests that contribute nothing to the transaction but must be paid off before the transaction can take place.
Lenocracy is a feature of all complex human societies, for much the same reason that every animal species has parasites: whenever freeloading on someone else’s labour and resources instead of doing the work yourself is an option, someone or something will be found to fill that niche. (Example:A friend had to pay 3 Maori "elders" $5,000 to guarantee there were no "bad" spirits in the forest behind his house before he could get on with building a simple 100 square metre addition)

Yet societies vary in the amount of lenocracy they tolerate. In particular, when markets are relatively free from the tripple-headed monster of huge business monopolies, Maori tribal corporations that don't pay tax, and metastatic government bureaucracy, people who don’t want to put up with the exactions of lenocrats can quite often do an end run around them, and this puts an upper limit on how far lenocracy can run amok. On the other hand, once they reach a certain degree of bloat, it rarely takes long for big business, Maori tribal corporations and big government to figure out that they can all prosper by supporting each other’s lenocratic habits at the expense of everyone else.

Once this takes place, the balancing factor just described goes out the window. Lenocrats in the private and tribal sector can demand more and more out of every transaction, knowing that lenocrats in the government sector will throw up barriers in the way of any attempt to get by without them. Business profits increase and so does the number of bureaucrats, while the costs are shoved off on the rest of society.

The only limit to the process is the one that the New Zealand is running up against right now—the point at which the sheer burden of lenocracy becomes so vast that it’s impossible for either the public or the private sector to cope with its problems, much less solve them. Under such conditions, nations collapse and civilizations fall; it really is as simple as that.

Anonymous said...

Question - where in productivity and lenocracy do absurd concepts such as snob based brand with prices for ordinary items and points programs fit in? These seem to create enormous money go rounds with very little underlying productvity related value. Add to that the 'collector's item 'mentality.

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